The most successful business people of our time all discovered very early on in life the importance of being able to leverage their time and efforts. When it comes to your personal CFD trading portfolio that same rule applies and in particular we’ll be looking at how it applies to the larger stocks like the ASX top 20.
Is your CFD Trading Business scalable?
Imagine operating a business whereby your upside potential is limited. You poor you blood, sweat and tears into the business only to realize down the track that your business cannot scale up along with the popularity of your product. Your CFD trading business is no different.
Your mindset needs to be ‘How would I be trading if I had $1 million under my control?’ and its with this mindset that eventually shapes your trading methodologies. With a $1 million trading float there is no way you’ll be trading the small cap stocks in the bottom 500 as you’ll be making the market and dropping thousands of dollars in slippage every month.
Instead you need to think like a hedge fund manager with over $1 million under your control. Liquidity is now of prime importance and so you need to be developing strategies based on the top 20 ASX stocks. Stretching it out to the top 100 could be on the cards but by focusing your efforts on the top 20 you’ll never run into troubles with getting in and out of those positions.
Analysing the top 20 stocks to locate your trading opportunities
One of the key differences you’ll notice about the top 20 ASX shares is that they aren’t as volatile and have smaller daily ranges compared to the more active low cap stocks. It goes without saying that a $70 stock has to do a lot more to move 10% than does a 20 cent stock. As a result your trading methodology for the top 20 will be slightly different and should look to take advantage of the fantastic liquidity presenting itself. This may mean you trade larger positions sizes for smaller daily to weekly moves.
By starting out at the big end of town you’ll find you can concentrate on fewer stocks, get to know them much better and develop a better intuition when it comes to trading them. By spending time here you’ll also get the mindset of the right position sizing methods to best achieve your trading goals.
Short Selling used to be the domain of only the professional or sophisticated investors/traders who had access to a full service broker and didn’t mind paying the exorbitantly high brokerage rates. Since the introduction of CFDs around the world for the retail trader, we now all have access to the simplest possible way to short sell for profits.
So what exactly is short selling?
The ability to short sell is the process of selling something you don’t own with the hope to buy it back at a cheaper price sometime in the future. As opposed to products like Futures or Options, there is no time expiry on a Contract for Difference so you can hold it for as little or as long as you like.
What are the costs involved when looking to sell short?
The CFD brokers actually pay you for short selling which usually startles most people when they hear that. If you are trading an index CFD or a commission free product, then there are no brokerage fee’s associated and you normally earn interest for every day you hold the position short. It’s an amazing concept and one that most people struggle to get their head around.
Selling first and buying back later (hopefully cheaper)
Your goal when short selling with CFDs is to sell say at $12.00 with the hope of buying it back at a cheaper rate of say $10.00 and profiting the $2.00 difference. Whilst most people try to complicate the process, short selling is just the exact opposite of trading long and you’ll pick it up very quickly.
Why is my potential loss unlimited?
As with trading long, trading short involves using sensible stop loss strategies and effective money management. The biggest downside with short selling is the potential for unlimited loss as a stock can continue to rise much more than you and I have money to cover. When trading long the worst that can happen is the stock goes to zero and you lose everything but with short selling the position can continue to rise against you for a long, long time exposing you to potentially unlimited losses. Some of the greatest portfolio blowups of all time involve short selling.
The rule of thumb with trading generally is to always protect your downside risk, trade within your means and always use stops and sensible money management. If you stick to these broad and effective rules, you won’t be too far away from consistently making money in the markets. Good luck with your trading.
I was talking a with a trader the other day who is struggling and he mentioned a tendency that he has. I think all of us have done this at some time or another, but if we don’t grow out of it, it WILL end our career.
The problem could be described as Risk Spikes. They win slowly and conservatively, trading by their rules and risking a small amount of capital, but then all of sudden they get sick of the slow capital growth. Instead of realizing that by waiting another day, a month or a couple months their positions will continue to grow in size (proportionate to their account), they charge into a trade taking excessive risk and gambling on making a big profit to speed up the process.
Let’s face it, this may work and give us a nice bump in the account. We may even be able to do it several times in a row and we promise ourselves this will be the last time. But the psychology which starts that need to speed up the process does not just go away. It needs to stop completely and never be done.
If Joe-Trader is day trading 200 shares, and collecting small profits, those profits will grow and over time we will be able to trade more and more shares (and more and more money). But if he trades 200 shares, and then all of a sudden grabs 1000 shares on a particular trade (assuming same price area, volume, volatility and all that) it has the potential to wipe out a lot of little profits if the trade goes sour.
There is strong desire in certain people to say “I can afford to take the risk.” In life we do take risks, and often they pay off, but if we want to trade as a career for the long haul, if we are saying this to our self it is obvious we are about to deviate from our trading plan. Our trading plan which was created when we weren’t under stress or pressures….created when our mind was clear and logical.
Every trade has risk attached to it. We know this. We have a standard level of risk we take on each trade that will not do much harm to overall capital. If we start to say “I can afford the risk” we are likely planning to do something that is well beyond what we normally risk. We are groping for reasons to make the trade and this is not a good sign.
In circumstnaces like these take your standard position. Then, tell yourself that if it moves in your favor you will add to your position (in alignment with your risk tolerance) when it passes through another critical level.
Don’t give respect to a move that hasn’t happened yet. Let it impress you with what it actually does, and when your original position is onside you can add to it in a conservative way. Risk spikes will only bring frustration, regret, stress and an empty account over the long run.
~Cory Mitchell, CMT
Follow the Trend But Don’t Get Attached to It.
If you would like to know more, are interested in learning how to start trading, need help with trading methods or want to know who to trade with, visit me at http://www.vantagepointtrading.com.
You will have access to tons of free information including multiple FREE day, swing, and long term TRADING SIGNALS.
The financial services industry is full of individuals and companies that specialize in creating and recreating trading methods that are marketed as ways to help traders and investors make money in the financial markets. It seems like there are an unlimited amount of indicators and oscillators designed to help traders determine whether they should enter trades, exit trades, or wait for more confirmation before entering a trade.
As a professional trader, I have made and lost money trading all of the primary markets, including stocks, futures, options and foreign exchange currencies. After using almost every indicator available, I have found that analyzing pure price action has been the most reliable and consistent way to earn a living from financial trading.
WHAT IS PRICE ACTION?
There appear to be varying although similar opinions about the true definition of price action. But based on my interpretation, it is basically the general direction of prices. Range bound or choppy markets can make it more difficult to analyze price action, because there is no definite direction in which prices are moving. Price action can also vary, depending on the time frame that you are looking at. An uptrend on a daily chart could appear as a correction or a retracement on a 5 minute or 1 hour chart. That is why it is important to understand the time frame you are trading in relation to the larger or long term trend.
ARE INDICATORS USELESS?
From my personal experience, using a few indicators can help confirm price action, or cause a trader to re-evaluate previous opinions about the price action of the market that is being traded. Moving averages can help, and there are software programs that use algorithms and various other inputs to try to reasonably confirm and predict price direction. During my evolution as trader, I have gone from having a screen full of colorful lines, dots and blinking lights, to a simple screen with just a chart and 1 to 3 indicators as a maximum. I have found that I have been more profitable just using a few indicators. Most brokers provide platforms with free indicators, but as of this writing there is usually a charge for trend analysis services or services that generate buy and sell recommendations or signals. If you use any services to help with trend or price analysis, make sure that the provider gives you a FREE trial or at least provides a time frame to allow you to try the service at a reduced price, or get a refund if you are not satisfied.
As a trader, I have considered and tried everything from fundamental analysis, to using a screens filled with too many indicators, which just caused more confusion.
It sounds too simple, but analyzing pure price action with just a few indicators has brought me the most success and consistency as a trader.
Good luck and good Trading.
Online investing has become one of the recent trends to which a lot of people are getting attracted. The traditional way of investing in stocks, real estate, and other investment schemes can also be done online thus helping you save time and money that can be used for other purposes. One of the types of investing that has been gaining a lot of popularity is the dollar based investing.
You will hardly find stocks round in number. In other words, not often you might have heard that $30 stock is available. However, you can stocks in the following manner i.e. not in whole number $13.45, $32.12 and $134.43. The cost of the shares is always the number of shares multiplied by its price. For example, if the price per share is $18.24 then you buy 20 shares for 20 x 18.24 = $364.8.
In dollar-based investing, the investor purchases the stock or different investments in a dollar amount you decide rather than purchasing in the multiples of stock price. If you think of investing $125 in a month, the amount of money you put does not usually purchase accurate whole number of shares. What you are doing is that you are purchasing $125 worth of shares. For instance, for a stock that is price of $18.25, your $125 will get you shares of a stock priced $6.85. What you can do is buy shares in fractions such as one quarter of a share.
Dollar-based investing can be a very good decision for an average investor who desires to spend consistent amount of money on long-term basis in the stock market. Most people do not have huge amount of money to invest at one go. However, the dollar-based investment allows one to invest spend in the stock market in small fractions.
The main reason is that very few people are able to save enough money that can be spent on buying stocks. By investing small amount at a time, one can easily save and invest simultaneously. It is also a wonderful way to learn about investing in the stock market.
Like other investment schemes, even this one has a drawback of the risk associated with it. Hence, you need to know the market trend properly and choose stocks wisely. Another way of earning handsome income regularly through your home or office computer is two tire affiliate marketing. You do not have to worry about the risk factor in this business but hold on to your horses well because you will have tough time managing the amount of money you have earned through it.
At a recent trading convention two well known traders discuss the ins and outs of trade exits. Read on to find out how successful traders make their trade exit decisions…
Mark McRae is surprisingly forthcoming about his worst trade experience when asked.
On one occasion he explained, I was long on the euro, and I was long for quite a large amount – and I got a visitor come in from nowhere. So instead of closing the trade – (or I thought I closed the trade by going short)- I actually bought again. So after a few hours, my visitor had gone. I can’t remember the exact amount, but I was down $20,000 or $30,000 on this trade, and it was one of the worst trades, not because of the amount I lost, but because I couldn’t believe I was so silly about not checking it. With this particular trade, I left it, for about four hours and watched it, and eventually got out with a loss luckily!
On the other hand, one of his best trades wasn’t in the Forex market. It was in the indexes where America had a surprise rate increase. Mark just happened to be the right side of the market. “I couldn’t believe it. It took me about five minutes to figure out why I had almost tripled the amount I was trying to get that day, (which was very nice of course). I think that was one of my favorite trades. I was on the phone to the broker, and I was arguing with the broker about the price that he had given me. Actually it was the NASDAQ. And he said to me, they’ve just changed the interest rates. Do you want in or do you want out? He said you get ten seconds. I said, ‘I’ll stay in.’ And I didn’t really know it, but I was trying to figure out in my brain whether this was good or bad, but I said I will stay in, and then there was this huge leap, so that was definitely one of my nicest trades” Mark advises.
So How Does Mark Decide When To Make A Trade Exit?
When something unexpected like the NASDAQ experience occurs, it’s almost like a windfall. He then went on to explain that he got out about five minutes after seeing the peak. It wasn’t technical at all, he just thought whoopee, this is good, and closed the trade.
But that’s not how he trades now. Mark has refined his level of patience now. “You know, the big fluctuations don’t frighten me anymore. And also, I don’t know if you find this, but I’m very often on the wrong side of the market when I go in. In other words, I don’t go into the market, and then immediately I am successful, or the trade goes in the right direction.
Very often, the market will move against me for a bit, so I’ve got to be comfortable with the market moving against me. It doesn’t scare me anymore. Although this does take discipline to stay in long enough and not panic and pull out. Obviously, it takes a lot to frighten Mark out of a position. He now makes up his own mind when to make a trade exit based on his target established.
Mark advised us that for a long time, he used to trade indices. The reason is because this is a much faster moving investment. Previously, Mark believed Forex was fast until he started trading the SMP.
Mark explained that exiting trades requires a plan and established targets so he knows what to head for. Generally speaking, due to Marks experience he tends to use the stop losses as the orders to get in and out of a market as a safety valve.
An example of this is if you look at the recent break in the dollar – you’d be crazy to get out of the market. Mark explained it just kept dropping like a brick.
Investors looking to remove the emotion associated with trading their hard-earned dollars need to rely heavily on price and volume patterns as well as other technical indicators. Three of the most well-known technical indicators will be discussed here, each of which can provide support for a new trading decision or hints as to where one might find a trading opportunity.
The three most popular technical analysis indicators are:
1. Moving Average. The moving average (or MA) provides insight as to the whether the underlying security (be it a stock or commodity). Depending on the average being used, the specific point where the security is trading could be considered overbought or oversold and can make or break a trading position. Obviously, traders will enter a position with caution if the moving average does not support the security price. With that said, the Moving Average is considered one of the most heavily relied upon technical indicators.
2. Bollinger Bands. Bollinger Bands us a moving average as well as the security’s standard deviation to provide a visual representation of the range in which a security price should trade. These three lines represent the high, mid, and low point where the security should be. Obviously, if the security finds itself trading at or above the high band, then a trader is more apt to steer clear of going long. Likewise, if the security is trading below the lower band it is quite likely he or she will avoid a short position.
3. Head and Shoulders Formation. As a classic technical indicator, the head and shoulders formation is one of the most reliable tools in the technical analyst’s toolbox. Given its highly reliable nature, many traders will positions based on this indicator alone. Briefly, the head and shoulders formation is a series of three peaks or valleys (depending on whether it is a bullish or bearish indicator) that has added strength based on the underlying security’s volume patterns.
Despite technical analysis removing the emotion from any given trade, it does not stand on its own in terms of whether to buy long or sell short. Investors still need to rely on fundamental analysis to support their trading decisions. Much of this fundamental information can be located for free online.
Day Trading and Investing is challenging in the best of times. Those trying to learn how to day trade or invest discover something very early on in their (often short lived) careers:
The stock market is cruel, unsympathetic, and indifferent. It’s also an expensive instructor. Wall Street lures in new suckers every single day – chumps who fall for the siren song.
“Come on in, the water is FINE”
We’ve all been seduced by the Markets at least once in our lives. So why do we keep falling for their lies, over and over again? Right now, Wall Street is trying to lure us towards the rocky cliffs. And many of us, being the lemmings that we are, will smile as we walk over the edge.
Of course, when I say “we”, I mean “you” – as in you people who can’t think critically for yourselves.
The latest market rally seems to be setting up “buy and hold” investors for another bloodbath. Day traders just sit back and smile, thinking about the volatility that is right around the corner. The Dow is back over 10,000, the S&P is well over 1000 – it’s as if the markets are baiting investors into a trap. “Hurry, jump on the boat, before you MISS the recovery!” is Wall Streets latest sales pitch.
The question becomes – is this really the recover? Or the mother of all Bear Market Rallies? Do we REALLY think that the pain is over? Is it all butterflies, roses, and sunshine from here? You can decide for yourself, but for me, I don’t believe it. I’m not buying the hype, I’m not falling for the siren song.
Consider this: Since the March lows, the S&P is up over 60%. Do you really believe that there is that much more top-side above and beyond this? Can this thing really run for another 40%, 50%, or more? Or are we due for a major retracement/correction?
Considering the still flaccid state of the economy, my money is on a retracement. Of course, this introduces fabulous day trading opportunities, for those who know how to take advantage of market turbulence, especially in a falling market.
Also, while the residential real estate markets seem to be starting to stabilize and bottom out (MAYBE), we are just at the tip of the iceberg on the Commercial Real Estate meltdown.
Commercial Real Estate has tanked in the last year. But there is more pain just around the corner – much more. Look for further plummeting commercial real estate values over the next few years as the 5-year calls come due for properties financed in 2005, 2006, 2007, and 2008. Many of these properties were financed at 80% or higher, which means these loans are completely underwater now.
Do you remember how the markets reacted to the collapse of residential real estate? Expect more of the same following a similar (or worse) commercial real estate collapse.
So if you want to believe the market’s siren song, be my guest. I’ll be sitting here like a vulture, waiting to pick up the scraps of what is left of your investment portfolio.
The best way to protect yourself from market uncertainty is to not hold long-term investments in securities. In other words, by day trading, you protect your assets from long-term investment risk.
So act today, and learn how to trade – save yourself major pain tomorrow.
Oh, and one last thing – if you enjoyed this article (and you KNOW you did), share it with your friends on Digg, Stumbleupon, Twitter, and Facebook, so EVERYONE can enjoy it!
Get in, hit your target, get out…like you were never there
Mark McRae is a well known trader. Recently at a global trading convention we had the opportunity to quiz him all the tricky questions no one else dared explore. One important nugget of information revealed to us was regarding some unique patterns he has discovered for successful trading. Read on to find out the insider secrets on trading patterns indicators to reveal high probability trades.
Mark explained that he has some unique patterns for trading. He can’t certain whether he is the only one who knows them but has not seen them around. The patterns include some setups that he has sort of formulated over the years, such as reversal bars and now they’re very popular. They’re called lots of different things: pin bars, reversal bars. It is interesting to see the way certain formations happen and how they line up correctly. Mark however, has about ten or fifteen particular patterns that he likes to see, which over the years have a very high probability.
So when he sees those patterns (usually round about support or resistance), where supply and demand is, or a trend line, or even major highs and lows then you can line up a lot of data at a detailed level to get some patterns emerging.
Now if you’ve got three or four different things at that level, then you can miss the formation that you’re looking for, that’s a high probability trade, on either side. That doesn’t mean that you’re always right, but the probability is that when all those things line up together, that makes a much higher probability trade, and they don’t line up that often. This is why it is not practical always to trade every single deal.
So does this system work in all markets?
Mark says it works in any market in any time frame because it can’t not work. In other words, if it is price driven, every market has a price and there’s up and down. It finds levels where it finds resistance and support, so it would work in all markets. And every market is — a lot of what works in all markets — every market has its own personality.
If you know the stock market, then you would agree the expert in the stock market has a different personality from Forex. Although they’re very similar, and even the type of traders, a stock trader is a slightly different animal from a Forex trader, who is a slightly different animal maybe from an options trader. The personalities are slightly different. Maybe that’s why you feel comfortable in a certain market. Hence Mark feels his comfort zone is in the forex market identifying high probability trades.