Stop Orders VS Stop Limit Orders
By:Shaun Rosenberg
Stock Orders and Stop limit orders are the two most common ways to exit a trade. They are both designed to help you exit a trade once it turns against you. But which one works better? Let's compare.
A Stop Order is an order that you can set at a given price to let you exit a trade when that price is reached. This is often used to protect profit and reduce risk.
For example say you own stock XYZ which is trading at $47. You set a stop order at $45 and that allows you to exit the trade if that stop order is reached. So as soon as the order is reached you will automatically sell the stock.
The disadvantage to this is if the market is moving very fast. If the markets are moving fast the stock could hit your $45 stop order, but fill you at $43. The stop limit order was designed to stop that from happening by combining it with a limit order.
If you placed a stop limit order on the same stock for a $45 stop and a $45 limit it would look differently. In this case the stop would trigger if the stock hits $45. However rather than filling automatically it simply triggers the limit order for $45.
Now the order will only get filled if you can sell it at $45 or higher. That way you do not get filled far below the original stop price you wanted.
Even thought this does seem to solve the problem it neglects the whole purpose for setting up a stop in the first place. When you place a stop it should be the most you are willing to lose on a trade. It should be the amount that you give up on the stock and look for profits elsewhere.
If you have a stop limit at $45 and the market is moving fast you will not get filled. That means the stock could crash to $38 and you would not have gotten out of the trade because you didn't want to get filled if the stock went under $45.
Stop limit orders attempt to save you a few cents but can end up costing you a few dollars. Because of this I prefer to lose strait stop orders when placing a trade.
For more information about stop orders visit http://www.stocks-simplified.com/ stop_order.html
For more information about the types of stock orders visit http://www.stocks-simplified.com/stock_orders.html
Bear call spreads for downtrending markets
By: Shaun Rosenberg
A bear call spread is a strategy that will let you take advantage of a falling market. One of the major benefits of this technique is that you do not have to be completely right. Even though this is a bearish strategy the stock does not necessarily have to go down for you to make money. It can go sideways or even up a little.
So how can this happen? This strategy takes advantage of calls. A call gives the buyer the right to buy a stock at a given price on or before a given day. For this they pay a premium. A seller would get the premium but would have the obligation to buy the stock at that given price on or before the given date.
With this spread you are taking advantage of the seller position. Let us look at an example. You find a stock that is at $42 and you believe it is heading down. You decide to sell the $45 call on this stock. With this you make $1.
Now as long as the stock stays below $45 you will keep the $1 profit. The problem with this is that you have an unlimited loss potential. If the stock heads up to say $70 you would have to buy it at $70 and sell it at $45. A loss of $24 considering the $1 profit.
Because you do not want to take a trade that gives you an unlimited possible loss you also buy the $50 call for maybe $.30. Now your total profit is only $.70. However, now you can buy the stock at $50 if you need to. So even if the stock goes to $70 you can still buy it at $50. Your possible loss is now only $4.3.
Because the stock only needs to stay below $45 for you to make money the chances of you succeeding are higher then if you would try to short the stock.
The bear call spread also has another twist to it. If the stock rallys to say $48 and you now believe that the stock is heading up you may choose to buy back the $45 call for a loss but keep the $50 call. Provided there is enough time left before expiration the $50 call will appreciate as the stock price climbs. It might even pay for the loss that you took on the $45 call.
For more information on bear call spreads visit http://www.stocks-simplified.com/bear_call_spread.html For more information on trading in the stock market visit http://www.stocks-simplified.com
Article Source: http://www.ArticleBiz.co Read More......Selling Stock - It's All About Timing
By Amit Malhotra
Perhaps selling your options in the market is the decision taker for all the profits and losses. Selling, when talking as activity, is actually the most important aspect for any business and the same applies to this market. Each trader trades in different options of different companies, whether they are purchased for day trading or options have to be sold according to market conditions. However, selling of those options demands a better timing and great coordination to the market conditions.
Well, it should be noted that timing for sale of stocks is never perfect and satisfactory. Most of the traders, before they sell, keep a hold of them for some time. They seek that as soon as the profit line starts to decline, they can sell that and when they are at their minimum price, they try to grab their ownership looking for the increase in the price in the near future. However, for long-term investors, his decision for buying and selling is comparatively easier as they have a whole lot of analysis with them on the movements of stocks.
The selling part of trading is especially not easy. There are two conditions in the process of selling despite the ups and downs of the market. In the first case, there is always a probability that the trader might hold them, and in respect to its future down coming, he may end up selling them. However, most of the times, they feel that holding the stocks for some more time would fetch them some more profit. This situation must however, be avoided because a sudden downfall might have brought the trader losses.
When the stock is going down, some traders sell them and end up having less profit or no profit. But some traders hold that options with them with the hope that it might increase in the next future. This trading technique, here, completely turns out to be a failure most of the times. It should be noted that there are rare cases that they go down and shoots up in next future. Here, a trader who holds them might have to bear heavy losses. Hence, it is advisable to sell those options as soon as possible when it goes down.
However, a trader might hold that stock but this decision should accompany a well-calculated approach. The past trend of the particular ones must be well studied and if it shows better recovery aspects than there is no harm holding them for the future growth. Hence, it can be concluded that selling stock is all about timing, though, timing is never perfect but proper calculations can fetch a day trader better returns.
Open an account with sogoinvest If you are new to sogoinvest: Online stock trading investment Article Source: http://EzineArticles.com/?expert=Amit_Malhotra |
Overcoming Trading Fears
by Frank Topino
It's been said that trading is 90% emotional, and 10% technical. Never is this statement truer than when you are in the first stages of your trading career. Do you often find yourself (or used to) thinking, "Damn, why didn't I take that trade. Chart setup was perfect. What was I thinking! I was so afraid of pulling the trigger". Well, if that's the case, you have probably entered the "trading mental block" zone.
Let me tell you a bit about the early stages of my trading career. Back in '99, I was in my senior year of college, studying Finance and Investments in NY. Since I was planning to embark upon a trading career as soon as I finished college, I decided to give myself a head start. I decided to start doing a little bit of trading on the side, to get a feel for how trading worked, to test the waters!
So I armed myself with a Tradescape account, took some college money(note this as it will be crucial) and dumped it into the account, and off I was, trading in the early to mid morning, and going to classes afterwards. I remember I "liked" trading JDSU which, in those days, was trading well over $100. I emphasized I "liked" because the first 2 months I didn't really place that many trades. In fact, I was very busy watching my stocks fly away and, much to my chagrin, in the direction I originally predicted. I was afraid of pulling the trigger. And it was getting worser and worser. Almost every time I was about to place a trade, I had some kind of weird mental block and my index finger froze on the mouse. I had to do something about it.
First of all, I decided to go back to paper trading for a while. That would give me some time to clear my mind a bit and do some situation analysis. Sooner than later, I realized I had made several medium to large size mistakes in my early trading career, both emotional and technical.
Technical mistakes
- No newbie should trade a high priced - high flyer stock such as JDSU at that time. Those stocks shouldn't even be paper traded!
I fixed this by choosing lower priced stocks trading around $50 at maximum. Later, I fell in love with NITE, which was trading right around $50 in those days.
- I was not keeping a trading journal of my actual wins and losses, and my trading setups in general.
I started keeping a daily journal of all my trading activities. I took notes of all the trades and their outcomes. I filed every chart or trading setup and the reason why I liked/disliked it. I wrote down everything. This helped me a lot figure out whether I was right in my predictions or not. Thus, it helped build more confidence in myself.
Emotional mistakes
- Earlier in the article, I mentioned that my initial trading stake was taken from money originally apportioned for college expenses. This was a major flaw in my trading approach. Never ever play with scared money. Scared money is funds you cannot afford to loose. Be it college money, retirement money, or whatever monies which was not originally regarded as risk funds. That kind of money weighs heavily on the amount of pressure traders have to already go through. It's money you just can't loose. As a result, you tend to sit on the sidelines on most trades, you exit too early on good trades, or stay too long in loosing ones.
I was able to solve this major flaw in my trading plan by postponing any live trading to a later time. That is, as soon as I would finish my college studies. In the meantime, I saved a few hundred dollars every month and divoured every trading related material I could put my hands on. And of course, I paper traded a lot! This way, I was able to stash away a little risk capital and have a fresh start again, free of any financial related worries.
Of course, other causes might be playing an important role in your trading state of mind. For example, having a mentor can sometimes help overcome any fear you may have at the beginning. However, most times trading fears stem from an increased pressure to either make money or not loose money. Solving this issue first is of paramount importance for new and seasoned traders alike.
About the Author
Frank Topino is a full-time trader specializing in US equities. He is also the founder of Trading-Lab a high quality trading content portal catering to the investing and trading world.
www.trading-lab.com
Article Source: http://www.trading-lab.com/forums/overcoming_trading_fears-t38.html
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All you need to know about Stock Investing For The Beginner
by: Roger Overanout
What is the secret to being successful at stock investing as a beginner? Nearly everybody has heard stories about people making millions overnight using the stock market. In reality, there are many myths about investing in stocks. It is not always straightforward, sometimes even professional investors need to rely on a hunch. Stock investing can be, however, very rewarding and a lot of fun if you're prepared to take the time to learn about stock market investing.
To make money on the stock market, you are going to need patience, practice, skills, experience and education. It is vital to research the companies you are planning to invest in and find out everything you can about them. To do this there are several sources of information available to you. You can use the media, magazines or browse online for information.
Look for information on mergers, new product launches and acquisitions which might affect the stock price of the company in question. Knowing about such things beforehand can help you to avoid risky stock investing. Check how the company has been performing on the stock market over the past few years, not just how it is performing right now. Make sure you use reliable sources for information and avoid friends with “hot tips" – this is your money, after all and when you are on investing on the stock market you want to make sure you're acting from a position of knowledge. It is a bad idea to just invest in stocks at random. This is like going to a roulette table and putting every dollar you have on red.
You should begin with very small investments. If you start off with a large investment and immediately lose it, this might put you off stock investing for life. Learning the basics, increasing your confidence and getting experience is vital, some people recommend paper trading but in reality if you have not actually risked any money then you do not get a true feeling of stock market trading.
It can be a good idea to invest in a company you have some knowledge about. This will not only make it more interesting to you but you will be able to understand the way the company works and the factors that cause fluctuations in that industry.
Diversity can be a good idea when it comes to investing in stocks. You might not want to risk all your money on one company’s shares. Maybe you will want to buy stocks in drug companies, electrical companies and entertainment – or a different combination. Putting all your eggs in one basket might result in losing all your investments overnight. Spreading the investment spreads the risk when it comes to stock market investment.
Do not base your purchasing solely on price. Perhaps a $3 stock may seem like a good idea if the company is doing well and expanding. But a stock costing $300 might bring you better returns. Of course, this does depend on how much you are willing to invest.
You might wish to seek advice from a stockbroker. Stockbrokers can offer good advice and obviously have much more experience than the average stock investing beginner. They do, however, charge fees, so it is up to you whether you want to use a broker or not. They can be useful but are not compulsory.
Perhaps the most important advice for the stock investing beginner is never to risk more money than you can afford to lose, no matter how safe the potential investment seems. There is always a degree of risk involved in stock investing and nothing is 100 percent guaranteed.
For lots more helpful information about all aspects of Stock Investing for Beginner visit http://www.stockinvestingforbeginner.com/
source:searchwarp.com
The 6 Best Times Of The Day To Trade A Stock
By:Larry Potter
1. Post-opening buying: Let's say a stock rises 5 percent or more during the opening and there's no news about it. Typically, the stock will fall off after 30 minutes of trading. Why? Market makers may be trying to open the stock at an artificially high price to sell off excess inventory they've acquired the day before. However, if the stock doesn't fall after 30 minutes of trading, it's liable to continue rising for the rest of the day. Tactic: Buy at 1/16 above the day's high after the opening. Set a stop at 1/16 below the day's low.
2. Post-opening selling: The opposite of the above strategy. When a stock opens lower on no news, it could be that sell orders from nervous investors have piled up since the close of trading the day' before. Sometimes market makers open the stock artificially low, to draw in more panic sellers. This allows them to accumulate shares, because market makers as a rule buy on price declines and sell on price increases. After 30 minutes, the stock usually recovers in price and normal trading begins. The market makers profit by selling the inventory they've accumulated at the lower price. However, if the stock continues to drift lower after 30 minutes, chances are it'll decline more during the course of the day. Tactic: Sell short at 1/16 below the low of the day; set a stop at 1/16 above the day's high.
3. Playing the spread: This one's really simple. Buy at 1/16 above the bid. Sell at 1/16 below the ask. The strategy works best with non-volatile stocks where the spread is at least 3/8 of a point. When successful, you make a quarter point per trade, or $250 on 1,000 shares. You can also short the spread by selling short at 1/16 below the ask and covering at 1/16 above the bid. Problem is, it's not always possible to get in and out at these levels. Market makers may easily spot what you're doing and adjust prices so they blow you out. Often day traders try this tactic several times during the day before they succeed.
4. Grinding: Another relatively simple tactic. Follow the message threads at, for instance, Silicon Investor for a particular stock. When everyone is screaming that the stock is going to make a move, jump in with the mob. Be content with an 1/8 or 1/4 point. Then get out before the rush.
5. Fading the market: With this contrarian strategy, you buy into weakness and sell into strength. That is, you buy stocks with small percentage declines relative to the market. You're hoping they'll gain when the market reverses. Hold off buying until the stock trades above its opening. Reason: Previous buyers of the stock will sell to prevent loss, thus driving the price down in the short term.
6. Shop the final hour: Stocks often ease off their highs of the day during the last hour of trading. Why? Because day traders and market makers seek to exit their positions and lock in profits. A price downturn often occurs during the last hour of trading as many seek to exit their positions. This downward momentum can create some lucrative short-selling opportunities.
About the author:
Larry Potter is a recognized authority on the subject of trading. For a FREE report on HOW TO TRADE FAST from Stocks2Watch®, go here: Trade Fast
