Forex is a market that trades basically 24-7 and allows the short term trader to practice his or her skill with very little risk as one can open an account with a forex broker with under a 1,000 USD. Most conventional brokers will want you to start with a much higher dollar amount than that and that is what precludes the small investor from getting started in the stock market. This market is not regulated as it has no centralized exchange and significant returns can be achieved if one follows strict money management rules. There exists day trading rules in the stock market that make it mandatory for one to have over 25k to day trade otherwise their account will be frozen for a period of time depending on the broker they use. Forex and commodities do not have this restriction which is beneficial. Commodities though has much more inherent risk and you should be willing to lose at least a hundred dollars and need much more capital to start.
One should implement these strategies when you have already built a cushion in your account. Never risk any principal amount as you want to build up a reserve in which to be speculative. For example, if one starts with a 10K account and builds it to 15k, then one can take a small percentage and risk happily that if they were to lose a 100 dollars it is o.k because they have built already a cushion and they can relax and be calm. We see to many traders trying to move too soon. Trading can be learned over time but it takes hard work and patience above all else. Not everybody is suited to this profession based on their mindset. However, with that said in the forex market one an practice using just 10 cents as a risk amount. Risk can be controlled to a large part which how many shares or contracts one is trading.
Not all profit in the stock market is made with directional trading. Traders look at strong stocks such as MCD, AAPL, or YUM brands and can place non-directional spreads using options. That is one of the many features of options because it has different strike prices, expiration dates, and of course there are factors known as the greeks which many savvy option traders understand in great detail. If one is able to manage the greeks they do not care about market direction because their trade is not base on direction. There is often a trade off in the market. For example if you are going for a higher probability trade then your return will be lower. These strategies are very good for someone with a larger portfolio who wants a safe conservative return on their investment.
It is interesting to not that Warren Buffett has one of his worst years ever this year with his stock Berkshire Hathway. His stock is down 9% with the broad market benchmark S&P only down 4%. The oracle is one of America’s beloved and wisest long term investors. However, it is very difficult to manage investments long term in this market environment. One needs to have a much larger risk tolerance to trade/invest over long term and patience is even more important for long term investing. The market is on an ever changing rollercoaster ride and we feel at our educational institute that one needs to be proficient at minimizing loss for long term success. By adjusting trading capital and having hedged trades then individuals can take advantage of specific points in the market where profits can be earned using strict defined rules like we go over.
Entering a trade with little drawdown so a stop loss is not violated is paramount to long term success as a trader. One has develop a great degree of patience as a trader which can only be achieved by trading an appropriate position size for your account size. For example if someone has a 25,000 K account size a common rule is to not risk not more than 250 dollars or 1% per trade. The rational is that you would have to lose a 100 trades in a row to lose your account which is impossible. However, if that risk is too high for an individual with this account then you can decrease the account size to 100 dollars or less. The goal is to be comfortable with trading so you would be unemotional when you trade as one trading loss should never make one not trade in another 5 min interval. By adjusting your account size you can manage trades better in a volatile environment.
There exists a lot of traders who are report traders which means that they focus their trading centered around various reports that come out. On December 20, we had the housing start report at 830am. After the report was released investors saw renewed vigor in the market, and began to bid this market higher. The Dow settled at the 50 MA which stands for the 50 day moving average which signals the average price of the last 50 days. At the Dow pulled back to this key technical level on Monday December 19 investors were cautiously waiting for news which could ignite the movement. On the intraday 2 min chart the Dow stayed above the short term moving averages.
New Housing Starts on December 20, allowed the market to resume the bullish trend that optimistic investors were looking for today as good news this morning came out early am. New houses starts in November were there highest annual rate since November 2010 which caused the market to get a lot of strength around 830am. Investors and traders a like should always prepare for the market each day if they want to be active traders. It is important to form a good trading plan prior to market open and of course trade that plan accordingly. Shares of homebuilders went up because of the news as starts grew by as much as 9.3 %.
We are a week away from Christmas, but Christmas can come early if you remember our reliable option plays. We wanted to bring to your attention this option on SINA which happenend on Friday. This reversal happened at a double bottom at a key reversal time where we go into detail in our lecture modules. As you can see from the chart the investment was just 10 cents. 10 contracts or 1,000 shares would just cost 100 dollars. A 100 dollars became over 5,000K in the same day. The technical scenario is one you should know if you remember the lectures and we see this kind of setup on a intraday basis quite often. Just remember options are not on all stocks have options and a quick way to check is go to yahoo finance, or check with your broker. Usually stocks with the highest volume or most activity have options and that is how it is determined.
