VIEWS: 308 PAGES: 34 CATEGORY: Stocks and Bonds POSTED ON: 10/12/2011
Forex was once one of the financial world's best -kept secrets. As the largest financial market in the world, it should have been more well known, but it has escaped under the radar of most people, remaining the sole domain of the large banks, huge corporations and other financial entities that apparently did not like sharing their information with the world. Investors from all levels are hungry for new markets to sink their teeth into, and Forex (FX) is primed for their investigations. This is a no-fluff tell it like it is guide to trade safely and profitably.
The Forex Revolution Team Stock Trading: How to Invest Safely and Stress-Free Not All Investments are Risky: Even in the Current Economy The stock market might be the last place that people would like to put their money right now, considering the economic weather right now. Prices are sky high, bailouts of major institutions are in the works and the common man is beyond worried. The hand wringing and ominous clouds of doom have started for many, and they are considering stashing their remaining cash under the mattress until things take a turn for the better. That being said, there are investments that are not as risky as others, and they actually can be well worth the effort of finding them. If you are new to the stock market or even if you have traded before, it is wise to keep a few things in mind for your own financial protection. Educate yourself before undertaking any investment plan, even the least risky options do carry risks, none are zero risk. Know what your tolerance and loss cap are before proceeding. Speak to your financial planner about your budget and your projected profits for the coming fiscal year. Know what you can risk and be comfortable with losing that amount so there are no horrible surprises down the road. Working with a broker can make your trading activity easier- they can guide you to a block of stocks that are giving fair returns for a minimum investment, which is exactly what you want to start with. Nobody dives into the stock market and makes a killing on their first trade, what you want to aim for is slow and steady, consistent performance. Stocks that blow up all of a sudden also have the potential to tank just as fast. 2011 © www.the-forex-revolution.com/ The Forex Revolution Team Brokers can also guide you to the right trade analysis software so that you can track your own stocks. Once you become proficient at tracking these trades, you can start selecting some of your own. Use the profits from positive performance stocks to re-invest, and do not use any of your own ready cash to further extend yourself in the market. Start pulling some of these profits back out of the market and putting into interest bearing accounts, while using the rest to invest in more diversified stocks and other financial products. A diversified portfolio is an absolute must, if one of your stocks trends downward, you will still have others to keep your head above water for the time being. Do not work with a stock broker that pressures you into stocks or other tools that sound risky, no matter how unqualified you think that you are. If you just heard mention of trouble with a stock or a company and that is what you are being pushed to buy, that is a serious problem. Do not get tied into thinking that you have to work with just this broker. If the partnership is not working out for you, move on and find someone else to handle your investments. You can find lower risk investments by reading the financial pages and logging on to financial websites. If you can understand the charts and analysis, you will have a leg up. Education is key to solid investing; so do not accept the words of a broker as law. Know a little bit about the types of trades that you would like to see made on your behalf and what kind of companies that you would like to invest in. There are some that will be solid performers no matter what the economy looks like, and there are those that are folding left and right. Keep your head up and do not be afraid to put your foot down if you feel uncomfortable with a recommendation. The Long (Term) and Short (Term) of It Between the two, short term trading is by far, the more risky option. Long term trading requires more careful consideration and movement, and therefore gives the trader time to reconsider or to find out more information before proceeding. Short term trading usually is quick moving and you must realize that very few people ever have more than very fleeting success in the short term trading market. Knowing this, if you still choose to proceed, do so cautiously. Be vigilant that you remain under your loss cap and know your limits at all times. Short term trading requires that you know quite a bit of knowledge up front. You must know the stock that you are looking to trade inside and out- its trends, its volume, and its volatility. You must know what this stock has been doing prior to the present, and what it is most likely to do in the near future. If you are at all unsure about any of the aspects of the stock, then do your research before even thinking about investing at this point. Losing all of your money on one ill-planned investment block is not going to help anybody in the long run. Look at the stock's trend. How is the stock behaving from day to day? While most short term traders will be satisfied with tracking a stock for one or two days, the more cautious trader will wait until they have compiled at least a week or two's worth of information so that they can see what the average trend looks like. Volatility is the actual movement of the stock market; are there many moves in either direction? Is the 2011 © www.the-forex-revolution.com/ The Forex Revolution Team market heading up in a large surge or plummeting downward? Or has the market flattened out and turned stagnant? Knowing this information is vital, because it could indicate whether there is a system wide trend beginning or if a positive or negative trend affects only one or two isolated stocks. Volume simply refers to the number of buyers or sellers of a particular stock and can be indicated by the other information in most cases. Volume can be affected by small traders selling of one or two blocks of stock or larger traders selling larger amounts of their own stocks. Either way, the volume of trading will indicate whether it is a hot seller's market or a more cool, buyer's market. Volume, volatility and trend are important aspects for choosing your short-term investment stocks, but it is important to be equally informed about the next step in the trading process. You know how to choose hopefully the right stock, now do you know how to proceed with the actual trading of it? Within short term trading, there are several types of trading that goes on. Of them, there are some that are more common and some that are less used for the short term. Before you even begin to trade, no matter what type of trading that you choose to do, you should have an exit strategy in case your selections start heading south. Do not remain in a bad situation if there is a chance to exit, do so. If you pull out before you lose all of your money, you could always reinvest in a different stock, something you could not do if you do go belly up. Trend trading is not often done as short term trading. It takes a long time to calculate and chart the trends of a stock and the short-term trader just does not wait around for this information. Of course, there are some moments when the short-term trader will use "trend" as a factor for choosing a stock, but that is not the most common. Counter trend trading does lend itself most easily to short term trading. You must have some quick cash available to jump on the sudden reversals of trends in certain markets. Once these counter trends are spotted, they become fast moving, hot commodities and if you are lucky enough to jump on it fast enough, you can turn a quick profit. Breakout trading is another short term trading strategy that requires careful market watching. The trader that uses this strategy will buy a stock as soon as it starts to move up after a period of either little or lateral movement. The opposite of a breakout trend is a "breakdown" where a similarly stagnant stock suddenly takes a turn toward the negative. Buying stocks that had been strong when they are temporarily weak or vice versa is called "pullback trading" and can be viewed as trading that not only takes advantage of these stock's situation, but also as a method of returning a stock back to its previous levels. Knowing all of the stock information (volume, trend and volatility) and the short term trading types (trend, counter trend, breakout and pullback) is not enough for success in the short-term market. You must understand that you still need to have solid business savvy and some good fortune. You still must stay below your financial limits, never exceed your own personal loss cap even if you are guaranteed a "sure thing". Financial experts rarely agree on anything but they do on this key fact: the most 2011 © www.the-forex-revolution.com/ The Forex Revolution Team important thing to consider for short term trading success is discipline. If you have no self-discipline, find another outlet, short term trading is simply not for you. On the other hand, long term trading takes all of the above traits and one other as well. For the long- term trader, patience can be the key to their ultimate success. Knowing which stocks are going to have a cooling off period followed by a huge upswing can be vital to their moves. They wait like a chess player for the moves to unfold before them before they pounce, snagging stocks that will double or triple in value in the fullness of time. Being able to accurately predict what these long-range trends can be will make you a very wealthy long-term trader, indeed. Another often overlooked factor to give long term the advantage over short term trading is the actual costs of trades and losses per year. Say you are working with a broker who is (for simplicity) making a nice round, ten percent commission on every trade that you make. If you lose money on that particular trade, you are out not only that amount, but also the ten percent commission, every time. For the short- term trader who makes many trades, that can really add up quickly. The long-term trader will still pay commission, but they will pay far less in commission costs throughout the course of the year because they make far less trades within the course of the year. It is simple and straightforward, but somehow the short-term trader fails to see it. Plainly stated, the short-termer is paying to lose his money. Does that sound financially responsible to you? For our example, let's use a ridiculously low amount of money just to simplify things: Joe, has told his broker, Bill that he would like to buy 7 shares of ABB, a communications company. The price for the shares is $100, giving Bill a commission of $10. Joe did not fully investigate ABB and the stock tanks the following morning, leaving Joe with a handful of worthless stocks. He is now out $110 for this one trade. Joe and his broker, Bill make several other similarly priced trades- about one half of them fail miserably. If Joe has made four such ill-advised trades per month, for the year he has made 48 trades at a cost of $4800. Bill's commission would be $480 for the year. But, because half of them have failed, Joe has actually paid out $2641 in losses for this year. It may not sound a lot, but if we were using more realistic stock trading figures, the amounts would be more frightening. Regardless, If the slightly more than $2600 is above Joe's loss cap; he will be feeling the pinch. Of course, stockbrokers do not walk away from trades with ten bucks in commission, but the formula is the same no matter what the amount involved. Although it would sound strange to say so, financial experts suggest that long term trading actually takes less time for analysis - in the long run. Because the long-term trader uses data that has been compiled weekly, it will only take the time to download and review it once. On the other hand, a day trader, at least one who has any kind of success, will have to be reviewing prices and other statistics throughout the entire trading day. The minute they walk away from their computer screen, a stock- block either blows up or tanks, and they will have missed it completely. On the other hand, the long- term trader will know before hand that the stock is about to move up or down- because they have down the research and know what is about to occur. 2011 © www.the-forex-revolution.com/ The Forex Revolution Team The more diversified your portfolio becomes, the more important careful monitoring of your assets and their trends will be. Do not think that because you are watching a stock's trends, that you will be able to account for every inevitability- even with the most careful stock analysis and the most cautious of trades, there can be issues beyond anyone's knowledge. Diversification is a good idea, regardless of whether you are a careful, cautious long-term trader, or a fast, more aggressive short-term trader. In fact, the wise trader is probably a blend of both, employing a portfolio that not only encompasses steady, but positive trending stocks and the potential explosive capabilities of short-term trades. No matter what system you trade, no matter what market you trade on, and no matter what type of financial instrument you trade, the key factors remain the same. Education is step one, before even making that first trade. Once you have thoroughly educated yourself, then you must decide what your personal financial goals are and how quickly that you realistically expect to reach them. You must go over your discretionary budget and decide from the very outset what your loss cap is and have a plan to exit if it looks like you will be near that cap. Do not allow yourself siphon every single cent of profit that you make back into the stock market. The key is to know how to further your investments while still allowing yourself to reap the rewards of your prior hard work. Diversify your portfolio as well as your trading methods. Invest in a few short-term trades that will hopefully give you a quick confidence boost as well as some monetary gain. Take part of this money and reinvest it, choosing slower building, but less risky long term trading this time. Look into, not only traditional stocks, but futures, commodities and currency trading if you feel that you are ready. Do not allow yourself to be talked into something that you are uncomfortable with by a high-pressure broker. The broker is supposed to make trades on your behalf, and should not be trying to make your final decisions. Remember, he has your commission to earn, and if he is pushing you or consistently making bad recommendations, then he is not the right broker for you and you should move on. And finally, remember that unless you have decided to make day trading or other stock trading your life's work, this is a sideline and should not consume all of your time. If you have to stop everything that you are doing to check a stock price, or make a call to a broker, you may have become too immersed in the trading life and might need to pull back just a little bit. Tracking a Stock's Performance: Just a Click Away Once upon a time, the only people that had vital stock information were brokers. They would all huddle around the ticker and watch as little blips and dots told the fortunes or loss thereof of countless companies across the country. News of the foreign markets was virtually unheard of at the time, and there was very little getting out to the general public about which stock was performing in what way. That began to change as more and more people became involved in the Market, and news journals began their storied run. Then came television- with nightly news broadcasts that would touch on key financial stories as the lucky few huddled around their set in wide eyed wonder. As the infant TV grew and become more common, more and more financial shows made it to the airwaves. Soon there were whole cable networks dedicated to finances- twenty-four hours a day you could tune in and find an expert and listen to their expressed opinion. In the very next hour, you could watch another expert and listen to him express the direct opposite opinion and on you could go. 2011 © www.the-forex-revolution.com/ The Forex Revolution Team But, the world moves even faster than all that right now, and nobody can sit for hours watching expert and expert tout differing viewpoints. How do you filter out all of the background noise? How do you make the decision that this one is right, while that one is not? How do you know which expert to listen to when there are so many to choose from? And, the television personalities rarely, if ever, agree with the hardcopy news journals. No wonder so many people are far too afraid to venture into the investment world. It might not even seem worth it to them to wade through all of this conflicting information for a little bit of return. Technology has thrown in yet another option however and it is just as close as your television, but can be far more informative and far more up to date. The Internet allows us to get more real time stock tips and trade information so that we can make analysis on our own, or compare information with our brokers. Stock trading software can give us the tools to understand all of the charts and other information that is simply a mouse click away now. Knowing a stock's trend can be a matter of pulling up a site and filling in a few simple blanks. Trading software can be useful, no matter whether you are a day trader (or other short term type trader,) or a long term-trader. The right software can allow you to make sense of countless bits of information, which can be downloaded and updated at regular intervals right to your home computer. You can set the software to send you alerts when there has been substantial movement on the stocks that you choose, or you can check it when you choose to, but either way, the software can make it easier to manage. No matter where you get the information, stock analysis looks at several factors, called its "trend". These factors are volume and volatility. Volume, you will recall, is the amount of shares that are being moved for a particular stock. Volume is described in the financial journals as either "thin" or "heavy". In hard copy journals, volume might be noted in special type if there has been a change (either positive or negative) of more than a set percentage. Online reporting of a stock's volume will be updated frequently, in many cases as often as every half an hour or less. Regardless, you must understand that volume is only one factor to consider when analyzing a stock and its potential performance in hopes of adding it to your portfolio. Volatility is referring to the market itself rather than to individual stocks. It is the movement, up or down, or in some cases the lack of movement that will indicate either heavy, light or no trading is going on. Again, as with volume, this is only one factor to look at, and for a real analysis, more information will be needed. You must look at all of the key factors before making any decisions, regardless of how safe and risk free you think that they are. Do not go off thinking that you can just make a trade and sit back and rake in the dough, it just does not happen that way, at least not in real life. Analysts look at each factor individually, and then as a whole. You must be able to understand how each piece of the puzzle fits together and what they can mean to your financial outlook and the potential movement of your stocks and other financial products. Volume is rarely used by the short- term trader because one day's information on volume does not yield any usable information, however volume usually does tell how well a stock is moving, but not always why it is moving so much. If a 2011 © www.the-forex-revolution.com/ The Forex Revolution Team stock has been fairly stagnant for a week or more, and then suddenly spikes up or down, there might be an issue in the air, and should bear careful watching before making any large moves on your part. Analysts use volume for other information as well and to track possible trends. The five basic rules that are used by technical analysts that deal with volume are: 1. If prices are up, or going up and volume is increasing, then prices will most likely continue to rise. 2. If prices are up, but the volume is faltering, then those prices will either increase more slowly or they will start to fall back off. 3. If prices are down already, and the volume is up, then prices will go down even lower. 4. When both price and volume are falling, prices will either slow down or they will slowly start to go up. 5. Flat volume has not impact on stock price at all. That which is neither rising nor falling defines flat volume. Remember, stock prices change when they are being bought or sold- prices will either rise or fall depending on which direction the volume is heading. There are no rules set in stone for the stock market, which is by its very nature a very unpredictable thing to deal with. If there was a way to know everything ahead of time, then there would be no financial risks associated with investing in the market at all, and there would be no need for analysts, advisors or planners. How To Most Closely Monitor Your Stocks Babysitting some stocks is almost a necessity as they make wild moves up or down. If it looks like your stock is about to take a full on header, you want to know that information so you can dump it before it falls, dragging your hard earned investment dollars with it. On the other hand, if a stock is about to blow up in a huge way, you want to be prepared for that as well, perhaps even redouble your investment efforts as soon as possible. Knowing the trends and what could possibly be coming can be important for a large number of reasons, but the bottom line should always be protecting your own bottom line. Back in the day when your stocks were monitored a broker, brokers would occasionally answer the phone, or sometimes return your every thirtieth call. This could get a little nerve wracking, especially once the broadcast news aired or the hardcopy journals were delivered. Can you really afford to wait for a return call, when you are reading the news about some huge movement that could potentially make or break your portfolio? Thankfully, for the most part, those days are long past. The Internet has made the stock market more accessible and more user friendly for even the most casual trader to deal in. It has also made real time, up to the minute stock monitoring a reality. Where once your updates were hours or a full day old, online information is updated about every twenty minutes or so. In less than half an hour, your fortune 2011 © www.the-forex-revolution.com/ The Forex Revolution Team can change and now you will know all about it right as it happens. Stock trading software can make keeping track of your trades as easy as entering a few numbers and then waiting for the alerts to begin. Various forms of the software are available and it should be easy to find the one that best suits your purposes most closely. Some software will follow the charts and give you the details in straightforward, easy to follow language, rather than forcing you to wade through page after page of information. The various charts can be confusing, especially for the newer trader so the tracking software can be a sound investment for your trading future. Financial cable programs feature a scrolling a stock ticker, and also feature breaking news stories as well- monitoring your stocks while watching a financial program is as simple as looking at the bottom of your screen. Of course, in the world of high finance, traders often do not have the time to sit and watch television no matter how beneficial the program can be to their trading successes. Monitoring your stocks is important, not only to be aware of negative movements, but when positive changes occur as well. If you are a savvy trader, you know that you should be splitting your gains into reinvestment as well as more secure savings. The faster that you make these moves, the faster your money can grow for you. Finally, monitoring your stocks closely can allow you to know when it is time to make a move on a stock that is about to move in one direction or another, and to buy up new stocks that have started performing favorably. Vigilant monitoring can allow you to diversify your portfolio faster than your original financial plan had indicated that you would be doing so. Making your financial goals ahead of time is always a good thing. Long-term traders may track trends and stock volume less than daily, but rest assured that they do not go several days in a row without at least a quick check in on their stock's performance. Even long-term stocks can have sudden fluctuations and the trader knows that they must be ready for anything, be it good or bad. Of course, daily, even hourly monitoring is important to the short-term trader especially. Short term, or day traders move stocks several times throughout a trading day, and will need to keep apprised of the stock in questions performance so that they can buy at the best price or sell at the maximum profit. Day traders, for this very reason, are very likely to make use of one or more of the stock trading software types, so that they can remain vigilant without having to do the legwork themselves. This frees them up so that they make trades more efficiently. Know Your Stock's Performance Before You Ever Buy No matter whether it is your first or fifty-first trade, buying a new stock, or even buying more of an established stock requires some careful consideration on your part. Have you checked the trends for this stock? What do the leading forecasters say for this company or those similar to it? Are the indicators pointing toward a down turn or is there the potential for sudden profitability? If the chances are that the stock will suddenly start moving upward, then now might be the time to buy before prices 2011 © www.the-forex-revolution.com/ The Forex Revolution Team go up as well. Knowing a stock's performance before you buy makes perfect sense. You would never buy a car without a test drive first, nor would you buy a house, sight unseen. Buying stocks and other financial products can be just as life altering, so do not think that you can buy first and ask questions later. Educate yourself on the market itself and gain some familiarity with the terminology. After you are comfortable with talking like a trader, you can start thinking like one as well. If you have truly never traded on the market before, or have never dreamt that you would be in the position to invest, then work with a broker to put together your initial portfolio. Tell your broker what you want to see happen, your financial goals, your loss cap, how aggressive you want to trade, and what kind of companies that you do and do not want to invest your hard earned cash in. If you do not want to work with a certain type of company or industry, make that fact crystal clear and do not allow yourself to buy just "one block" of this stock or that- remember that you are ultimately in charge of your destiny here, the broker is working as your agent and earning a living helping you to invest. You do not have to actually own stocks, or other investment tool to check out how the market is doing. In fact, with the economy in such turmoil, it might be a good idea to check out what is going on not only on Wall Street, but worldwide as well. There are many ways to get this information, and the one you choose will depend on many factors. If you are a traditional minded person and do not mind slightly older news, you can read one of the hard copy trading journals or watch one of the myriad cable financial shows for the market wrap up. If you are more modern minded, then by all means you could log on to one of many websites that can give you up to date, or even real time, streaming information. Most sites will tell you on their home page exactly how often their information is updated and in many cases, it is every twenty minutes or so. Start doing some homework, and make some initial stock choices and then track their performance. If you cannot make sense of the charts at all, consider buying the trading software that can help you, and then you will need to be able to decipher this information so that you can make an informed choice. Track the progress of the stocks that you choose for this practice trading period and see how well you have done. Did you do a horrible job? Be glad that this was not real. Of course, if you do a really good job on this practice, do not get the idea that you are some trading whiz and should just run out and invest your money for real. You should still work with an investor at least until you start making solid profits. Once you have made your stock choices, and your broker has put in the order for your first trades, it can be too late to make any changes. You do not want to put money into stocks that will tank the very first day. Fortunes can be made or lost in a single trade, in less than an hour's time, so know before you actually begin. Tracking your stock's performance is important regardless of what style of trading you intend to be involved with, or which type of investment you will be making. Do not buy into corn futures if you have never read up on the market- if you do not know what that implies, then it is the wrong move for you to make. Set aside your budgeted amount and do not over invest, no matter how strongly a stock 2011 © www.the-forex-revolution.com/ The Forex Revolution Team seems to be performing before you buy in. Markets can change in a flash, and trends do not always guarantee success. Once you know how a stock has been trading and how it is expected to perform in the future, you can make a move, but you should still err on the side of caution. Allow yourself a little leeway, and only invest what you can safely afford to lose. Know your own personal limits and do not exceed them. Educate yourself; know the market, the terminology and the stocks themselves. Investing can be risky, so do whatever it takes to hedge your bets. Invest in financial software that will help you to make sense of the confusing, sometimes contradictory financial charts. Watch for trends, but understand that trends are not guarantees at all. The Concept of Using Money to Make Money Investing money in the stock market can be a gamble, of that fact you must be perfectly sure. There are countless horror stories about traders that overextended themselves with just one trade too many. But, if you know what you are doing, have a little bit of good luck and are careful, you can make a profit in the stock market. If you do so, what should you do with the financial rewards? Should you just pull that money back out of the market and put it into safer, fairly secure financial products, or should you reinvest it all right away? If your stocks have been steadily performing well, and your profits are starting to mount up, now might be the time to diversify your portfolio. If you have reinvest a portion of your profits back into your established stocks, another portion into new stocks and yet another portion into an interest bearing account you will be well on the way to building a solid financial future for yourself. Before you consider doing this though, consult the charts for the trends and the future forecasts of not only the stocks you have been trading all along, but for the stocks that you are considering buying for your diversification. And although putting money into an interest bearing account sounds pretty straightforward, you should still shop around for the highest interest yield. Do not assume that all certificates of deposit (CD) are giving the same rate of interest, there can be a difference of quite a few percentage points for each. Making a profit can allow you to move along on your own as well. Once you have made some solid stock trades with your broker's guidance, use a portion of your profits to select some stocks of your own. Again, do not go over your loss cap, and use only a portion of the earned profits to do this. If your trader is horrified or outright says no to the trades, you might want to listen to the advice of your financial professional, but if there is no outright overreaction, then by all means proceed. You may, of course, choose to continue with your broker, no matter how much profit you are making. Diversifying your portfolio is a good idea- if you are trading stocks from communication companies, then look into stocks from another type of company altogether, or perhaps a different type of financial tool. Do some research first, and if the market is favorable and you seem interested in the opportunity, look into trading commodities, or perhaps gold. (The gold market is one that is a wild ride of ups and downs and might be looking at a huge upswing as its uses change from ornamental to more useful. Look for the gold market to strength as further research is done using this precious metal in fuel cells.) 2011 © www.the-forex-revolution.com/ The Forex Revolution Team Siphoning off some of your profits into slightly riskier, short term trades can make you some excellent rewards, or you could lose all that you have put into the market- but either way, since it is profit money that you are using, you are not costing yourself anything in terms of savings or budgeted money. Of course, there might be a more responsible way to handle these profits, one that could net you even bigger financial gains. If you are in fact looking at something like commodities as your next big move, then consider making it a long-range plan. Take the profits you make from your short term trades and put that money into a strong interest bearing type account and leave it there, untouched until the time is prime. While this money is growing, safe and sound in this account, you are watching trends and patterns in the commodities market, watching for signs of which exact crop is looking to be the next, big thing. Once the clear indicators are there, and before the rest of the trading world catches on, you can make your move, making sure that you have allowed the account grow enough not to incur any penalties when you withdraw the money to trade with. Plan ahead and as always, trade within your limits. If trading commodities does not interest you, you might use your profits to invest in a small block of so called "penny stocks". These do have one set, official definition, but are usually those that have fairly low price per share. (The SEC defines any stock with a per share price of less than five dollars as a penny stock, for instance, but others may set the price slightly lower or higher.) Remember, penny stocks are almost always high risk but can equal very fast turnover profits. They can be horribly unpredictable, but if you are fortunate enough to find one that is performing well, you can get in quick, make fast money and then sell while the selling is good. It sounds simple, but penny stocks can be heartbreakers, so be wary. Also, you should be aware that few financial professionals will trade penny stocks at all, possibly because of the hard work that is required tracking the right penny stock, the unpredictability and possibly because they may feel they are beneath them. The advantage to penny stocks however is most obviously, the low price per share, the ability to trade in low volume and the fact that you can get in on the ground floor of an unproven company before it hopefully makes a big financial splash. Finally, there is the option of moving your stock profits into the currency market. Forex, the largest financial market in the entire world, has become a much more accessible entity with the advent and popularity of the Internet. Once upon a time, only the very rich and the well connected traded on the FX market, and it remained mostly a secret to most people. In fact, most people would probably give the wrong answer if asked what Forex was. Before making the move into the currency trading market, make sure that you understand the basic concept of how it works, as it is much different from the other markets for many reasons. There are no brokers, only dealers, for example. These firms become kind of a partner to your trade and profit from successful trades that benefit your side of the table. Again, this is a market with many technical terms so education is vital. Do not think that you have to, or should reinvest all of your profits back into the stock market. You have made money, which was part of the main goal for trading in the first place, and now you should be able to relax just a tiny bit. Use some of that money for further trading if you intend to remain in the trading game, or use that money for another type of investment for your future. But, whatever you do, 2011 © www.the-forex-revolution.com/ The Forex Revolution Team do not get so caught up in the thrill of the chase that you forget your limits and lose it all. Conclusion: The Trading Market and all of its Trends Hopefully, the repeated use of the word education in this guide has sunk in. It just cannot be stressed strongly enough that knowing what to expect when you begin trading is paramount to your success. Understand the terminology that the market uses. Know what kind of trades that you are interested in making, and how they will work with your own personality. Know your own limits and your loss cap and do not exceed it. There is no such thing as a sure thing, especially in the stock market-no company is safe from going belly up in a day's time. Be wary of the broker that tries to steer you toward larger than you can handle of stocks that you are not comfortable with, make sure that the broker is working for you, not against you. Understand the difference between long and short term trades and which will suit your purposes the best. Some traders do recommend that you split between the two, which gives you the fast moving action and profitability of short term trades with the more stable features of the longer-term trades. Know what is meant by such terms as commodities, futures and options before you even consider putting money into the market with any of them. Put your money back to work for you, once you start showing a profit. Use some of these monies to reinvest either in your established stocks or in new ones to diversify your portfolio. Once you have made enough of a profit to give yourself a bit of a cushion, it is possible to start buying penny stocks to hopefully make further, quick profit. Know how to track the progress and activity of a stock before making trade one, and consider buying stock trading software to make this easier. Learn the difference between a real trend and a small blip on a stock's radar. Understand what trends can mean, and know how to read the importance of a stock's volume, volatility and other indicators. Learn which is the best way for you to keep track of your stock's performance, and how often you will be monitoring this. Do you want daily updates no matter what, or do you only want to be alerted if there is a huge move in either direction? Understand that the stock market is changing every day and that trading stocks can be very risky, as well as having the potential to be very rewarding and very interesting. Do not allow yourself to get caught up in the go, go world and do something you are not ready to do, nor financially capable of handling. The money that you invest in the market can be gone in the click of a computer mouse, and the number of businesses that are failing at this moment is frightening. Remain well under you limit and never risk anything you could not bear to lose. In the end, you are the person that you have to face in the mirror everyday. Do you want to look yourself in the eye and know that you have blown your life's savings on a stock that failed to perform because you did not do the necessary legwork before hand? Of course not. Look before you leap- do your research and know what the trends are for the stock you are buying and what the indicators say for its future. It cannot be said often enough, educate yourself, track the stocks and never risk more than you can afford to lose. 2011 © www.the-forex-revolution.com/ The Forex Revolution Team Sub-trading Styles of Day Trading: Swing Trading, Trend Trading and Beyond Day trading is a popular form of stock trading activity, best used by those that are suited to it. It is not an activity that is right for everybody- it takes a fairly aggressive personality to day trade, and you have to know exactly how risky it can be. If you understand the risks and are willing to put in the effort and the know how to make good trades, it can lead to huge profits. As with other types of stock trading, day trading has its sub styles, and some are gaining in popularity- rising rapidly as the market opens up and becomes more accessible to the common man. Each type of trading style has its advantages and disadvantages and knowing what those are can help you choose the right style for yourself. No matter what style or sub style of trading that you choose to engage in, you should know a few things first. Most importantly, understand the market itself. Know which market you will be trading on, and what that market is best for moving. Understand the lingo for that particular market. Education is key, not only for these things, but also for the actual trading action itself. Make sure that you understand how to track a stock's progress, and know how to monitor it and how often you should do so. Know the regulations involved with the trading you hope to do, and remember, ignorance of the law is not a defense if you come in violation of them. For day traders, the regulations clearly stipulate that there needs to be a minimum amount in the day trading account. This amount is usually $25,000 and must be met or an equity "call" will be issued. The trader will then have the ability to deposit enough to bring the account to minimum or face having his assets liquidated for the same purpose. Short Term Trading: What to Know for Success Short-term trading can be lucrative, if done correctly, but there are many things that need to be known before that can happen. Not only are there many types of stocks, markets and financial products to choose from, there are many trading styles and sub-styles to choose from as well. Not only do short-term traders move fast, they can crash just as fast. This is one area where you do not want to learn as you go, but rather you want to be well educated before the first trade is made. Know the type of stock, or other financial tool that you want to trade, know the performance and forecasted future performance of that stock. Watch for developing trends, and watch for the market movement. The economy is unstable at best right now, so getting into a risky situation might not be the most advisable idea right now. But, if you have a bit of venture capital, the know-how, and a line on a fairly strong performing stock, then by all means, go for it. Because short term trading does move so quickly, there are some tools that you might consider to be a necessary part of your plan. The first would be a well thought out financial plan, including what you can afford to venture, what you plan to trade, the loss cap, and an exit plan. Next, you should consider a 2011 © www.the-forex-revolution.com/ The Forex Revolution Team good computer and strongly performing stock trading computer software to be a sound business investment. Being able to closely monitor your stock's movements is important, but you cannot realistically expect to simply sit in front of your monitor for this news. Trading software can be set up to deliver alerts to your email whenever there has been any change in a stock's position. Unless you are a financial professional, you will need to work with a stockbroker to develop the block of trades that you would like to purchase and trade. Working with a broker can also give you some solid information and education that will allow you to develop the skills that you need to go out on your own as a day trader. Short Term Trading: The Things to Watch For Short-term traders judge a stock's performance and gauge a stock's potential future performance in a number of ways. A savvy short-term trader can talk about the "personality" of a stock- and they determine that by looking at: volatility, volume and trend. Although long-term traders generally watch "trend" more closely than short-term traders, it can also be a helpful tool for the short-term trader at times. Volatility refers to the movement of the market in general. Have there been any large moves up or down? Has the market come to a stand still for the most part? If volatility is indicating a huge move downward, it is probably a good idea to either wait to enter the market, or if you are already in, to sell as much as possible to avoid a loss if a leveraged company goes under. If it is merely a slow down, you may be able to stand on position without losing ground, or at worst, losing very little. Volume refers simply to the number of buyers and sellers of stocks. If the volume is high, then the stock is seeing a lot of trading action and might be worth looking into. Of course, high volume may also be seen if a stock is being actively dumped, so careful monitoring is very important. Trend, again, most usually used as a tool of the long-term trader, does have its importance to the short- term trader as well. A stock's trend indicates the actual movement over a period of times- usually a week or more will be tracked and averaged to give a brief overview of a stock's trends. Some stocks will have much longer time to be studied and the trend will reveal much more information for them. The experts all agree though that after looking at volatility, volume and trend to make an initial stock choice, the next concept that has to be taken into account is your own personal trading strategy. A short term trader will have to know how he will approach the market, how he will enter and how he will exit before he even gets started, and that usually leads to selecting one of the many sub-styles of short term or day trading. There are several to choose from and knowing how the style boils down is just as important as any of the other considerations that you take as a trader. Trend Trading: Not As Common for Short Term Trading Short-term traders are not known for sitting back on their heels and waiting for a stock's information to develop. For this reason, trend trading is the least commonly used tactic for day trading. It is not that 2011 © www.the-forex-revolution.com/ The Forex Revolution Team the day trader does not look at all at a stocks trend, it is just that they do not wait for the complete trend to even develop. Most trend traders buy a stock and hold it until the trend that it was in ends. (The trend they look to buy into is one of higher highs.) Because it can take a week or more for a stock's trend to become evident, trend trading is not always high on the list of the ardent day trader. They may look at past performance history, but they will not wait to trade on a stock that is that iffy if they do not have to. Waiting for a trend to develop on a penny stock is not a sensible business decision, which why they are so appealing to the truly aggressive day trader. Because of their low buy in price, a penny stock is most suited for fast trading, without waiting for any kind of trend watching. Breakout Trading: Watching for those First Signs A breakout trader will buy a stock as they move up, usually as a "breakout" from a trend. In most cases, the stock will have either been trading flat, or with no movement at all. Once it starts its breakout movement, the savvy trader will be there, waiting to snap up blocks of this suddenly hot stock. The opposite of a breakout is a breakdown, where a stock suddenly makes a move toward the bottom after either topping out or again, not moving at all in either direction. Knowing which stocks are about to make these kind of movements is part instinct and part careful stock monitoring. This is one area where the best stock trading software can be the most helpful. A stock that has been in "trend" for a longer than usual should be even more closely monitored for movement, as non movement can be seen as an indicator of a future movement of one sort or another, so it is imperative to watch- although it will take you away from other faster action trades, briefly, this monitoring might actually pay off with huge rewards if you can catch the right stock heading in the right direction. A breakout may be a break the bank situation if you know what you are watching for. Counter-Trend Trading: Of Trading Nature Counter-trend trading lends itself to short term trading very well. A trend takes awhile to establish, a counter-trend can be spotted in a matter of hours. Say the stock of ABB Inc. has been trading rather sluggishly for weeks, with all trend information indicating that the trading will remain that way for weeks. The government announces a huge tax bonus and other advantages for the type of industry that ABB is part of, so the profits for this company are about to shoot through the roof. The trend that had been in place, and forecasted to remain in place is about to change directions and quickly. The counter trend trader would have read all of the signs, along with this news report and been ready at market open to buy blocks of ABB and others like it in a heartbeat. Of course, counter-trend trading can also move in the opposite direction when a trader dumps off large blocks of stocks after something that will dramatically change the company's solvency is made public. The counter-trend trader will seek to sell off as much as possible to avoid being caught with worthless stocks. Pull-Back Trading: Another Form of Reversion Trading 2011 © www.the-forex-revolution.com/ The Forex Revolution Team The pull-back trader will take advantage of a stock's current status to make beneficial trades for himself. For instance, the strong stocks that are temporarily weakened can be bought for reduced prices and held until they come back to their normal state. (If they do.) Weak stocks that are suddenly and inexplicably trading strong can be sold at inflated prices, usually at a fairly steep profit. Sometimes the trading levels will return to normal levels, but unfortunately there is no guarantee of this happening. The stock market is a very variable commodity and the potential for putting yourself in very big financial risk is very high. Pull-back trading can be viewed as one of the more unseemly, unscrupulous forms of stock trading, but in reality, it is only business. The whole point of being in the stock market in the first place is to turn a profit, so if a technique can give you an advantage, why shouldn't you do so? Intraday Trading: An Adult Game of Hot Potato Day traders are the shortest of short-term traders, usually. But, occasionally there is a trade that is too hot to handle for longer than a few hours or less and the trader will have to move it. An intraday trade is simply one that has been made within the course of a day, rather than the slightly more patient day trader that will hold a stock's position for about a day, possibly even two. Pretend that Billy Broker has suggested that you buy a small block of ten shares of BAB Co., which you do at ten a.m. During the noon news there is a report that there is a possible merger between BAB and ABB, which would change the financial outlook of the two companies. You call Billy and inform him that you want to split your stock block of BAB and add an additional block of ABB- small enough to shield you if both companies stocks fail, but enough to hedge if either or both becomes hot all of a sudden. You have just traded twice on BAB and once on ABB in the same trading day- technically an intraday trading. Billy might suggest that there be more movement one or the other of the companies, but you are not obligated to follow your broker's advice. Remember the more action that you take on single block of stock is the more risk that you incur on that same block. This is a trading style that will require discipline and restraint above all else. While it is true that you can walk away with a huge profit, you can limp away flat busted just as easily. Scalping: How to Make the Most of the Spread Traders work hard to make the best deal that they can, one that will yield them the highest amount of profit at the lowest risk. The scalper makes countless trades per day with the goal of pulling just a little bit of profit from each through working the bid-ask spread. (Quick Tutorial: the bid price is the one announced by the buyer. Ask price is the one announced by the seller. The difference between the two is of course, the spread.) The more actively a stock is traded, the harder it will be to determine what price will actually be the 2011 © www.the-forex-revolution.com/ The Forex Revolution Team final one Lesser traded stocks may be more amenable to one side or the other, but that will depend on whether it is performing well or flatly at the time. Again, it is very important to know which direction a stock is heading, where it has been and how active the trading has been surrounding it. Will there be a huge bid-ask spread to deal with? There is almost no way to avoid dealing with the spread, and some experts would say that although the spread can seriously cut into profitability, it does have its advantages in the stock trading systems, so it is better to see it as a tool. Momentum Trading: Riding the Waves to Profits A momentum trader watches for a stock to start moving in one direction or another and then jumps on board to catch a ride with it. The trader will watch for signs of the impending change in movement by watching volume and other indicators closely, and when volume changes upward, they will make their move. Momentum trading is one style that absolutely requires careful monitoring of the stock signs for any sign of a sudden movement in volume. If you do not catch the wave right at the beginning, you may miss out completely. For instance if the price is down, but the volume indicates that a stock is about to take an upswing, waiting to long will make you miss out on the lower price. Once that price does start moving upward, it will be almost impossible to find it at the bargain price. The law of supply and demand will stand here. The more demand that there is for a limited supply of stocks, the higher the going price for that stock will be. Technical Trading: Never Far From a Monitor The technical trader is one that will never be spotted too far from his computer monitor, his television screen, or without his copy of the stock trading journal of his choice. He will have his cell phone set to give him updates and alerts whenever there is any development on the market, whether that movement involves his own stocks or not. These are the traders that are often referred to as the "eggheads", obsessed with charts, graphs and other types of monitoring for any sign that could be used to their advantage. They are thrilled with little dots on graphs and become overjoyed when there is any hint at all of a convergence on those graphs. Look for the technical trader to be a slower day trader, with a more methodical approach, rather than a gut reaction type trader. Contrarian Trading: Swimming Against the Tide The contrarian trader is one that does not trade according to what current indicators would suggest. They are buying in a seller's market and vice versa. They can look at the leading stock market information and make a totally incongruent trade- in the hopes that the contrarian action will net them large profits. 2011 © www.the-forex-revolution.com/ The Forex Revolution Team There are actually three schools of thought in contrarian trading- not only the one described above. Another type is the trader that bases his trading on certain aspects of trading rather than the actual value or price of that stock. For instance, they will cite the adage, "what comes up, must come down," in relation to stock prices- but more importantly, they will base their trading activity on assumptions of the market in general, and the actions of their fellow traders. To the contrarian trader, other traders tend to move in groups rather than solo, and that is what they will watch for and expect. They will then make a move in the opposing direction. The third type of contrarian trader is the one that works in reverse of the second type. Instead of focusing in the market and the other investors, they will base their trades on the value of the stocks at hand and the assets that are available. No matter which of the types of contrarian trading you try your hand at, you must understand that the risk of failure is high, with the added bonus of being wrong all alone. Because the contrarian will base trades against the grain, he can fail more miserably than anybody else. Range Trading: Nothing To Do With Cowboys This trading strategy can be simply defined as one where you buy when your stock's price is low and selling when it moves to a higher level. Range traders do not monitor the stock news, for instance, they focus mainly on price as an indicator of a stock's performance. These traders will suggest that nearly all of the time, a stock's price will not form an actual trend, so there would be no sense in monitoring that. Range trading is highly regarded for its simplistic approach to decision making. Before it becomes suggested that range trading is easy, or that there are not complicated ins and outs to this type of trading, rest assured, this is not the case. There are many intricacies to understand and it's own terminology that must be learned and understood. Range trading is easy, but only once you know all of these things. High buying power= support High selling pressure= resistance The concepts of support and resistance create a unique pattern on a stock chart, often referred to as a "channel". Once the market has gone to a level that defines these areas, trade action will become concentrated in one direction or another allowing the trader to make his most lucrative move. There of course are some exceptions to every rule and range trading is no different. Not all stocks will trade as expected. Markets can change in the blink of an eye and reverse directions without warning. As with any other type of trading, it is important to know that the risks are still there, to know your risk tolerance and to trade accordingly. Rebate Trading: How to Make Quick Profits Rebate trading is one of those trading styles that is not only fast paced, it requires some solid trading knowledge and the ability to make some quick trades. You need fast computer access and the ability to 2011 © www.the-forex-revolution.com/ The Forex Revolution Team get on an electronic communication network (ECN) to take advantage of the quick action of rebate trading. Once you have bought a large block of stock shares, post them on the ECN without using a middleman, which would cut down on your profits. Once these stocks find a buyer, you will receive a rebate, an amount that will be determined after the ECN takes its fee out of course. Once there has been even the slightest amount of profit on this stock block, exit. Now is not the time for being greedy, waiting for a larger rebate amount will lead to huge losses for you. Take the small, rebate profit and run. The key adage to adhere to is: cut your losses. For rebate trading, the actual stocks themselves are not as important as how many of them you can actually move around. The rebates will come from each transaction that is made, not from the stock rankings. There are other tips for the rebate trader to maximize their profit margins. These include trading across all time zones to maximize the day's trades and working with the most trade volume as possible. Although day trading in general can be very risky, rebate trading is even more so because the trader can make so many trades per day that it becomes nearly impossible to keep track of all the action. This is one arena that will most certainly require the best available stock trading software, and the fastest computer you can afford at the time. News Playing: Take the Time to Monitor What's Going On Around You The concept of news playing is simple: watch the news for every bit of information that can be gleaned about the market. Right now, that is just about every story, one way or another. If you learn something about a company's stability on the evening news, it can change the way that you deal with your stocks. News playing is not actually a stock trading strategy per se, it is more taking advantage of situations that become common, public knowledge. Not listening to the news on the day of a potential trade does not make any sense at all. Could you really buy a certain type of car on the day that there is a major market recall of that vehicle? What do you mean that you did not know about the recall? Not paying attention to what is going on in the market, or the world around you makes you a dangerous, foolhardy trader at best. It can make you a financial cripple at worst. Avoiding the Price Gaps: Not Falling In Some traders will let a stock ride no matter how shaky the current market is, or what the indicators would say to do. Even if all arrows are pointing at selling, these traders will stay with their stocks, hoping that the trend will reverse itself without causing too much of a loss. Price gaps may indicate a stock's impending doom, or its eventual climb. The larger the gap between actual worth and price being brought in, the wilder the market is behaving at that time. An unstable market can be a good for either buyers or sellers, but only if they truly know what they are doing. Of course, an unstable market will make many traders too nervous and they will back out and wait for 2011 © www.the-forex-revolution.com/ The Forex Revolution Team some semblance of stability to return. Such unmanageable risks can lead to selling out or selling off the majority of a stock group to avoid anything like company collapse or leveraged buyouts that adversely affect stock holders. Letting your profits run unchecked can be a problem as well. For some traders, they understand the concept of using your profit margins to fund reinvestment without having to touch other account balances. Using profits in this way allows your money to work for you, rather than the other way around. Some traders however like to watch the huge amounts of profit run up, and will leave it ride, using the equity in their trade accounts to fund further trading activities. Meanwhile, the market grows even more unstable and the stocks that he had invested in all crash, taking all untouched profit with them. Had he reinvested some of those profits into different stocks or other financial tools, he would have at least had some safe money to fall back on. Now he has nothing. The economy is in crisis at this time, there is no denying that fact in any way. Not only is the market struggling, many traders are unable to make their minimum trade equity amounts without incurring a trade call. Dealing with an unstable market can be risky at best. This is not the time to play the stock trading cowboy- this is a time for solid investments and strong education. Careful planning and monitoring can mean your financial life or death, especially now. A news report in recent weeks said that nearly every stock nowadays will be considered a penny stock before too long. Penny stocks, you will recall, are those that have a low per share price, are traded on only certain markets and feature a small market cap. As more and more companies fail, the market caps will continue to drop, making more and more stocks technically penny stocks. Regardless of this designation, there is still the chance to make a profit, even in an unstable market from these small stocks, if you know which to buy and stay within your comfortable loss cap. It does not take a business degree to understand the news that is coming from Wall Street; hard times are not coming, they are already here. Now is not the time to panic, it is time for careful study and slow rep-growth. The Final Wrap Up There were many things covered in this guide in relation to short term and day trading. Knowing what you should watch for when deciding which stock to buy, during the process and after the trade has been made is one of the most important concepts that was presented. Along with monitoring your stock's progress, you should make sure that you are adequately educated about not only the market that you are trading on, but terminology, jargon and trading in general. Make sure that you are aware of any and all regulations that pertain to you and the type of trading that you engage in. Do not wait until you have gotten into legal trouble to learn these regulations. Knowing the signs that indicate a stock's movement potential is very important to decision making as well. Know what you should be monitoring and which of the signs that you normally would read for each trading type. Some trading styles watch volume, volatility and trends, while others simply monitor price or go with gut reaction. 2011 © www.the-forex-revolution.com/ The Forex Revolution Team Trend trading does not sit as well with short-term traders as other trading types. Trends take at least a week or more to develop, and the short-term trader does not hold a stock position for that long. Day traders and other short term traders tend to hang on to a stock for a day, or two at most before selling it off to buy others. Short-term traders, especially day traders often look to large blocks of penny stocks for the chance to make quick, potentially large profits. Penny stocks are even riskier than the day trader's usual trades, so they should be bought and sold with great care. Breakout trading is the sub-style of day trading that monitors for a stock to breakout of a slump. Breakout traders must be very quick to react to news or signs that a stock is going to change direction, often suddenly and dramatically. Once a breakout starts, those that did not get in on the first wave, will miss out on a golden opportunity. A counter trend trader is one that does not follow the crowd when it comes to a stock's trends. They will cut against the grain and do the direct opposite of what a stock's behavior would indicate. They will buy when everybody else is selling or vice versa. They follow a stock's price rather than the actual trends that surround it, hoping to cash in on their unique approach. Although every trading style carries a huge risk of failure, counter trend trading adds to that the humiliation of failing and being very wrong as well. These traders went against all prevailing information and should they fail, they will have to deal with that as well. Pull back trading takes advantage of stocks when they are performing in ways other than what they normally do. They may buy a strong stock that is performing on the weak side at the moment or sell a weak stock while it is showing some unusual strength. Again, this type of trading requires close monitoring of potential stocks positions. Intraday trading occurs when stocks are traded within the same business day. A trader can buy a block of stocks at nine, sell a portion at noon and the rest at three- these would all qualify as intraday trading. Intraday traders that buy and sell huge bundles of stocks every day must keep careful track of their movements. A trader who works with dozens, hundreds or even more trades per day is known in the industry as a scalper. They work to make small profits from each trade that they make by taking good advantage of the bid-ask price spread. Bid price is the price the buyer suggests, the ask price is suggested by the seller. The difference between these two numbers is the spread. The spread can be used to pay for trade fees, and as the commission to the broker who made the deal happen. Momentum trading is one that will watch for a sudden climb by a stock that has been trading on the downside or stagnant for awhile. If you catch the wave at the beginning, you can make huge profits. The later that you get in, the lower your profit margin may end up being. The technical trader is one that relies on gadgets, graphs, and charts to make his trades. He will never be far from his computer monitor, his cell phone or any other gadgets that can give him a quick update. He will spend hours watching dots on graphs, waiting for that one connection that will tell him it is 2011 © www.the-forex-revolution.com/ The Forex Revolution Team time to make his move. The technical trader may be the slowest of the day traders, and although they may actually make trades that qualify them as a day trader, they will still closely monitor trends, and other signs first. Contrarian traders are difficult to define because there is more than one kind of contrarian in this subset. Some will defy common knowledge and the current market indicators and go the opposite direction. Some will buy or sell stock, not based on actual value but on price patterns. Still others will do the reverse of this, and will not buy on price or other current trends, but on the inherent value of the stock or of the company that they are trading for at the time. Range trading is a trading style that requires knowing some price structure as well as other trend information of a stock before making a bid on it. There are specialized terms associated with range trading that need to be learned: high buying pressure is support, while selling pressure is known as resistance. Rebate trading requires making many trades per day, posting them on the Electronic Communication Network and then allowing them to be sold. The ECN gets its cut, and you reap the rest as a rebate. The more of these trades that you can make, the more of a profit you will incur. Rebate traders do best when they take the profits and go as soon as they get them. Waiting around for larger profits can be dangerous and can leave you empty handed at the end of the day. News playing is not so much as a stock trading concept as it is good practice. Monitoring what is going on in the stock market and financial world, as well as the world on a whole is important for a wide variety of reasons. News about mergers, trades and other vital facts can influence the way that you buy, sell or trade your stocks, so burying your head in the sand when it comes to the news is not only foolish, it can be very costly. And finally, the guide briefly mentioned the price gap that could pull traders in and destroy them. The price that you pay for a staff can very likely be different from the amount that it is actually worth. The bigger that that gap gets, the more likely you will be to face financial doom should something happen to that company before you can sell some or all of the stock in question. On the other hand, a very small price gap can equal larger profits when you buy or sell it. Stock trading can be very lucrative if you play your cards right. It can be a rewarding way to build up your retirement account or an interesting hobby. Trading can become a new and exciting career for the right person, with all of the right attributes and the right mind frame to make it work. If trading is something that interests you, then you should start small and work your way up, but never take on more than you can financially handle. Know your own limitations, your own financial burdens and obligations and set your absolute loss cap well under that. You do not want to find out that this is not the life for you just after you have lost it all on one bad trade. Educate yourself about stocks and trading in general, as well as about the regulations that govern these trades. There are many publications that will give you the basics, and you must make it your mission to know them all. Pleading ignorance is no excuse when it comes to dealing with the SEC. Make sure that 2011 © www.the-forex-revolution.com/ The Forex Revolution Team you have not only the know how, but the drive, the desire and the equipment to succeed. Work with a broker at the onset and then move on to trading on your own as your knowledge and skills grow. Make sure that once you are ready to be a trader on your own that you have a fast computer, even faster Internet connectivity and the best stock trading software so that you can get in the game, stay in the game and yes, win the game. The Rising Popularity of Day Trading: How to be a Financial Cowboy The chaotic image of the stock market is a popular one in movies, television and even on cartoons. Close your eyes and you can probably picture the scene really well: the clanging bells, the urgent shouts of buy, buy, buy or sell, sell, sell, and people milling around on the crowded floor, waving sheets of paper and motioning to people on the level above them. Monitors flash information and every new bit of data sends the crowd into a new flurry of frenzied motion. A bell rings and everybody files out, trading is now done for the day, but they will all be trudging back in to do the same thing the next day. Those days are changing now, thanks largely to the advent of the Internet and the popularity of computers in general. Many markets have moved all of their action to the computer screen, so now you can trade from the comfort of your own home, simply click a button you are a trader. But, is it really as simple as all that? Does it really pay to trade a few stocks here and there, or does it take a huge portfolio to show any glimpse at all of profit? Day trading has become more and more popular in recent years, with some day traders going from trading in their spare time to augment their regular pay to becoming full time traders who may even advise others in the fine art of day trading. But what exactly does a day trader do, and what denotes day trading? Are there more risks involved in this activity or is it the same as any investment venture? Do day traders face the same hurdles that other traders do, or do they have even more to consider? In the end, does day trading make enough profit to be worth the risk, or is it just a fruitless venture, claiming the financial lives of countless victims? Computers and the Rise of the Day Traders Day trading is the same basic concept as any other type of trading with one major difference: day traders rarely hold a position with a stock overnight. Stocks are bought and sold in the matter of hours- hopefully for the trader with quick profits. Because of the very speed that these transactions are made, day traders risk more than more traditional traders do, and the stocks that they deal in tend to be more volatile and far more unpredictable. Within the world of day trading, there are several sub-types and each has its own advantages and disadvantages and should be investigated thoroughly. Although day traders do trade on many markets, with many types of financial products, they do the vast majority of their high speed trading online. In fact, the days of the Wall Street market scene are falling away, as more of the trading is being done on a huge computer network. NASDAQ is completely electronic now, while the NYSE only does a portion of its activities online. To remain competitive it will have to move more and more of its trading action to the computer networks and 2011 © www.the-forex-revolution.com/ The Forex Revolution Team allow the brick and mortar of Wall Street fade away into historic glory. The world is moving far too fast for the traders to remain competitive if they are not able to move as fast as the slowest computer- the traders that can adapt will succeed, the ones who cannot will retire, hopefully with a nice nest egg. Day traders have a reputation, even among other financial professionals of the rebel, the cowboy or the renegade. While it is true that many day traders do not do as much actual research before they buy a stock, they must still know enough about a stock's performance or expected performance to make a profit or they will not last long in this unforgiving field. For every failed day trader, there are countless others ready to saddle up and take the chance to make their fortune and their names on the back of a few quick, but good trades. Whether taking on day trading as a hobby or a career change, there are many things to be aware of, including what you think makes your personality suited for this change. The casual trader should know just as much as the professional about types of trades, trading and the markets themselves. No matter who you are or how many trades you make per day, you should know what the risks involved are and the easiest way to get started. And the one constant thing, across the board, for both the casual and the professional trader is the ease that you can make these trades now- with the computers and computer software, literally anyone can become a day trader with little problem and a minimal (cash) investment. Before you get to the amount of cash that you need to have to invest in the trading market, you need to consider a few other facts as well. Will you be doing your trading on your home computer? Is your system up to the task at all? How well can you expect to do as a day trader if your system is hopelessly out of date and miserably slow? Will your computer crash just as you are ready to make a huge trade? By the time your computer comes back online, will you have missed out on a golden opportunity? Updating your computer system makes sense, not only if you are going to be using it to make a living, but also to keep your software up to speed, as it would be of no use to download state of the art software on a computer that moves too slowly to make much use of it. Don't waste time on the top of the line computer, with solidly recommended software if you are going to limp along with dial up. Your best bet? A well made laptop computer, good software and a Wi-Fi connection so that you can keep up with your trades anywhere that you want to go. Computing did not breed the day trader, but it has made it not only more common, but far more lucrative. Because you can make countless, simultaneous trades from a single computer screen, you have increased your chance of making a profit in equal amounts. Of course, just having the equipment and the desire still does not make you ready to trade, nor are you even ready to start talking initial investment. Knowing What you Want to Buy or Sell Trading stocks is pure and simple: jargon. It is the language used by the stock market and it only means that you are either buying something, or selling something. Of course, in the world of the stock market that something is usually technically nothing. Confusing? Not really. When you walk into the local grocery store, you buy "something", the cashier takes your money and you walk away with an 2011 © www.the-forex-revolution.com/ The Forex Revolution Team actual item in a bag. In the stock market you buy - stocks, that are nothing more than an entry on a computer, or you buy commodities, which are again, nothing more than an entry. Or, you buy futures, which is nothing that even exists yet- you have bought things that may or may not come to be, and you will never actually lay your eyes on any of it! The stock market is not bagging up piles of stock certificates and giving you frequent trading coupons. So, you have looked over the market and you are confused about what exactly is available for you to trade- there are so many choices, after all. There are, of course, the traditional stocks, which are the investments that you make into a company. Each stock certificate is like a miniature title of ownership to that company. The money they make from the sale of their stocks is then reinvested back into the company by the managing board, ultimately strengthening the company. The company will sell only so much of their stocks to the public, and the rest will be held in trust by the governing boards so that they can keep control over the decisions that are made for the company. Commodities are the actual item when referring to things such as corn, soybean, wheat and crude oil. A commodity trader is usually a big timer, so this is not a good choice for the beginning trader or even the more experienced day trader either. Commodity traders usually are of three types: the commercials, the large speculators and the small speculators. If commodities are the golden goose in your opinion, then consider forming a group of other traders to buy into the market. (This is still fairly advanced, and may not be a good idea for those that are more amenable to day trading.) Futures is like the commodities market for various of reasons, but instead of buying shares of the profits from crops that are ready for market now, the futures trader buys contracts for crops that are not even in the ground yet. Futures is a risky market for a lot of reasons, most notably because not everything can be forecasted or foreseen. Day traders can move hundreds of thousands of dollars on the currency market, and never once visit any of the countries that they are trading with. While the Forex market has slightly less stringent restrictions and guidelines, they are not totally rule-less and you should know the ins and outs of this very fast moving market before even trying your hand at it. At least until you have made enough trades to be comfortable with the process, you should stick to straightforward stocks. Just getting the hang of the speed of the day trading lifestyle can be tricky enough; so do not complicate things needlessly. The Totals So Far You have not even got to that first set of trades in your new life as a day trader and you should realize that by now you are down at least a couple thousand dollars. You have bought the new computer system, the stock trading software, and upgraded to Wi-Fi. So, are you still ready for that career change? (If this computer upgrade process has just bankrupted you, then you might need to rethink the idea.) Day trader regulations are clear: you must have a minimum amount in a trading account to qualify as a 2011 © www.the-forex-revolution.com/ The Forex Revolution Team day trader, if that amount is not met, a "minimum equity call" is issued- if the call is not met, you can lose the assets associated with the account, as well as a reduction of the amount of trading power that you have. The regulations are lengthy and must be thoroughly read before making that first trade or you will find yourself in over your head in a quick fashion. That minimum amount is $25,000 for a day trader account- if you fall below that amount then the "call" is issued. So far, you have invested at least $2500 in computer and software, and the $25,000 to open the trade account. That total is $27,500 just to get started. That is a high amount of money, especially with the current economic situation, so make sure that can really afford to lose that amount of money if something should fail. (Day trading is very risky, remember.) Sit down and figure out a budget, including a loss cap that will show you clearly what you could afford to lose if you make bad investment choices or if you are really not cut out for the trading lifestyle. If that figure does not come any where close to the minimum trade account amount, then skip day trading. Remember, these amounts are subject to, and very likely to change at any time. Keep up to date with the market and the requirements so that you do not find yourself in the middle of any nasty surprises. The Risks of Day Trading Trading can become as addictive as any narcotic in the world. The hardcore trader lives for that next mouse click, thinking he can reverse his fortunes in the blink of an eye. He is unable to see poor trades as losses; rather he sees them as detours. He does not see profit as a financial reward; he sees profit as the chance to make even more money. He will siphon every bit of his profits back into the market and risk it all on the next set of trades that he chooses to make. At the end of the day, he will have used all of his available trading power and no matter what the actual cash balance is, he will call it a good day. The adrenaline rush is almost enough for him to count it as a win. Undisciplined or uneducated trading is not only dangerous; it can undermine the entire market system. As more traders fail in larger and more public ways, the public becomes more nervous and less likely to invest any money at all into the market at large. The more money that stays in banks or at home in empty peanut butter jars means that much less flowing into the stock market and into new and growing businesses. If those businesses cannot manage to show a profit fairly soon into their operation, they will fold. If yet another business folds, then public confidence will fade even further, and the cycle is repeated. While the entire economic downturn cannot be blamed on reckless day traders, they certainly are not helping in the long run. If a day trader is working as part of a group, that group will lose confidence in him if he makes several bad trades- the more money that he loses for them, the less likely they will be to give him more money to invest. The day trader also puts himself at risk by not watching the movement of his stocks closely enough. If he buys a failing stock at noon, but does not manage to unload it by the end of the business day, he will have to suffer that loss. Once he tallies the cost of that bad transaction, he has to hope that he has enough to make his minimum or face an equity call. If he cannot make the call, he either has to come 2011 © www.the-forex-revolution.com/ The Forex Revolution Team up with enough money to make the call, or he will face the sanctions and restricted trading. Finally, the day trader risks the loss of a graceful exit if things get truly bad for him. The lure of high money, and fast living can become too much to walk away from for some people. Remember the keys to successful trading: education, preparation, careful monitoring of all of your stock's activities, a set loss cap and an exit plan. Because there is such a high amount of money needed to keep a day trade account open, it can be hard to back out of. Not having any risk capital can be bad as well. You want to keep enough money to avoid dipping into your profit earnings. Having an adequate amount of risk capital will eliminate the need to do either. Set up the account with money ahead, to cover those riskier trades and you will not have to worry about how to cover your account at the end of the day, regardless of how the day's trading went for you. Finally, not stopping when you are close to, or at your loss cap is probably the most serious of the risks that the day trader faces. The deeper you allow yourself to go once you have neared that limit, the more that you will stand to lose if you cannot reverse the downward trend. Day Trading Does Have its Rewards Before you walk away with the idea that day trading is all risk with no profit, think again. The truly savvy and careful trader can stand to make tremendous gains in a minimum amount of time. Because day traders tend to be a little more aggressive than others, they will buy the unproven stock, or buy more of a stock that might seem a little shaky to the more traditional stock trader. Once a stock takes off and becomes huge, it is usually the day trader that makes the money first. Of course, the right stock is the stock that is performing well at that moment, so careful monitoring is of the utmost importance, especially with day trading accounts. While trading one set of stocks, the savvy trader will be watching for trends leading them to the next hot ticket. Forecasting what might possibly be the biggest moving stock can protect the trader from possible financial risks or may make incredible profits. Day trading is also rewarding on a more visceral level. Imagine the thrill of making a trade that nets you a huge return in one day's time. That gut level thrill has to be one of the best parts of being a day trader. Unfortunately, that sense of thrill and danger can lead to even more undisciplined behavior on the part of day trader, so be careful. It cannot be repeated too often, do not forget about your loss cap and do not exceed it. Beyond Day Trading Among the short-term traders, there are more than just the typical day traders. There are swing traders who are traders who do not just hold a stock for a day (day traders), but shorter than a few weeks, (trend traders). Does that make the trader more sensible, and more responsible than the typical day trader? Not necessarily, but it does make them the less extreme of the trading types. 2011 © www.the-forex-revolution.com/ The Forex Revolution Team Among swing traders, there are other types as well. There is the scalper, who makes literally dozens (or more) trades each day, hoping to glean a bit of profit from each as they go. There is the momentum trader, who watches a stock's volume trend and hope to catch onto the one that is moving in the right direction. Technical traders are those that base their every move by a chart, a graph or a combination of the two. Tech traders are obsessed with every move on the stock market, and will be the trader who monitors the action most closely. Fundamental traders get back to the basics of the stock market and stock trading, and read the trade papers for news of earnings, or loss reports, mergers or corporate buyouts and other such important information. These traders are the ones most closely aligned with traditional trading. Swing trading can only work with the right ingredients. Just like baking the perfect triple chocolate cake needs the best flour, sugar and of course, chocolate, swing traders need to closely monitor the market to choose their own key "ingredients" to "bake" their success. It should go without saying that the first tip to swing trading with any kind of success would be picking the right stock, but sometimes the simplest concepts are the hardest to understand. Look for "large cap" stocks that trade actively on the major markets. Computer companies and other huge corporations are good examples, the mid level food producer is not. Because these companies are so big, their activities tend to swing between extremes rather than slow growth or decline, so the swing trader can catch the market at the right time and clean up. Swing traders also must choose the right market. Not only does this mean the right, literal market, but the right activity of the market at the time. If one market is in complete downswing, then moving on to another makes solid business sense. For this reason, the swing trader is in the best place for market success when the markets are not moving at all. The only problem here would be accurately predicting what movement the market will make and when. The bottom line for swing traders, as well as any other type, is careful consideration of the market before making any movements. Monitoring a stock's performance is of the utmost importance. Know the regulations that are involved with the trading type that you plan to do. Know your loss cap and do not allow yourself to get too near it. Bad Money Management, The Quick Way to Lose a Buck There are bad investments, and then there are bad investors. A bad investment can be made by even the savviest financial mind, and it can happen at any time. Market trends are not set in stone, and the stocks do not always follow the trends perfectly. Predictions may say that a stock is about to behave in one way only to have that same stock go in the complete opposite direction. A bad investor, on the other hand, will throw good money after bad and refuse to read the signs that are clearly written on the stock charts. If the stock is about to head south by all indications, and you choose to reinvest anyway, that is a bad financial decision on your part, and you should reconsider whether or not this is a viable option for you to pursue. Day traders cannot, by the very essence of their lifestyle and career requirements, afford to make very many poor choices. The smart day -trader will trade 2011 © www.the-forex-revolution.com/ The Forex Revolution Team within their limits, allowing themselves the ability to make a graceful exit if that becomes necessary. Being aggressive should never equal being stupid. One bad investment can be written off as a loss, but a string of them can cause serious problems. Remember that a day trading account is one that has a minimum equity amount that must be met- so bad trades that continually eat up this amount without seeing any returns will put you at risk for an equity call. Remember the simple equation= money in + money in= profit, but money in- money out= loss. If you cannot recoup initial investment in a relatively short period of time, you must move on and find other stocks that will realize reward. Bad money management can also mean overextending yourself unduly. If it was all that you could do to raise the initial minimum equity amount, then buying into a huge block of stocks beyond that amount will put you at risk, especially if those stocks do not perform as expected. This is one area that will require not only close monitoring of the stock charts, but discipline as well. Stock trading software that helps track stock performance as well as your account balances can be helpful, but you will not need it if you heed warning signs. If you constantly disregard trends, then you might as well not look at the computer screen at all. That would be the same as opening your window and casting your cash to the wind. Pay attention to the signs and the trends, and know when it is time to sell before it gets to be too late. Once a stock has gone below a sellable level, it is worthless and has just cost you the amount of that investment. Day traders do make fast trades, but there are times where those trades are just not fast enough. Incompetence is not Bliss One of the most important things to consider is that making a bad investment or two is, or at least should not be, the end of the world. Making dozens of bad investments is not only bad, it is a sure sign of incompetence and it should be taken as a serious warning that you are not cut out to be a day trader. It could be the speed at which trades are made that is tripping you up, or it might be the many regulations that keep catching you flatfooted. No matter what the exact issue is, incompetence can cost you more than just money (although that is serious enough); it can cost you the confidence of your peers and colleagues and put you at serious risk for trade violations. In the general scheme of things, dealing with the SEC is not a goal to aspire to. The saying that ignorance is bliss, does not apply here. Stating that you did not know the regulations will not let you off the hook. You cannot invest $25,000 in a day trader account, begin making trades and then expect to use the "I did know that." as a defense for any violations. It is your responsibility to know and understand each and every day trader regulation before making the first trade. If you do not, it is imperative that you educate yourself thoroughly. And, because these rules and regulations can change keep abreast of any developments involving them. Learning the rules and then not paying attention from then on makes about as much sense as not learning them in the first place. 2011 © www.the-forex-revolution.com/ The Forex Revolution Team Finally, remember that the day trader rules apply industry wide, not just for one firm or another, or in only one market. Despite what impression you are given by some other traders, the rules do apply. Do not allow yourself to become lazy- keep up with your education as well as the monitoring that will make you a profitable trader. Penny Stocks Can Equal Big Dollars for the Day Trader Day trading is risky, that point cannot be made often enough. There is the possibility of not only doubling up your risk but your profitability as well. Trading penny stocks can be satisfying, and because the price per share is lower than more traditional or established stocks, there can be a bigger buys in. Penny stocks are those stocks that have a price per share that is less than a SEC or market defined amount, usually a small market cap and traded only on certain markets. Penny stocks are very unpredictable, but can be highly profitable if you choose the right one. Day traders that seem to have that inherent sixth sense of what stocks are moving in what direction can make huge profits from trading penny stocks. Blocks of these shares can be profitable enough to fund other, bigger buy ins for more established company stocks, but not always. In fact, with penny stocks, the loss cap has to be adhered to more strictly because they are so volatile. Penny stocks are good for the day-trader, as the more traditional traders often overlook them. In fact, many financial professionals will refuse to trade a penny stock because of the work entailed in tracking them, and because they feel they may be beneath them. Because of the floating definition of what a penny stock is, some smaller, but still very solvent company's stocks will go largely untouched. Some pros will define a penny stock by market cap alone, which makes some of the strongest performing, but still growing companies prime for investment. This is one place where careful monitoring of a stock or a company's progress or lack thereof will put you at a huge advantage over other traders. Think about it, a small company that is growing in leaps and bounds is probably flying under the radar of most financial firms as they watch the action involving the larger corporations. That small company offers its stocks at a bargain basement price, and you, the savvy day trader buys as much as possible in one trading day. The next day, that same company becomes famous because of a news report, and suddenly your so-called penny stock trade has made you a huge profit. On the down side, that scenario could go in the direct other direction. You buy up a large block of stock from this small company and then the next day you wake up to find that the entire company has closed because of some bad luck or simply because of the economy. You have now lost every cent you put into those shares of that company. When dealing with these penny stocks, the day trader must be aware that the smaller the market cap usually equals a small company. Unfortunately, it also means the smaller the company, the larger the risk of total business failure, however being able to buy blocks of an unproven company and watch it grow and thrive can be more than profitable, it can be very rewarding. In some small part, you can walk away feeling that you helped that company to survive, and from an investment standpoint, you might have. 2011 © www.the-forex-revolution.com/ The Forex Revolution Team Even Shorter Than Short Term: Intraday Trading Day trading is fast action, of that there should be no doubt, but sometimes that action gets to be even faster. Intraday trading is even faster. These trades are done within the same day frame- often several times before the end of the business day. Intraday trading can see the same stocks being bought, sold and re-bought by a single day trader all within the day's open trading. There are many reasons that intraday trading occurs, but it comes down to the market itself. If the market is not moving well, there might be a need to buy and sell the same block of stocks to possibly get things going again, or to keep from holding onto bad trades. Intraday trading can lead to issues however, because it changes the trade account- and can lead to SEC regulation violations if the trader is not careful. This type of trading can keep a trader from being caught on the bad side of a trade, and still allow him to meet his trade equity account minimum. Because of the risks that are involved, intraday trading requires vigilant stock monitoring, regulation education, and a well planned, and strictly adhered to, stop loss plan. Knowing how to exit gracefully is almost as important as knowing how to get into the market in the first place. Using Cash to Buy Currency to Make Cash The day trader may also want to dabble in the currency trading market, known as Forex. Unfamiliar with the term? Don't be embarrassed, this largest of the financial markets has remained largely un- traded by the smaller, "retail" traders, including the day traders. Currency trading has gained popularity in recent years, largely because the Internet has not only opened the market up, but made it faster to trade on as well. The Forex market is no different from any other market in that you absolutely need to educate yourself before you begin. Know the terms and the jargon. Know what rules or obligations exist that you must follow. And, as always, know your own limits. The day trader may like the currency trading market for one relaxed rule: inside information is not against the rules in this market. If you know something about a country's economy, whether it has become common knowledge or not, you can use it to make the most beneficial trade for yourself. Of course, not only does this mean that you can use this information, so can all the other traders. The Forex market is huge- to the tune of two trillion, US dollars per day. That size alone makes this a fast moving, and potentially hugely profitable enterprise. But, what exactly does a trader buy or sell when dealing on the Forex market? Basically, contracts are what are bought or sold- everything comes down to some computer entries and nothing more. One last thing to keep in mind with the Forex market: the currencies that are traded are always traded in pairs. You must know the meaning of long and short when relating to these pairs and how to buy and sell your pairs at the maximum profit. Day Trading as a Career, The Amount You Could Make (If you are Good) 2011 © www.the-forex-revolution.com/ The Forex Revolution Team So far, this guide has covered the basics of day trading and the risks that are involved. While it was mentioned that great profits could be made, there is even more potential money for the savvy and careful trader. A sample trade could look like this: At the start of business, Danny Daytrade selects 100 shares of Youbetcha Inc. He knows from watching the trends that Youbetcha is about to make a big move upward, and he is right, the stock gains at least a 1/2 point by noon of that day. As a day trader, Danny wants to walk away with profit by close of business, so he sells off this upward moving stock and splits up the profits from the sale. Part of his profits goes into his day trader account to make sure that he will meet his minimum equity; the other part goes back into investing. He has had his eye on another stock that is set to make a nice upswing as well. Danny is successful, because he is careful and because he knows how to read the stock signs. If the amount of profit that Danny Daytrade makes for this trade is $100 (obviously an amount simply for illustration) he would most likely use half as account cover capital, and half as re investment. Of course, no one in the day trading game is doing any investing with $50; again, this figure is simply for illustration. If he makes five similar trades for the business days, with equally similar results, he will have made $500 of profit. Keeping with that theme, trading five days a week would net Danny $2500 of profit per week. (Commissions, overhead costs and other business expenses, realistically bringing the amount down to $2000 or less would reduce this figure.) This is still a nice bit of profit, considering that this is only one stock's trade performance. Danny Daytrader probably handles quite a few more trades than that in a day's time. Considering that not every trade will make a profit, let's say that Danny handles ten stock trades per day, with the same profit margin as above. ($100) On the safe side, we will give Danny a win percentage of say, 30%, which means that for his ten trades, he sees that profitability factor on three of them ($300). Which will bring him to $1500 for the week, less the commissions and other expenses as mentioned above. Realistically, Danny can see a profit of slightly less than $1000. But, Danny is aggressive, so that amount will not satisfy him. He will hit the charts and study until he finds the right stocks that are about to trend upward. He will work until he gets his win percentage up near fifty percent or even higher. The Wind-up, The Pitch, the Conclusion First off, there is no pitch. There is only the winding up of this guide, trust me, there is nothing being sold here. This guide covered the rise of the popularity of day trading, largely in part because of the computer and the Internet. With the click of a mouse, the entire world can come speeding down a wire (or without a wire) into your home. At the blink of an eye, you can buy a pair of shoes, Google a date, map out directions to your Aunt Susie's, or you can buy or trade a block of stocks. No matter what time of day or night, no matter what you are wearing- you can choose a stock, check it's action and put in an order to buy it. Trading was once the realm of the ultra connected, and the very wealthy, but those days and the Market have changed. Thankfully. 2011 © www.the-forex-revolution.com/ The Forex Revolution Team Of course, if you are looking to buy a pair of shoes, or even Googling a date, you really have to have some basic information to start with. The stock market is no different in that aspect. You know that if you are looking for athletic shoes, you have to go to the right company's website to look at them. It is the same when buying stocks or other financial products and services. You have to know what kind of trading you want to be involved with. Do you want to buy traditional stocks in a certain type of market? Do you want to be more aggressive and trade blocks of penny stocks? There are many choices that must be made before you begin investing. We covered the amounts that could be expected as investment and other expenses that need to be covered before you can begin a career as a day trader. These expenses can include a computer upgrade, computer software and then the initial investment amount. According to the day trading regulations, there is a minimum equity amount ($25,000) that you must meet and continue to meet to keep your day trader account open. Day trading can be hugely risky for a number of reasons. First off, the movement of the day trader is rapid-which does not leave a lot of time for market research and does not allow time to monitor for trends that might be forming. Careless trading can lead to a fall below the minimum account trade equity, which in turn will lead to a day trading call. Losing too much money will lead to the loss of confidence and may cause a day trader's career to be at risk as well. Not knowing or going over their loss cap can put a day trader at huge risk for financial ruin. Along with the risks, there are many rewards to be had as well. Because they are so risky, day trades can net quicker returns than more traditional trading activity that have to be allowed to have time to develop. Day traders may also take a bigger chance on a stock, also with the potential to make large profits. Day trading and long term trading are not the only option. There is a middle ground between the two extremes, the swing trader. The swing trader may hold a stock's position for several days, possibly a week before making a move on it, or may ditch it within hours. Swing trading is becoming more popular because it allows the flexibility to let a stock develop if it looks like it is going to, or to sell quickly if it becomes necessary. Bad money management is just that: bad. If you cannot figure out how to handle the account that you are dealing with, you should not be in this line of work. Day trading is not the most forgiving career choice, and it can realistically only take a few bad trades to completely destroy a financial career. Incompetence and ignorance are no excuse for a failure to understand trading regulations, especially those that have the potential to lead to a SEC violation. Penny stocks may become the darlings of the day trader. They are perfectly suited for the day trader's personality, are bargain priced and therefore potentially more profitable. If you can buy a large block of a bargain basement stock, then you could see a large return in the matter of days when that company goes public. Or you lose your entire investment when the unproven company fails. Knowing and weighing the risks involved, penny stocks can still be fairly attractive to the day trader simply because of the relative ease of moving them. What constitutes a penny stock will vary depending on whom you 2011 © www.the-forex-revolution.com/ The Forex Revolution Team are asking, but it will usually be based on price per share, the market it is traded on and the market cap of the company being traded. Some markets will consider market cap as the main determining factor for whether or not a stock is a penny stock or not, but that is not always reliable. Along with day trading, there is the even faster moving, intraday trading. Simply put, this is trading that occurs within the same day for the same stock. Intraday trading can be used to stimulate sales of one stock if it has stopped moving at all, or it can pour life into an equally stagnant market. Finally, there is the Forex market, where the day trader can use his account to move currency contracts between countries. This market has some interesting lingo, as well as some slightly more relaxed rules about certain aspects of trading. There is not an insider trading rule for instance, making it possible to use information that you have learned before anyone else to your own best advantage. The Forex market was once the mainstay for the big players, but has opened up dramatically in recent years, mainly because of the computer. This guide said it early, and said it often: Know your risks. Know what you can afford to lose before you invest. Count every investment as a potential loss right from the start- and do not invest more than you can bear. Know how to use your profits to reinvest in the trading account as well as other more secure investments. Do not pump all of your money back into the market, especially if all indicators say that it is a bad idea. Day trading can be rewarding, not only financially, but in other ways as well. Knowing how a stock is going to perform and being right about it can be quite a high. Seeing the signs that a stock is about to take a header and selling that stock, even at a small loss is better than sticking with it and going down with the ship. Educate yourself about the market, and what to expect. Know all of the regulations and keep in the know if new ones are in the works. Monitor your stocks, or watch for alerts if you have stock trading software that does your monitoring for you. And lastly, always, have an exit plan that you can turn to if things get really bad for you. Best of luck, and happy trading. 2011 © www.the-forex-revolution.com/
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