It’s normal to feel nervous in a market like this after all, the S&P 500 has fallen 17.1% since the start of the year. We’re in correction territory — a decline of more than 10%. And it has many people wondering if a bear market lies ahead.
But just because these fears are normal, doesn’t mean they’re right. The truth is, you shouldn’t waste your time trying to figure out what the market will do next. Instead, let the market tell you when the decline is over and there are a few ways to do this. Today, I want to look at a simple one you could follow on any free charting site…
Time The Next Market Bottom With This
In the past few weeks, we’ve looked at momentum which you can use to sidestep major crashes, stay ahead of the Fed and...
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This is a story about how a good friend of mine who lost over $700,000 in nine hours.
Some time ago, a fellow trader called me, let's call him Tom and he traded occasionally and was the president of a small company during the day. We arranged to meet and it seemed like a friendly conversation and there was no indication of what I was about to hear...
“You know, I actually have one more thing on my mind” - Tom said haltingly. “Last week I lost over half a million on the market.” I'll admit I was surprised as I knew he made money in the market, but I didn't think he traded that much. Losing such an amount for an occasional trader is no small thing. So, before talking with him, I recollected over 20 ways of dealing with losses which were...
Real estate investment trusts (REITs) are popular investment vehicles that generate income for their investors. A REIT is a company that owns and operates various real estate properties in which 90% of the income it generates is paid to shareholders in the form of dividends. As a result, REITs can offer investors a steady stream of income that is particularly attractive in a low interest-rate environment. Still, there are REIT risks you should understand before making an investment.
How Real Estate Investment Trusts Work
Since REITs return at least 90% of their taxable income to shareholders, they usually offer a higher yield relative to the rest of the market. REITs pay their shareholders through dividends, which are cash payments...
“I know how to trade. I have a plan and if I followed it, I would be doing well indeed. I know what to do; its just that I can’t do what I’m supposed to do when the money is real. I do exactly what I know better than to do. I tilt, something takes over my mind, and I throw away my plan. Something takes over me, and then I see clearly (in hindsight), that I became crazed and started gambling. When the smoke clears, I am bewildered and I don’t understand what happens to me.”
Mindfulness – Opening Your Shut Eyes to What is Really Going on in Your Head
Albert Einstein once quipped that insanity was when you keep doing the same thing over and over again while expecting a different result. Actually, I don’t believe that Einstein was wrong...
There is significant evidence that meditation can help us deal with stressful situations, including the recent pandemic and the challenges of doctoral education, as well as mental health concerns such as depression and anxiety. The Mindful.org site, in their review of the science behind meditation, notes such benefits as improved attention, increased emotional resilience, greater compassion, and “less rumination about ourselves and our place in the world”.
The work of Gaelle Desbordes and colleagues finds that mindfulness meditation facilitates emotional well-being, not just by increasing relaxation and reducing stress, but by building interoception: our awareness of our bodies. This awareness, which is accompanied by measurable shifts...
Definition
A currency war is an escalation of currency devaluation policies among two or more nations, each of which is trying to stimulate its own economy. Currency prices fluctuate constantly in the foreign exchange market. However, a currency war is marked by a number of nations simultaneously engaged in policy decisions aimed at devaluing their own currencies.
Nations devalue their currencies primarily to make their own exports more attractive on the world market.
Understanding Currency Wars
In a currency war, sometimes referred to as “competitive devaluation”, nations devalue their currencies in order to make their own exports more attractive in markets abroad. By effectively lowering the cost of their exports, the country's...
In this article, I decided to discuss a simple technique that is often overlooked when traders are reading charts. We are all too quick to look at the squiggly lines that we call indicators and oscillators and dismiss the simplest signal available to us which at the simplest level would be ‘PRICE!’ Price is most commonly displayed for most traders through candle charts. If you are not familiar with the construction of a candlestick, I have included a quick reference below. A green candle usually indicates strength in price and is formed by price closing higher than it opened during that particular time period. Conversely, the red candle indicates weakness due to the closing price being lower than the open for that period.
The problem...
Over the years, Wall Street has had its share of scandals, many of which left despair and loss in their wakes. These include everything from insider trading to fraud that cost investors millions of dollars. To fully understand the impact these crooked individuals had on financial history, we must examine the people themselves, what they did and the legacy their misdeeds left behind. While no two are alike, what these men share is the lasting effects of their crimes, which are still felt by Main Street many years later. Here we examine five of the most famous and unscrupulous Wall Streeters namely: Michael de Guzman, Richard Whitney, Ivan Boesky, Michael Milken, and Bernard Ebbers.
Canadian Miner - Michael de Guzman
He was the man many...
In this article I’ll go back to options trading basics. If you are a new option trader, or interested in seeing what option trading has to offer, these will be for you. Short articles like this are not going to take you from zero to amazing as an option trader. For that, you need serious education, but I can give you a taste of what the option market is like.
First let’s define what options are. For our purposes, options are trading instruments that can be bought and sold using online trading platforms, through organized options exchanges. They are things that we can buy low and sell high. In this way, they are like stocks.
Options, however, have some unique characteristics that are decidedly “un-stock-like”. These special...
James Bond may have a license to kill, but regular folks need a license to do just about everything else from driving a car, flying a plane, managing money, and practicing law to doing someone's taxes. Is there something along those lines for trading?
When I first got interested in trading, I had no idea what training was required and figured the only way to learn was to enrol in the school of hard knocks. After I'd written a few articles, someone asked what trading credentials I possessed. At the time, I wasn't aware there were any internationally accepted trading certification programs. But after doing some homework, I discovered that there indeed was such a professional designation - the Chartered Market Technician (CMT) program...
The gap between your desire to trade successfully and actually trading successfully is directly related to your willingness to embrace change - particularly, your understanding of winning and losing. Without knowing it, traders stand in their own way in the journey called trading. Though they try hard and then even harder and harder to win, they stubbornly refuse to see the real problem in their trading. And they wonder - why can’t they simply plan their trade, then trade their plan?
Instead, they sabotage themselves just at the moment when things are getting hopeful. But here’s the real problem – the mind that they have brought to trading is not going to produce the kind of success they are seeking from trading. It usually takes 3 – 5...
Emotions...they are part of the essentials of what make you human; as essential as the importance of opposable thumbs; for without emotions, as with your thumbs, you would not have the same quality and flexibility of responses. Now, what is interesting is that some traders labor under the false belief that they must stamp out, eradicate or otherwise do away with their emotions in the trade. Well, you actually cannot divorce yourself from your emotions; that is, not completely. It is true that through specific training you could become dispassionate to a degree.
Systematic Desensitization
One type of training that helps you to distance yourself from emotions is called "systematic desensitization." Systematic desensitization was...
Around the mid 2000's, I was drinking espresso in the lobby of the vice consulate of Italy in Denver, CO. That was what my friend called his living room — his wife’s diplomatic work was done from the house. Legally, I left the United States and entered Italian sovereign territory when I visited him.
We were discussing momentum indicators and the importance of trends. He believed the long-term trend was the most important characteristic of a stock. Nothing too controversial, to be sure. It’s what he said next that really surprised me. He said:
“Short-term stock price changes are like flipping a coin.”
Is This As Absurd As It Sounds
About half the time, a flipped coin will come up heads and the other half it will come up tails. It...
Have you ever just jumped into a trade without understanding the trading environment, meaning whether the market was trending, range bound or close to a major turning point (higher time frame supply or demand) only to have the trade stop out? Of course you have…we’ve all experienced that disappointment in our journey of discovery through this world of market speculation.
To prevent this from happening too often, traders must develop a systematic approach that takes into account the environmental condition on every trade. The objective is to guide a trader into a better decision making process.
Trading Risk, Reward and Probability
The three main factors one must focus on as a trader are risk, reward and probability. In my experience as...
So you've racked up thousands of dollars in paper profits on your favorite stock simulator and are now ready to take the big step from virtual trading to the real thing? Lest you think that making the transition will be an easy process, be aware that trading in the real world is an entirely different ballgame from simulated trading. Below are five disadvantages of stock simulators.
1) Simulated Trading May Breed Complacency
Perhaps the biggest danger of a stock simulator is that it may lull a novice trader into a false sense of complacency if they have had a hot streak of several successful virtual trades. As any trader will attest, real-life trading poses several challenges – some of which are detailed below – that are not part of the...
The market for impact investments had grown by 2020 to $715 billion, according to the Global Impact Investing Network’s (GIIN’s) “Annual Impact Investor Survey” and most respondents see ongoing steady or accelerating growth rates.
In addition to assets under management, Google Trends shows a steadily rising interest in ‘impact investing’ over the past decade among its searchers.
Let’s take a look at impact investing, how it has evolved over time, and how individuals can implement their own strategy with listed securities.
What Is Impact Investing?
Impact investments are investments designed to generate positive, measurable, social and environmental impact along with a financial return. For example, you might purchase a bond issued by...
Warren Buffett once said that it’s good for investors to be “fearful when others are greedy, and greedy when others are fearful.”
That’s great advice, but many investors struggle to quantify fear and greed. Some use data from surveys. Others evaluate the tone of the coverage in news stories. These can be useful, but that type of data is difficult to interpret because it is subjective.
The bond market offers a way to objectively evaluate fear and greed. This can be done by calculating risk premiums built into bond prices.
The risk premium is defined as the spread between different types of bonds. The spread is the difference in yields.
One measure of the risk premium is the difference between junk bond yields and the yield available...
In his seminal financial tome, "Technical Analysis Explained", (which was required reading for Chartered Market Technicians (CMT) when I took the course and still is), Martin Pring discusses the business cycle and the order in which various asset classes lead in market rallies and corrections. While not a market timing tool per se, it helps traders and investors better assess when a peak is coming and when the worst of a recession looks to be nearing an end.
In the beginning of a recovery, consumer spending picks up spearheaded by the housing industry driven in large part by falling interest (finance) rates, followed by the retail sector as stores prepare for increased purchases. Finally, manufacturing activity picks up and demand...
The projections for the expansion of robo-advisors are bold, to say the least. But simply because it is a rising pattern doesn’t mean it is best for you. It depends upon how you want to function as an investor and what your objectives are. So, let’s take a closer look at these automated providers.
Who Are the Robo-Advisors?
A number of the most well-liked robo-advisor providers are Wealthfront, Betterment, Personal Capital and FutureAdvisor. These are all impartial platforms, although large funding administration agency BlackRock acquired FutureAdvisor in 2015. Several different brick-and-mortar monetary establishments have launched robo-advisors to complement their providers. Among them: Charles Schwab, with its Intelligent Portfolios...
Many traders look to technical indicators for clues as to where price action will be moving in the future. There are many problems associated with this approach. First and foremost, technical indicators lag current price. The indicators are created from data that is compiled from where price has been at some point in the past, the rate at which it is changing, and perhaps use volume as an additional filter. Technical indicators are simply a mathematical way of analyzing and representing price action and offering a different perspective of what price is doing. A trader should never rely exclusively on an indicator for a buy or sell signal. However, when used in conjunction with price behavior analysis, a trader can gain confidence for...
The daily movement in the world's equity markets is influenced by a multitude of factors, ranging from large institutional block trades and program trading to earnings and economic reports. One factor that makes a splash is the influence of commodity prices. In fact, fluctuating commodity prices can have a tremendous impact on the earnings of public companies and, by extension, the markets. Let’s discuss this relationship and why it matters to investors.
Lumber
The average person would probably never ponder the cost of lumber unless they were in the process of building a house. However, the pricing of this commodity is closely watched and can affect many companies and individuals, such as homebuyers. Indeed, the relationship between...
When trading we look to short in supply zones during downtrends and go long in demand zones during uptrends. Easy enough, right?
Theoretically, yes, but the main question is "Which time frame are you using to determine direction?" This week's lesson is specifically applied to you day-traders out there.
First off, let's define a day-trader who, for example in the stock market, is someone who enters and exits the trade in the same trading day, buying 1,000 shares of XYZ in the morning and selling those 1,000 shares in the afternoon.
In the spot forex market, the trading day isn't as clearly defined. For this lesson, we will assume you are looking to be in a trade for a few minutes to a few hours and trading from a 15-minute chart...
"Know Thyself”
- Socrates
It doesn’t make any sense. You know better. Yet that trade goes against you (and maybe you’ve lost a couple already) and a twinge of discomfort surfaces. It’s like your “spidey-senses” begin to tingle. Then urgency sneaks up behind you and throws your discipline out the door. Then you believe it will turn around if you just give it some room. (This is called emotional reasoning.)
Somehow, this line of reasoning makes sense right now in the heat of the moment – you “believe” it is going to turn around (whatever that means). You “feel” certain of it (this is emotional chemistry – not the truth). You keep throwing scared money at it as the loss grows from acceptable to painful. Now it’s a bigger loss but you...
Many traders use the selling of options as an income-generating device. A question that comes up in this connection is when, and whether, to do what is called rolling out your position.
What Is Rolling Out an Option Position?
Selling an option position that has not yet expired in order to buy another option position that has more time to expiration is called rolling out an option position.
Before we go into this further, first let’s back up a step and describe how an income generating option trade works in general.
Trading Options for Income Generation
One way to do this is to look at an asset, such as a stock or exchange-traded fund, that you currently do not own but which you would be willing to buy if you could do so at a good...
Swing trading can be a great way to profit from market upswings and downswings, but as I’ve always said, it’s not easy. Mastering swing trading techniques takes considerable time and effort.
To help get you started, here are 30 rules to think about as you begin and ultimately master the swing trading game:
1) If you have to look, it isn’t there.
Forget your college degree and trust your instincts. The best trades jump out of nowhere and create a sense of urgency. Take a deep breath, and then act quickly before the opportunity disappears.
2) Trends depend on their time frame.
Make sure your trade fits the clock. Price movement aligns to specific time cycles. Success depends on trading the right ones.
3) Price has memory.
What...
Advantages of a Forex Trading Career
There are several advantages that a career as a forex trader, also known as a foreign exchange trader, offers and these include:
Low Costs
Forex trading can have very low costs (brokerage and commissions). There are no commissions in a real sense–most forex brokers make profits from the spreads between forex currencies. One does not have to worry about including separate brokerage charges, eliminating an overhead. Compare that to equity or other securities trading where the brokerage structure varies widely and a trader must take such fees into account.
Suits Varying Trading Styles
The forex markets run all day, enabling trades at one’s convenience, which is very advantageous to short-term traders...
For many investors, the futures markets, with all of the different terms and trading strategies, can be both confusing and daunting. There are opportunities to limit losses on your portfolio or enjoy significant profits by using the futures markets, but it is important that you understand how these derivative products work and how you can achieve those profits consistently. This article explains how each market works and the different strategies that can be used to make money.
How Can You Be Successful?
The futures markets are where those hedging and those speculating meet to predict whether the price of a commodity, currency, or particular market index, will rise or fall in the future. Like any market, this one has risks when trading...
When I sat down to write this, I thought it would be challenging but useful, to distil over 20 years of trading experience and 25 years of specializing in brief therapy into ten lessons that I have learned whilst working with traders (including myself!). In that time, I’ve written two books on trading and worked with dozens of professional traders at a proprietary trading firm. What has this taught me? Let’s break it down:
Trading affects psychology as much as psychology affects trading
This was really the motivating factor behind my writing the new book. Many traders experience stress and frustration because they are trading poorly and lack a true edge in the marketplace. Working on your emotions will be of limited help if you are...
One of the most perplexing areas of trading is identifying trends early enough to still have low-risk, high-reward entries. Every book ever written on trading has told us that we should always align our buying or selling in the direction of the trend, and that this is the key to trading success.
In some respects, that may be true, however, most of these books fail to make three very critical distinctions:
When is it too late to join the trend?
What trends are the most important?
When are trends likely to reverse?
To answer these questions, let's first think in terms of keeping it simple and what would cause a trend to end. First, trends in the shorter term are continuously changing.
Shown below is a ten-day look back at a...
A broker often needs to make a snap decision to buy, sell, or hold a stock. This is because there is no time to consult stock analysts, interview management, or read lengthy research reports. But a quick glance at some key information can lead to a good decision made whilst under pressure. So if a company has just released a press release about its quarterly report you can skip over the filler and look for some of the following key facts.
Increasing Sales
Check to see if the company is growing its sales and, if so, whether the sales growth is sustainable or related to a one-time event. In addition to checking the sales numbers, you'll have to skim through the entire press release in order to see what management said about the quarter...