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What The Online Stock Trader Has To Watch Out For

Your career as an online stock trader is fraught with danger that is easy to avoid once you know how. Apart from the risk associated with every trade, you have to guard against a few hazards that crop up every week, and I’m not referring to reading the data or charts wrongly.

There are the little matters of your broker and your trading platform, and the tendency of traders to take them for granted. If you’re new to trading then to you these are usually simply “brokerage services”, i.e. the means by which you exercise your skills to make profits. They’re represented by nothing more than an inter-active web site you use to make and amend your trades, and perhaps to have access to reports, charts, and other information to help you make trading decisions.

Remember, though, that your broker is often on the opposite side of the equation to you as a trader. A regular broker, as opposed to a spread betting or fixed odds bookmaker, makes his money by charging commissions on your trades. These are frequently on a fixed price basis per trade. For example, when you purchase a covered warrant, it will be a contract that expires at some point in the future , usually the next few months. A commission will be payable when you first buy it, and also later on if you wish to “roll it over”, i.e. renew it for another period.

These warrants are issued at regular intervals on a huge range of stocks, indices, foreign exchange pairings and commodities. If it’s September and you consider, for example, that soy beans are set to increase sharply in price by March then you might want to purchase a call warrant that expires in March or April. Societe Generale, or some such finance house, may well have issued such a warrant, but your broker may not necessarily be offering it.

When you check your broker’s site, or even telephone him, he may offer you a contract that expires in, say, December. If you take that then in December he’ll give you the option to roll it over to March, giving rise to another commission charge that you have to pay him. So be prepared in such a case to ask specifically for the expiry date you want so as to avoid unnecessary charges.

The trading platform provided by most online brokers is invariably a minor miracle of technology and should normally present no problems for you as a trader. You should be able to see the prices in real time and to make your trade in just a few clicks of the mouse. The distinction between buying and selling should be clear, and you should be able to see your cash balance and portfolio value on the same screen, or at most with just one click.

As to the stock trading charts and indicators provided by brokers, these are usually basic and not sufficiently adaptable or wide-ranging for the serious trader. An independent program such as the renowned Sharescope is a must.

In summary, don’t necessarily rely on everything your broker offers you, whether by way of available contracts and prices, or services and facilities. And until you’re experienced enough to stand on your own two feet, always have a mentor such as Vince Stanzione to guide you through the maze.

Just go to our home page and complete the form for your free mp3 interview with Vince, containing a few of his Secrets of Successful Trading.

Philip Gegan

Gold or the Stock Market? Where to Invest?

Gold is set to become more popular than the stock market for many investors. The recent stock market rally which began in March 2009 will shortly be seen for what it was – a rally in a bear market. But many are holding back, uncertain if gold really is the answer. After all, it is a commodity, and commodities, including gold, have suffered in the recession more than stocks. So where to invest – gold or the stock market?

It was the failure of the banking sector in the US and Europe that started the recession. The bail-outs by western governments, borrowing astronomical amounts of money from who-knows-where, euphemistically referred to as “the taxpayer”, made matters worse by way of triggering the crash in stock prices.

Gold, on the other hand, relished this situation, and rose to nearly $1,000 an ounce for a while. But then came the rally, which dampened gold down to the $910-$940 range. That’s the thing about gold – it does well when stocks are depressed but less well when stocks are rising.

On the other hand, gold is a commodity like any other commodity, and commodity prices, like most other prices, have tended to stay depressed since the start of the recession. So we have to consider whether gold can be differentiated from other commodities in the present situation.

The obvious difference between gold and other commodities is that gold is not just a commodity – it’s also a perceived store of value. Other precious metals like silver and platinum are also used as investment vehicles, but gold is the most popular, against which currencies are measured.

Currencies have in nearly every country declined steadily over the last hundred years or so. Inflation may not be the beast it was in the 1970s, but it’s still there, and it always has been since modern banking and finance evolved. Now we have a situation where both the US and the UK governments have borrowed billions to bail out the banks, and engaged in “quantitative easing”, i.e. money creation, in order to try and spend-borrow their way out of the recession.

What is this going to do to the price of gold? Gold is scarce, which is one of the reasons that it is perceived as valuable. Nearly all the gold currently mined goes into industrial uses and personal ornamentation. Very little is added to the coffers of national exchequers.

The price of gold therefore has to rise from its present level. Most other things will also rise in price over the forthcoming months and years as the increased money, with no increase in production to justify it, comes into circulation. With all the stock trading charts showing depressed prices, and inflation reborn, gold, the traditional refuge of capital in times of uncertainty, will most likely at least double in value over the next few years.

In summary, gold will almost certainly out-perform the indices of the world’s stock markets in the short to medium term future. As you’ve seen from our home page, we made 70 per cent on gold recently in less than a week. Make sure you get your free mp3 interview with Vince Stanzione, Secrets of Successful Trading.

Philip Gegan

Day Trading the Currency Market – A Word of Warning

My views on day trading the currency market are well known to anyone who has read a few blogs here. But since the forex industry – selling information, systems, “robots” and brokerage services to new forex traders as opposed to actually making money by trading currencies – is still going strong with no sign of going away, then allow me to issue a fresh warning.

All the glitzy sales pages have pictures of swimming pools and sports cars, illustrating the wealth you can expect once you’re a successful foreign exchange trader. And it’s so easy anyone can do it. Well, there are a few sharks lurking in the swimming pool and the sports car has a worn brake lining.

If you want to day trade the currency market you have to do it in one of only two ways – spread betting or fixed odds betting. All winnings are tax free in most countries, just as losses can’t be deducted for tax purposes. This is a major selling point for the purveyors of forex information.

Taking fixed odds betting first, this is where you go to a web site like betonmarkets.com and place a bet, for example, that GBP/USD will be lower than its current level at close of trading on a particular day. You can select the current day if you want to keep to day trading.

Fixed odds has the advantage over spread betting in that you can’t be stopped out before the bet expires, so if you’re right in your prediction it doesn’t matter about the volatility in the meantime. But you’ll see presently that this is pure gambling and in the long run the bookmaker always wins.

Spread betting involves a spread of, typically, two to six points, stop loss levels and probably limit orders. This is what nearly all newcomers are directed to do by all the forex systems and robots out there. But day trading the currency market on a spread betting account is a sure way to lose all your money just as much as fixed odds betting. And here’s why.

The currency markets are extremely volatile and are dominated by the really big players. We’re told that forex is a huge market – over $3 trillion per day being traded by traders from all over the world 24 hours a day – and it’s just too big to be manipulated by anyone. That’s not true. It’s huge all right, but it can be and is manipulated by just a few big players.

Apart from a few private traders who have proven spread betting strategies and who often trade under the mentorship of an expert, private forex traders have generally limited capital and last only a few months before they lose all their money. There’s a rapid turnover of new traders as there are always people new to forex arriving, ignorant of the dangers and thinking they’ve found the new El Dorado.

The rest of the forex market consists of professional traders acting mostly on behalf of big banks. There are in fact only about 20 huge banking corporations that, through their employee traders, dominate the market and can cause rapid and large fluctuations in the prices. Their actions often cause movements in price that defy the charts and indicators everyone else is relying on.

The result is that small, private traders frequently lose money on trades that should have been safe and profitable. Even experienced, professional private traders are frequently caught out. To ride out the volatility you need massive stop loss levels of the size that traders with a limited amount to trade with, and therefore to risk, simply cannot afford.

The currency market is like an ocean in a storm. The huge liners can sail through it and hardly notice there’s a storm going on, but the small yachts and dinghies get tossed around and overturned very easily.

There are much easier financial markets to trade. Trading stocks with covered warrants and Exchange Traded Funds may not sound very exciting, but it’s much easier to make money with them, even if you usually have to wait a few weeks, rather than a few hours. And if you must stick to trading the currency market then your best bet is to find someone who is an expert financial trader himself and see if you can copy his trades and methods.

Someone like Vince Stanzione. Just go to our home page and complete the form for your free mp3 interview with him.

Philip Gegan

Stock Trading Charts – 5 Secrets to Profiting from them

Stock trading charts are used all the time by traders, but few know how to get the most out of them. Here are five tips on how to use them properly.

1. Don’t skip on research – use charts for confirmation only

Few traders can look at a chart and tell what’s going to happen next. The rest of us have to work at it. And often the price of a stock can take off in either direction at any time, regardless of recent history.

Using a chart without researching the stock you’re considering is dangerous. Even traders who use charts extensively have their ear to the ground to keep informed of developments affecting the price of stocks they have a stake in. Learn everything you can about the stock you’re interested in trading.

Research the company, what it produces, what its main markets are, what problems it is facing, and what projects it has in the pipeline. This isn’t too difficult as most of this can be found online. Once you’ve discovered stock that is under or over valued then consult the chart.

2. Interpreting chart patterns

If you see a pattern make sure it isn’t just in your imagination. Don’t try and see any that aren’t there. If there is one it should jump off the page at you. The main pattern to look for is a trend – higher lows or lower highs. If you can find just one or two established trends each week that you profit from then you’ll do well.

Other patterns include the “head and shoulders”, the “double top” and the “double bottom”. If you see either of the first two on a recent chart then there’s a strong probability that the current movement is generally downwards. The “double bottom” indicates that the price has probably reached as low as it’s likely to go prior to moving up again.

3. Establishing resistance and support levels

These are imaginary lines on stock trading charts indicating where the price cannot seem to rise any higher or fall any further. They aren’t necessarily horizontal – sometimes they can be shown to slant up or down. If the price is moving rapidly towards such a line it will probably breach it and move into a new trading range. Often the line breached becomes the opposite of what it was, i.e. resistance becomes the new support, or support becomes the new resistance.

If the price is moving slowly towards such a line it’s a sign that the price will probably not move much further in that direction and is more likely to reverse.

4. Deciding on your stop loss and profit taking levels

This is where a chart really is essential. If your stock market graph shows a clear trading range outside of which the price rarely goes, then you can set your stop loss and profit taking levels with confidence. This works with medium to long term trading only, where you have sufficient capital to afford sufficient stop loss levels. It can’t be relied on in day trading, where stop loss margins are necessarily narrow and quick profits are sought.

5. Accept your charts’ limitations

If you accept that charts don’t provide a fail-safe way to see into the future, but are simply an aid to making trading decisions, then you will avoid making many of the mistakes that unsuccessful traders make. Those mistakes are usually caused by greed and fear, the two primary factors fuelling price movements in the stock market.

In short, stock trading charts are a priceless asset to any successful financial trader provided you know how to use them and don’t substitute them for doing your homework.

Get started with your financial trading career now. Just go to our home page and complete the form for your free mp3 interview with Vince Stanzione, Secrets of Successful Trading.

Philip Gegan

Spread Betting Strategies That Every Financial Trader Should Have

Spread betting without any strategies is like a building without a plan. This type of trading is fraught with danger, and these strategies are intended to help you undertake spread betting without falling over the obstacles that most newcomers to financial trading do.

1. Avoid day trading

There’s no room for negotiation on this one. The only markets that usually move significantly on a daily basis are foreign exchange and indices, such as the FTSE and the Dow, so naturally the newcomer is directed to day trading these markets. But the combination of this with a spread betting account is usually disastrous. The volatility in these markets works against day traders, and spread bets can easily reach their stop level.

In summary, it’s all but impossible to make profits from day trading forex or indices with a spread betting account. The successful traders have their trades open for at least days at a time, and often weeks.

2. Be 100 per cent in control

Control your leverage. It’s that which can give rise to rapid and substantial profits, but it can also wipe you out with just a casual and temporary reversal in the trend. So be in control.

Until you have at least seven thousand pounds or dollars in your account you should keep to £1 or $1 a point in your bets. Before you risk any real money (as opposed to a demo account) you should study the currency pairing or index concerned until you know it as an old friend. Study the price history and the charts. Don’t bet for the sake of it. Wait until a trend has been established.

Control your risk. If the trend is upwards, go long but with a stop loss set at 10 per cent or more below the three month low. This itself is an arbitrary period – you may decide a longer period is required, depending on the behaviour of the price level. Don’t risk more than 5 per cent of your account balance. So if your stop loss level is 100 points then your bank must be an absolute minimum of £2,000 or $2,000, as the case may be. £3,000 or more would be better.

3. Apply rigid self control

On every trade you do, set the stop loss and profit target levels and stick to them at all costs. If your stop loss is 100 points away from your opening price (based on the price history of at least the last 3 months) then your target profit should normally be no more than 50 points (though this can vary according to the charts and the price history).

Prices in these markets rise and fall all the time, and even in a rising market there can be substantial falls, hence the need to have a substantial “drop zone” in the form of your stop loss. This applies particularly to currency spread betting.

4. Study your market fundamentals first, and then the charts

A combination of knowing what is going on in your market, and a knowledge of the charts and moving averages relating to the price history is a formidable weapon in your armoury. Come to a decision as to whether a price will go higher or lower, and then confirm it through the charts and other indicators. The trend really is your friend.

5. Find yourself a mentor

This is probably the most important piece of advice I can give. Nearly all successful financial traders have or have had a mentor – someone who actually trades themselves and who is prepared to teach you to do it as well. He will have used successful spread betting strategies and he will be able to pass them on to you.

Just go to our home page and complete the form for your free mp3 interview with Vince Stanzione, Secrets of Successful Trading.

Philip Gegan