Making Money With The Best Undervalued Stocks

On March 10, 2010, In Trading

Undervalued stocks are  stocks that is selling for ‘cheap’, or stock which you believe has a true value that is higher than the selling value. The goal is to buy undervalued stocks and sell the stock when it is overvalued to make a profit.

There are several books on the market that discuss how to determine what stocks are undervalued, including “Intelligent Investor”. Graham, the author of “Intelligent Investor” believed that he could predict which stocks would be undervalued based on mathematical calculations, such as low price/earning ratio. Warren Buffet, a famous U.S. billionaire, disagreed with Graham, stating that in order to determine value of stock, a person would need to predict the future profits and future interest rates of an organization and that the business value can be summed up the cash flows over the life of the business discounted at an appropriate interest rate.

Buffet also gained much of his wealth by following a simple plan; an excellent stock at a fair price is a better value than a poor stock at a cheap price. This model requires patience, as the purchaser may have to wait several years for the excellent stock at a fair price to rise in value. Buffet and his partners also needed to consider price/cash flow ratios for success. This is a way of comparing the organization’s market value to the actual cash flow. Another way Buffet was able to troll for the most undervalued stock was to look at the price to book ratio. This measurement looks at the value the market places on the book value of the company. Price/Book = Share Price/Book Value for each Share. Like the price/earning ratio, the lower the price/book ratio, the higher the value of the stock. All of these ratios may seem complex, but there are several website on the market that can help an investor make educated decisions to make a profit. Typically, finding undervalued stock picks, then turning a profit on these stocks can take patience, but the return is worth it in the end.

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New Regulations And Controversy Around High Frequency Trading

On February 28, 2010, In Trading

Recently, there have been moves by regulators, particularly the SEC, to place restrictions on the growing practice of “high frequency trading”. This is the process where Wall Street firms use sophisticated algorithms and powerful computers to generate high volumes of orders and send them into electronic markets at high speed.

Why? Because high frequency trading is increasingly being viewed by both the public and the regulators alike as a potentially harmful activity that could adversely impact the integrity of the markets.

For this reason, the SEC have issued a public consultation document, asking some wide ranging questions about whether the automated exchanges are being used in a way that is fair and equitable to all investors, regardless of their size or how they access the electronic markets.

According to the High Frequency Trading Review, they key question is whether private investors and institutional fund managers who take out longer-term positions are disadvantaged by the strategies used by the high-frequency traders, i.e. firing thousands and thousand of so-called “orders” to the exchanges’ matching engines, the vast majority of which are subsequently cancelled with no intention of actually being executed.

The concerns are very real, but equally there are concerns in certain quarters that what the SEC is doing is creating battle lines between short-term and long-term investors.

There has always been, and there will always be a precarious balance between short-term traders and long-term investors. That balance is what creates markets after all.

But the SEC has stated quite categorically that if an imbalance exists, the regulator’s duty is to uphold the interests of the long-term investors ahed of the professional short-term traders.

The content of the consultation document itself is highly focused around high frequency trading and the strategies behind the practice, placing a particular emphasis on “order anticipation”. This is where most of the controversy seems to lie. Does order anticipation help the markets, making them more efficient by quickly moving prices in the direction they were going to go anyway, or does it hinder the markets by allowing high frequency traders to scalp prices in a sophisticated form of “front-running”.

The jury is still out. But one thing is guaranteed. The controversy around high frequency trading is not going to go away any time soon.

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Option Trading Is Not Just For The Stock Market

On February 19, 2010, In Trading

Option trading has finally expanded to the futures market, to the commodity market and to the forex markets. Since option trading started in 1973 it has become increasingly popular.

With the way options work, you can spend a little money now to make a lot of money later, if you are correct about what you think will happen in the markets with the stock, commodity, futures or currency.

Today, you pay your money for a contract. That contract gives you the right to buy or sell whatever you pick by a certain date at today’s price. If you are right about what will happen, by the time you exercise the contract (or your option as it is called in the industry) you have made money. If you are wrong, you do not exercise your option and the money you have spent is gone. However, the money you spent was a small percentage of what the stock would have cost. It’s like buying a piece of artwork and thinking the price will go up in the future because the artist died. Maybe you are right and maybe you are not. Only the future will tell.

How do you find stocks to use in option trading? You locate these stocks just like you do when you are looking for a stock to purchase or sell. You research different companies until you find a company looks like the stock will move, either up or down. Maybe the company has a new drug that is waiting for approval, or has a new product line that sounds good, or has failed to meet it’s last two quarterly earning expectations. You can do all the normal research yourself, you can use a broker, or you use software that is designed for this purpose. The better your research, the greater your chance of being right.

Option trading, like stock market investing is hard work. It takes dedication to the search, careful management of money, and developing the right tools to make good decisions for you. It can be very profitable.

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How To Make A Living Day Trading Stocks Online

On February 18, 2010, In Trading

Day trading brings to mind scammy get-rich-quick schemes and outlandish anecdotal evidence from the one person out of thousands who actually made money using whatever product is being endorsed. However, with day trading, the idea that those that can’t successfully do something instead teach it has never been more true, and it’s usually “taught” in gross exaggerations with advice that is foolish at best.

Exact statistics are unknown, but thousands of people do make a living day trading. You never hear about them because they don’t need to sell books to make money, and because their techniques will not work if anyone else knows them. Day trading truly takes advantage of crowd mentality in predicting future prices, and doing the opposite of what everyone else is doing.

Successful day traders make split-second decisions without becoming emotionally involved with the money they are trading. Just like the stock market, the net wealth of a day trader fluctuates constantly throughout the day, with the criteria for success being correct in your predictions more than 50% of the time. Margin trading is a powerful tool for day traders, allowing them to multiply tiny gains across hundreds or thousands of stocks to make the gains worth their time, but margin trading has also been the downfall of many starting traders.

Many short-term traders follow the  efficient markets hypothesis, which states that after a short period of time to adjust to current events, all stocks are appropriately valued and contain all publicly available information embedded within the current price. However, people who make a career out of day trading need to also have some sort of current events feed to monitor the same news that fundamental traders are monitoring.

Traders need to respond quickly to relevant news in order to beat the masses to it, and to considering closing your positions until the patterns are more predictable again. Another stock tip is to specialize in one asset class, whether that is something traditional like the stocks or bonds markets, or futures or options contracts. Trading stocks online helps level the playing field for individual, at-home day traders, and gives you a better chance to compete effectively with the larger institutions.

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How To Learn Forex Online Option Trading

On February 10, 2010, In Trading

Many people are lured in by the potential riches which are promised by those touting Forex trading systems. It has made many people very rich but even more people have lost a fortune as their inexperience and gullibility leads them to make expensive mistakes. The problem with Forex is that you are trading against other persons so there will always be winners and losers. In order to become a winner you have to know a lot about how the stock market is influenced by the news, politics and human behaviour. You will also obviously need to know the basics of what Forex is and how it exactly works.

A lot of people that are trying out Forex believe they will become winners within a few weeks and when they find out it does not work for them they will quit. In order to become a winner you need to understand that you will not become a winner within a week or even a year. Just like it takes years to master Karate or talking another language, it also requires a lot of practice and experience before you can  make serious money with Forex online option trading.

The good thing about it is that everybody can learn it as long as he keeps patience and focus. A great place where you can learn all the basics is babypips.com. They even have a school where you have to go through lessons in order to master the basics. But when you did you are still a rookie and making money is still far away. With all that you learned from Babypips you now have to set up your own system that will help you deciding to buy or sell futures. Building up a system is probably the most important aspect of Forex and also the thing where most people fail.

The best way to test your system is by paper trading, trading against real quotes but with fake money. This is a great way to see if your system works for you and if you are able to make money with it. Most professional Forex traders will test there system for at least 3 months in order to decide if it works. Only after they know it works will they use it to trade with real money. For inexperienced Forex traders it is best to paper trade for at least a year in order to master it. If you want to try it out sooner than try a free forex bonus instead of depositing your own money.

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Stock Trading Tutorial – Conditional Orders

On December 23, 2009, In Trading, money

Most traders are very comfortable using limit orders and market orders, however there is another order type that can help broaden your stock trading options.  This stock trading tutorial will briefly cover the use of conditional orders.

Conditional orders are based on a user defined set of criteria.  You can set up any condition that suits your trading style.  One of the main benefits of setting a conditional order is the ability to set up the trade and walk away.  Let’s say you have identified a coloration between the price of a gold ETF and the price of a certain mining stock you are interested in trading.  You could use a conditional order to buy your stock based on the price movement of the gold ETF.  Instead of having to sit in front of your computer for the entire day monitoring the price of that ETF, you could set up your trade to watch the conditions for you.

During the course of your stock trading career you will notice many correlations that may give you a slight head start on a good buy signal.  Being able to set up the trade to execute without having to eagle eye the market is very valuable.

Another valuable conditional order is called the “one triggers other” order.  In this scenario you can set up two trades but the second will only execute if the first one does.  This can be valuable for riding the “waves” of the market.  If you have a couple of stocks in your portfolio that you want to buy and sell on opposite patterns this can be the perfect order type.  You could set up a trade to purchase one stock at a certain price point and then automatically sell the other stock in your portfolio.

It will take some time getting used to all of the possible trade types using these types of orders, but the expansion in your trading skill will be worth it.  For more tutorials about stock trading you can visit stocktradingtutorial.org

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Tested Forex Trading Strategy

On December 12, 2009, In Trading

A tested forex trading strategy with a respectable percentage of success will be motivating and a series of profits will build your morale. However, beware of permitting yourself to become complacent.  You must know that there is not a forex system that won’t result in some losing losing trades. Your strategy should be to make sure your losses are small as well as the wins will be bigger than your losses.

How You Handle Each Trade

Any thriving, veteran trader is sure to inform you that even though correctly identifying buying and selling signals is fundamental, it is not the recipe to victory. Alternatively, the way you handle each and every trade is what will decide how successful you will get. A mainstream trader might just locate a few significant trades inside a week and it is reliable little profits that will decide your succeeding or failure.

Buying & Selling Signals

Most forex traders think that successful online trading relies on following the appropriate buying and selling signals at the perfect time. It is obviously important that a trader is able to understand buying and selling signals and can work the system suggested. Even though, virtually any type of forex trader will be able to learn a means to produce trading signals, either using tools already to hand, or discovering their own method.

Dealing with Losses

The classic novice forex trader moves with the herd. He sees a move, and not wanting to be left out enters the market just in time to notice the successful traders, who were in beforehand, begin to cash in on their profits as the new trader’s position declines. As a result he possibly gets out at once in a panic, once he cannot bear to witness any further losses. Or in some way, he contrives to stay in for long enough to reach the next market move, and gets out recovering at least a little of his losses. This kind of trader will most likely be used by other practiced forex traders so without a skilled system a novice trader’s resources may be completely used up.

For more information about Forex trading, visit Forex Trading Systems Online.

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Is Stock Trading Right for Beginners?

On December 11, 2009, In Trading

The first thing to realize is that there is a difference between stock trading and investing in the stock market. Stock trading involves shorter term trade horizons compared to the long term investment strategies. If you have never purchased stock then you should do some serious contemplation before you attempt to start out as a stock trader. It is much easier to enter the stock market looking to invest than to start out trading stocks. Most people can naturally grasp the concept of investing money in a company that you feel has good prospects to be profitable. If you put your money into that company and the company succeeds as you predicted you will make money. These concepts have no place in the every day life of stock trading. This can be a substantial mental hurdle about stock trading for beginners to grasp.

Beginner stock traders need to keep one simple rule in their head at all times: never tie your emotions to the stock trades you are making. If you can execute a trade with a cold, callous thought process you will be ahead of the game. The goal of day trading is to make money, pure and simple. If you let yourself get tied to a particular stock or trade you will be less inclined to exit the trade on a purely intellectual level. In order to gain the mental disconnect that defined successful traders you have to become comfortable with both making and losing money on trades. This is easier said than done. Anyone who is new to the market would be better served getting accustomed to the feelings that accompany a losing trade. In the most basic terms, take it slow in the beginning. Don’t rush into some stock trading system just because you heard it could make you a millionaire overnight. Learn as much as you can about the stock market and ease yourself into the pursuit of stock trading.

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New Natural Gas ETF trades futures with a twist

On December 2, 2009, In Trading

The Natural gas markets have been making the news this year. Many see natural gas as a way to get off our dependence on foreign oil. Since it is plentiful here, many people want to see us develop natural gas as an alternative fuel to use.

With all this talk of natural gas, you may want to invest in this market and there are many ways to do so. Over the last year or so one of the most popular ways is to invest in a natural gas etf.

Natural Gas ETFs are exchange-traded funds of which there are many different types to trade. One of the popular funds is the United States Natural Gas Fund. This fund was created and is managed by the United States Commodity Funds LLC. The United States Natural Gas Fund, ticker symbol UNG is a fund made up primarily of natural gas futures contracts trade on the New York Mercantile Exchange. This fund typically buys the front or spot month contracts of natural gas futures. Two weeks before the contract expires, the fund rolls the contracts into the next contract month.

This is where the new United States 12-Month Natural Gas Fund, ticker symbol UNL differs. As it name states, its trades the first 12 months of the natural gas futures on NYMEX. Its sister fund, the United States Natural Gas Fund only trades the spot month contract. Both of these funds trade futures on an un-leverage basis, this way they won’t get margin calls.

Does it make a difference which of these funds to trade? Well yes. Since the UNL trades the first 12 months, this mitigates the effect of either contango or backwardation on the fund. With the United States Natural Gas Fund, each month the either fund is rolled into the next contract. This can have a huge effect on the funds prices. Since the United States 12-Month Natural Gas Fund only rolls 1/12 of the fund each month, the contango/backwardation is minimized as compared to the United States Natural Gas Fund. When the United States 12-Month Natural Gas Fund rolls out of the spot month contract, it then purchases the 13th month contract, so that part of the fund doesn’t need to be rolled for another year. Doing this also helps lower the expenses of the fund by not trading as often and saving commission expense.

Both the United States 12-Month Natural Gas Fund (UNL) and the United States Natural Gas Fund (UNG) are traded on the New York Stock Exchange

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