Tuesday, March 31, 2009

What if a Stock Does Not Pan Out?

Many times we take a look at something and over the next two days it doesn't pan out, so we move on. Quite often those ideas put out, turn into winners, it just took more than a couple days for the breakout, or what have you to take place.

Other times we get shook out of a position with a small profit, only to see the stock soar higher a week later. Sometimes we take two dollars in profits and we look in on the stock 10 days later and it's up 15 dollars. What's all that mean to you?

So, just because we don't get involved with a play, that doesn't mean you shouldn't. Likewise, if we pull the plug on something, that doesn't necessarily mean you should. I think one of the most useful things you can do for yourself is keep a list of the plays we put on the consider buy/short table. Then, if we move on to new plays, revisit the older suggestions. More times than not our guess was right, but the timing might have been off just a bit. Over the years we have seen this over and over.

One of the more successful traders I know takes notes of all the consider lists, and loads them up on some form of an alert he has built for himself. Then, without ever having to search for a new play, he just waits for one of our past suggestions to set off the alarm. It's an interesting concept for sure and no you don't need to get that involved. Just a pen and some paper, a decent chart and you are good to go.

Here is what happens. Lets suppose we put out the XYZ company. We say XYZ is at 49.45 and we like it over 50.00 as a long. Well Wed comes, and it doesn't do it, then Thursday comes and it doesn't do it. So, we have already found two more stocks that look interesting and we drop XYZ in favor of the newer ideas. Does that mean XYZ is out of favor? Absolutely not! If XYZ breaks over 50, it's a play, whether it's in a day or in a week.

Please folks, increase your chances of making great plays by just keeping track of the older recommendations. More times than not they will turn into winning plays, they just need some time.

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Three Golden Rules For Investing in Stock Markets

There is no shortcut to making money in the real world. That holds true for the stock markets as well. You will keep hearing all the get rich quick schemes for making money in the stock markets. They usually promise a lot but there are underlying if and buts to each of these schemes.

If you are in the stock markets for long term then the solution is to follow a few golden rules which will help achieve your objective of making money from the stock markets as well as avoid any pitfalls on the road to the riches.

The three golden rules for stock market investing are

Think Long term

If you are looking for amazing returns in the short term then the risk definitely will be very very high. People definitely take risky bets in the short term and make huge amounts of money. You will also hear stories about your friend or a relative making thousands of dollars in a few days. These are bets which could have turned either way. As a risk averse and a cautious investor you need to see the big picture. The rule is that do not get swayed by any of these and understand what you need in the long term. You do not want your money to be gone but you need to have earned decent amount of returns on it. In a long term scenario you will ride out any slumps in the market and it has been proven historically that stock markets earn better than any other instrument if you take a time period of 10 years or more.

Buy Low and Sell High

Never get swayed by the market sentiments when sudden news results in stock selling. In fact at that time when everybody is selling you should be buying. It is the time when you should have cash. That should be your mantra. Every fall should be a buying opportunity for you. It is a tough thing to do but once you achieve it you will make huge amounts of money in the market. That way you lower your cost of holding and gain huge percentages when the market is on the upswing. You can then sell at the higher prices and also you will have cash when the market is in a downturn as opposed to your money being locked in the shares.

Patience & Due Diligence

The third rule is that you need to have patience and determination in the stock markets. Patience to last for that long term benefit that you had envisaged when your entered the market. Most investors fall prey to the fact that they look short term and the minute they encounter losses they sell stocks and get out of the market. In fact at that time they should be investing more in the market to accumulate more stocks at cheaper prices.

Follow these rules to earn money in the stock market.

Stock market for beginners tips are for people who are looking for investing in the market. Stock market for beginners is an easy thing to crack if you have the long term view.

In this March 2, 2009 file photo, specialist Michael Sollitto works on the floor of the New York Stock Exchange. The Dow Jones industrial average plummeted below 7,000 at the opening bell and kept driving lower that day, finishing at 6,673 - a loss of nearly 300 points. The first quarter on Wall Street was so extreme it included a bear market and a bull market all its own - moves that sometimes take years or more. Now investors head for spring still unsure which side is in control. (AP Photo/Richard Drew, file)Reuters - Stocks climbed on Tuesday, driving the S&P 500 to its best month since October 2002, as investors snapped up top-performing bank and technology shares as the first quarter came to an end.

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Stock Options - How Do Call Options Work?

When you purchase a CALL OPTION, you have...

THE RIGHT, BUT NOT THE OBLIGATION, TO BUY A FIXED NUMBER OF SHARES AT A FIXED PRICE ON OR BEFORE A FIXED DATE.

Stock Option Glossary:

STRIKE PRICE This is the fixed, pre determined price at which you can buy the shares. This cannot be changed throughout the life of the option.

EXPIRY This is the date at which the option contract expires. This cannot be changed throughout the life of the option, and there after the contract is worthless.

EXERCISE The process of fulfilling the put option contract and buying the shares. This can be done any time up to and including the option expiry date.

PREMIUM The amount you pay for the option contract. Each stock has set strike prices for trading. Depending on where the strike price is in relation to the current share price, influences the amount you pay.

In the U.S one option contract relates to 100 shares and on the Australian stock market it would relate to 1,000 shares. Options give you control over these shares at a fraction of the cost of buying the stock itself.

For example, XYZ stock might cost you $ 15.00 to buy, whereas $ 1.50 might buy you an XYZ call option that would give you control over that stock.

SO HOW DO YOU PROFIT FROM CALL OPTIONS?

You would buy Call Options if you had a bullish view on a particular stock, as they give you the right to buy shares.

The value of a call option increases as the share price rises. You stand to profit if the share price goes up.

Call Options can be used many ways...

As an Incentive:

Many business owners commonly give their employees call options over the company they work for as part of their employment agreement or as an incentive. The idea being that as the stock price increases, so does the value of the call option, allowing the employee to on-sell the option at a profit, or exercise their right to purchase the stock at the lesser strike price resulting in a profit. However if the stock price has not increased then the option will expire worthless.

As Income:

Stock Options allow you to make money in the stock market, whether it's up or down. There are countless different options trading strategies all with their own degree of risk, that may help earn you an income.

A common, but powerful income strategy is to trade Call Options for profit in a rising market. This is the process of buying and selling call options (before they expire) at a profit.

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Reuters - Alcoa Inc rebounded on the stock market on Tuesday, a day after tumbling 14 percent and a week before it reports fourth-quarter results, and analysts said an upgrade by Deutsche Bank and a report suggesting Alcoa might be a takeover target of mining group BHP Billiton contributed to the stock boost.

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Learn How to Earn on the Stock Market - Easy As CFD

CFDs is a short hand term for 'Contracts for Difference', and is a stock market product which delivers great earnings potential for investors. Basically, when you trade in a CFD you don't buy or sell the physical stock - in other words you don't own the stock itself, just an interest in it. For example - if you purchase a CFD on a particular stock, if the stock goes up in price you'll still make a profit as if you owned the actual stock itself!

CFDs aren't available on all stock markets world wide - they're not traded on the U.S. markets for example. They originated in Great Britain and have spread to other European markets, as well as the Australian Stock Exchange. Widely used by institutional investors, they have the capacity to deliver good profits over the long and short term, for minimal outlay. Purchasing a CFD is much cheaper than purchasing the actual stock itself, and therefore is a great way to start trading on the stock market without any great capital outlay.

The cost of a CFD depends largely on the price of the underlying share. The exact cost will depend on the brokerage firm that is used to trade the CFD. Most brokers will charge on a percentage basis - for the cost of the CFD (depending on the cost of the underlying share) plus a brokerage fee. It is important that when calculating your entry and exit prices you take these fees into consideration. Otherwise you may think you've traded out on a CFD with a small profit only to find that after fees are charged you have actually traded at a loss!

If you don't like risk, then CFDs are for you! Remember that trading on the stock market in any form carries with it an inherent aspect of risk - but if you're risk adverse like me, then the smart thing to do is to take steps to minimize the risk where possible! One way of doing that is setting what is called 'stop losses' - which is what it says - it stops losses. When you purchase for CFDs, make it a habit to always set a stop loss - a price at which you automatically trade out your CFDs. This allows you to set a figure on what sort of trading loss is acceptable to you, and avoid getting wiped out! Conversely, you can also set an upper limit on the CFD - a point at which you will sell your contract at a pre-determined profit!

There are many tools and much information available on CFDs, and any brokerage firm worth their salt will be able to trade in them. Shop around for the deal that best suits you. Teach yourself the language and basic concepts surrounding the stock market and CFDs so as to be in the best possible trading position. And remember - take steps to minimize risk - you won't regret it.

LockStockenBarrel.com is a resource for people who want to learn more about investment and finance. For free resources and information for investors at all levels visit http://www.lockstockenbarrel.com

A trader speaks on a cell phone on March 30, 2009 outside the New York Stock Exchange. Global stock markets recovered Tuesday as investors hunted for bargains a day after sharp losses caused by heightened concerns for the US economy and in particular its ailing auto sector.(AFP/Stan Honda)AFP - Global stock markets recovered Tuesday as investors hunted for bargains a day after sharp losses caused by heightened concerns for the US economy and in particular its ailing auto sector.

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