So you’ve been buying stocks since July 27 thinking you were getting a bargain. How is that working out so far? Maybe you think now they are cheap to buy. How do you know?

Back in 2000, all of us trend followers heard that we had to buy the pullback from the March highs. It was a great buying opportunity in the summer of 2000. How could we pass? Easy. The trend was down. In March 2003 the market began to rally but everyone suffered a two year bear market and there was no way stocks could move up now. How can trend followers be buying here? Easy. The trend was up.

When I was a contributor at Realmoney back in 2007 my inbox was flooded with hate email because I was “foolish” to see the bargains that were presented by stocks like GOOG, RIMM, and BIDU off their highs in late 2007. How did that turn out for them? In March 2009 the market began to rally with leading stocks leading the way higher. Everyone was for sure that this was a fakeout move. How could trend followers be buying? Easy. The trend was higher.

This year, stocks made progress throughout 2011 but internally the chart patterns of individual stocks in the banking, semiconductor, and commodity sectors were selling off while the market was moving higher. This is a classic sign of a market ready to make a move from an uptrend to a downtrend. However, when the crack happened on July 27th, bulls refused to listen to the clear message of the tape. Instead of going with the trend, they decided to fight it. Today I continue to see the same thing besides having charts with technical damage exactly on par with 2008.

The question isn’t about how to buy stocks here. The question is why are you buying stocks here? What historical precedence and investing methodology with a long-term proven track record provides the returns that warrants doing something so dangerous? I have read books on the greatest traders. I myself inspire to be one of them later on in my life. Everyones methodology is different yet it is similar. The one thing you don’t find is them fighting the trend.

Trend following makes sense. Why argue with facts. The greatest traders of our lifetime are trend followers. Oh, but, Warren Buffet isn’t. OK. How many other Warren Buffets are there out there? Do you know who Jesse Livermore is? William O’Neil? Nicolas Darvas? Richard Wyckoff? Jack Dreyfus? Richard Dennis? William Eckhardt? Ed Seykota? If none of these names are familiar, then there is a lot of work to be done.

All of the traders above have turned small stakes of cash into millions and millions of dollars. The reason why is simple. When the market is trending higher, they are buying stocks. When the market is trending lower, they are selling/shorting stocks. When the market is sideways/choppy, they are sitting on their hands waiting for the next trend. It’s common sense investing yet so uncommon in a world where we are taught “cheap” is good. Where else in life is cheap good? Fast food? Automobiles? Jewelry? No. You get what you pay for in life and in the market.

Cheap stocks get cheaper and cheaper in a bear market. Not being able to recognize the difference between buying stocks in an uptrend and buying stocks in a downtrend is the difference between becoming a great trader and becoming the normal 95%-99% of most traders that try to get the stock market to make them rich.

If you want to get rich, you got to learn how to invest from the best. To learn from the best means you are going to have to spend money and pay your dues. Investing blindly without any real hardcore research will turn out horrible, in this economy, where downtrends will be more prevalent than uptrends. The trend is down. Trend followers are already short and profiting. Meanwhile, the bulls, continue to buy and lose money.

When the market actually turns and begins a new rally, trend followers will have made money in the bear market that bulls in the bear market lost. When that happens, all those bulls will be broke and will be unable to particpate in the rally. If they are still solvent the capital they have remaining will have limited impact on repairing the damages done by buying stocks and not taking a small loss. The trend follower, on the other hand, will have profited handsomely on the downtrend and will be able to use that ample capital to put to work in the uptrend. Learning to play the game right is how you make a killing in the stock market. Buying a stock because you believe it is cheap is not a game plan. Trend following, money management, a sound methodology, and cutting losses when you are wrong is.

[Editors Note:  Do we have to whip out the tack hammer again?]

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A day trading simulator involves exchanging stocks in delayed or real time with paper or fictitious money. A day trading simulator is an excellent way for experienced traders to try out new strategies and methodologies. Beginners can also benefit by learning the basics and common pitfalls that many people make during the early stages of trading. Any amateur day trader should start with simulated trading to gain experience and learn new methods.  As far as I’m concerned, the free version of Ninja Trader is the best possible real-time day trading simulator.  You get the chance to trade in the exact environment you would with real money.

Birth of Day Trading Simulators

Fifteen years ago, there were no commercial simulators that could be accessed by the public. The stock market could not be accessed at home, so people would need to be physically present in the market to make investments. This made it expensive and inconvenient to practice, so many amateur traders lost a considerably large amount of money during the starting stages.

In the modern trading world, there are several services that offer simulation for making trades. A good simulation should assess the number of shares exchanged and the trading volume at the ask/bid level. This will help users to simulate real trading as close as possible. Esignal and TradeStation are two examples of excellent simulators that provide near real-life trading experiences.

Improve Your Skills With a Day Trading Simulator

After a while, day trading stock online in a simulator became quite easy. Once you get past the point of making direct trades, the day trading market will become easier to understand. Instead of using emotions in your investments, you will start to be more selective and exercise patience while in the market. The simulator’s results at the end of the month will help to tell you when you should begin real-life trading.

Real Markets vs. Day Trading Simulation

Once you have honed your skills with a simulator, it is time to start on a real-life market. Actual day trading is slightly different from a simulator, so you should avoid investing large sums of money during the beginning stages. Start by opening an account a small amount of money. Remember to have a brokerage with good support in case there are problems while trading. Mistakes are easy to remedy on a simulator, but they are far more deadly in real life.

Summary

Regardless of where you are making investments, day trading simulators can be beneficial. However, it can become harmful if people grow careless while trading with virtual money. These programs should be used to learn the basics and test ideas, but not excessively used to the point where it may result in poor decisions on the real market.

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Do you want to be a day trader? Have you watched the latest Hollywood movie and yearned for the excited that is portrayed with day trading? Day trading seminars teach attendees the basics of day trading. You will learn how to read stock charts and how to make money in a volatile market. Buying and selling stocks within the same day can be extremely profitable. On the other side, trading without any experience and without a strategy can lead to tons of lost money. Understand the benefits of attending a day trading seminar and learn how to take advantage of small price movements on a daily basis.

Attend Day Trading Seminars to Learn How to Make a Living

As you may know, the market does not always move rationally. Swings in the market are not always predictable. One day, a stock may experience an immediate 5-10 point rise just to be followed by a 20-point fall. Seminars have become a great way to learn how market conditions drive up stock prices. Not all stocks have a steady upward trend. Depending on the industry of the stock and the demand for specific products and services, a stock that normally performs well can plummet. When you learn day trading, you will learn that nothing is a guarantee. While stock rises are not guaranteed, you can do your research and learn what to assess when you are involved in day trading.

How to Choose the Right Day Trading Seminars

Day trading seminars are only as good as the speakers and the individuals in charge of the event. When you are browsing different seminars in your area, it is important to do your research on the individual claiming to be an expert in day trading. If the speaker is in fact an expert, you should be able to Google their name and link them to several different financial sites. Speakers do not simply appear in the financial platform overnight. They have built a reputation and developed proven strategies that work to make money day trading. Remember, some things may sound too good to be true. You must use your investigative portion of your brain and your instinct to weigh the good and the bad.

Seminars can teach you how to turn a volatile market into profits. If you are looking for a way to make supplemental income, consider attending day trading seminars. Even if you decide it is not for you, at least you took a proactive step towards bettering your financial situation.

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Yesterday I made a few trades in the morning that didn’t quite work out.  It was looking like it might be a pretty crappy trading day, however, I managed to catch the trend trade that formed in JDSU, and by focusing on that trade, managed to turn the day into a rather profitable day trading endeavor.

1 Minute JDSU Chart - Entires and exits marked and annotated

As I said, the early morning was pretty rough.  I had a couple quick winning scalps, but also took some losses in a couple other stocks which all added up to about .8 of my daily risk limit (R) and the day had barely started.  I got chopped up pretty bad in AIG, which was my biggest loss of the day.  I did, however, finally catch some winners that I was going to ride for a bit.  By the time I started focusing on JDSU, I was just about breaking even on the day (including my unrealized gains).

At about 10-10:15, I realized that JDSU was looking ripe for a nice trend trade, or a trade-to-hold.  My other stocks weren’t looking nearly as pretty, and I decided to really hammer this trade for maximum profits.  I entered some auto-stops on the other 2 positions, checking in, and shifting the stops as appropriate.  I then got to work on JDSU, expecting to add into strength as it went up.

After an initial late entry, followed by an auto-stop at breakeven, I jumped in at the next show of strength with a full position.  I set my stop as indicated in the pic above (behind the last support point), and let it ride.

Then, I got screwed by outside distractions, which really proves that trading is best done in a distraction-free environment.  I could have added two more full positions during this time, which would have significantly increased my gains.

I added 4 more times.  Every time this stock took a break, and then began to show strength again, I was back in, trading the trend.  I would keep the stop for the newly entered position fairly tight (last support point), while trailing the stop for the rest of the positions a bit looser.  You can see I entered the 5th position a bit later, and there appears to be an entry point if you’re only looking at the chart.  The tape wasn’t really showing strength here though, but it wasn’t showing weakness either – no reason to enter a new position, but no reason to exit the rest either.  After a few minutes of consolidation, in a nice little pendant pattern (which is a continuation pattern) it looked like some strength was reentering the stock.  That wasn’t the case though, and the price quickly broke down out of the pattern.  I exited that 5th position rather quickly.  A couple minutes later, as the tape and pattern began to look really weak, I exited the rest of the position.

Trend Trading JDSU - 5 Minute Chart

The stock ended up double-topping, and retracing a bit of the day’s gains.  I missed the double top entry because I don’t tend to enter new trades during the noon hour.  I tried to catch a piece a bit later, and took a loss.  I tried to short a second time, and grabbed a small gain.

Overall, the day turned out to be pretty profitable because I recognized how this stock was trading, and knew I could hammer it for some decent gains.  I also didn’t let my early losses get me down.  I can’t say I’m a robot, and trade entirely without emotion, but I realize that losing is part of the process, and I don’t let it affect my judgement or trading ability.  Anyway, I ended the day at about 3.8R (daily risk limit) – not too shabby.

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Before you think about trading stocks in this manner, you need to have a basic understanding on how to trade stocks normally. There’s quite a bit to shorting a stock, but if you don’t know the traditional way of investing or trading, you could lose more than you’ll ever want to. Think of this article as your guide to shorting stocks for dummies. What I mean by that is, I’ll try to break it down in a way that a beginner investing in the market will be able to understand. I was trading stocks for a few years before I started shorting any. The reason for that is you can lose more money shorting a stock than you can by investing in it.

Typically when an investor buys a stock, he is looking for it to go up in value. The old buy low, sell high may come to mind. Most of my trading is for the purpose of the stock price to rise. In the case of shorting a stock, the trader is looking for the stock price to fall. Yes that’s right, buy high and sell low. I call them traders because they are not looking to see the company grow, just their portfolio.

Let’s look at an example, company XYZ’s stock price is $100 per share. For whatever reason, maybe the company isexpected to release a bad quarter because of the economy or has had some bad situation happen recently like what happened to BP (British Petroleum). A trader will go out and “borrow” shares from another trader or a broker and pay them the current stock price of $100 per share on the grounds that he will return the share within a certain time period. The trader turns around and sells the shares at the current price and takes the money for other transactions.

During the period, the stock price falls to $75 per share.Now he has to return the shares to whomever he borrowed them from, so he buys the share at the lower price and gives them back to the broker or trader he got them from. He has now made $25 per share without ever owning them. This process happens all the time, but if you are not careful in your research, you will lose (and in some cases, lose big).

The reason I say you can lose big is because unlike traditional trading where if you buy a stock at $10 per share, you can only lose $10 per share. When you short a stock and the price rises, you stand the chance of losing more than just $10 per share, especially if the stock price jumps to $30 a share.

So if you’re going to short stocks, be prepared for what may happen if you’re wrong.

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If you’re a beginner investing in the stock market, before you think about shorting stocks, you need to have a basic understanding on how to trade stocks normally. There’s quite a bit to shorting a stock, but if you don’t know the traditional way of investing or trading, you could lose more than you’ll ever want to. This post will be on shorting stocks for dummies. What I mean by that is, I’ll try to break it down in a way that everyone will be able to understand. I was trading stocks for a few years before I started shorting any. The reason for that is you can lose more money shorting a stock than you can by investing in it.

Typically when an investor buys a stock, he is looking for it to go up in value. The old buy low, sell high may come to mind. Most of my trading is for the purpose of the stock price to rise. In the case of shorting a stock, the trader is looking for the stock price to fall. Yes that’s right, buy high and sell low. I call them traders because they are not looking to see the company grow, just their portfolio.

Let’s look at an example, company XYZ’s stock price is $100 per share. For whatever reason, maybe the company isexpected to release a bad quarter because of the economy or has had some bad situation happen recently like what happened to BP (British Petroleum). A trader will go out and “borrow” shares from another trader or a broker and pay them the current stock price of $100 per share on the grounds that he will return the share within a certain time period. The trader turns around and sells the shares at the current price and takes the money for other transactions.

During the period, the stock price falls to $75 per share.Now he has to return the shares to whomever he borrowed them from, so he buys the share at the lower price and gives them back to the broker or trader he got them from. He has now made $25 per share without ever owning them. This process happens all the time, but if you are not careful in your research, you will lose (and in some cases, lose big).

The reason I say you can lose big is because unlike traditional trading where if you buy a stock at $10 per share, you can only lose $10 per share. When you short a stock and the price rises, you stand the chance of losing more than just $10 per share, especially if the stock price jumps to $30 a share.

So if you’re going to short stocks, be prepared for what may happen if you’re wrong.

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Penny stocks allow investors to diversify their portfolio by targeting areas of the market that are more prone to volatility, which can lead to outsized returns for the portfolio. Penny stocks are self-descriptive, each share sells for as little as a penny to as much as $5. However, these mere pennies can be far away from the intrinsic value of the stock, either higher or lower, and thereby cause a high degree of risk, or reward.

Nature of Penny Stocks

Penny stocks allow access to smaller markets that aren’t adequately covered by large or even mid-cap stocks. Often times, they don’t have earnings, and sometimes not even revenues, and, as such, no price to earnings (P/E) ratio can be applied. This makes the value of a penny stock difficult to monitor or assess. Add to that, few analysts follow penny stocks, as it is not cost-effective for brokerage houses to pay analysts to do so, so these instruments often fly under the radar. Penny stocks are frequent in industries such as pharmaceutical bio-tech start-ups, other developmental stage companies, as well as businesses in other speculative industries.

Penny Stock Risks

As these instruments are not frequently followed by analysts; it may be difficult to obtain enough information about management to assess their honesty and integrity. In addition, revenue streams may not be stable, and, as a result, it may be difficult to monitor the net book value of the business. It is also difficult to determine whether the company has sufficient assets or financing (either equity or debt) to remain in business until stable revenue sources arise.

The risk of owning stocks is the amount of your initial investment. That is the beauty of owning stocks, particularly penny stocks. As such, it may be useful to make a small investment in a penny stock. These are risky instruments, and the volatility of the price of these stocks illustrates this. Day trading penny stocks is particularly risky, however, selecting a company with volatility as high as penny stocks, one has to really monitor the entry price.

Starting to Invest in Penny Stocks

If you want to learn penny stocks and start investing, you should begin by obtaining a broker that allows access to OTB markets (off the board) which give you access to penny stocks. Search for industries that interest you and try to find companies with strong management, whom have access to financing, and who have an idea that can fill a need that customers have. Penny stocks have risks associated with them, but can also yield fabulous returns.

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If you are interested in making that extra dollar and think that the stock market is the perfect place to do it, think again. Yes, there is money to be made on the market but it is not as easy as imagined. Stock market for beginners can be difficult as well as confusing. There is a huge amount of information that has to be ingested and this can be a daunting task for a newcomer. The process of learning has made many people give up and start looking for other avenues.

One problem that the stock market for beginners poses is the lack of immediate returns on the investment. It has been noted that most people invest in stocks, hoping that it would turn them into millionaires overnight. This is a concept that is not at all acceptable. Investors in stocks should be prepared to wait for a period of time before any profits can be realized. Off course, they could always look out for short term investments, which would bring in small returns. However, if they are looking for good returns on investments, they should be prepared to wait for a long time.

Doing your homework is perhaps the best way to start, if you are looking to invest in the stocks. As this type trade is gaining in popularity, you will find no shortage of material on investing in stocks for beginners, which you can study. Make sure that you put in enough efforts to understand the basics of the market and they way stocks are traded. You may also seek advice from a stock broker, your friends, or websites like Forex Robot Investing, if required. You should be able to gather valuable inputs, which can help you in your endeavor. At no time, should you jump into the market without arming yourself with all the knowledge. Doing so will only result in disasters.

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Most people, especially those who do not do much currency trading, think that the term Forex is a catch all term for any trading involving more than one currency.  The get rich in literally minutes appeal of the Forex market has definitely gained a lot of attention.  In many ways it has eclipsed other types of trading such as currency options trading, which are more important to the global economy.  These types of trades help global businessmen reduce their risk when facing the quick and often unpredictable changes inherent in the Forex market.

How Does Currency Options Trading Work

Currency options trading is like future insurance.  The Forex market is traded live, but business deals and the major factors that determine currency value take time to develop.  That’s where currency options come in.  A currency option is basically the chance to trade a certain amount at a certain exchange rate on a certain day.  Buying a currency option allows a person to in effect set a maximum cost for a currency transaction.  For example, let’s say that a European has agreed to sell his house to an American for 150,000 Euros.  The American is flying to Europe to pay and take possession of the house a month from today.  The American has checked his bank account and the exchange rate and knows that as of today he has enough money, but if the exchange rate moves even by a penny the effective price of the house changes by over $2,000.  He is likely to buy a currency option that will effectively allow him to trade the money in his bank account at today’s exchange rate for 150,000 Euros.  That way, he knows that he will have enough money to buy the house no matter what the exchange rate does in the next month.  Buying the option doesn’t lock him in to today’s rate, so he can save thousands on his house if the exchange rate moves in his favor, and use the money “saved” on the house to install a video surveillance system.

Currency Options as an Investment

The example also demonstrates the obvious necessity of currency options in international business dealings, but currency options trading can also be used in conjunction with the Forex market as an investment.  Instead of investing money directly into a currency pair, a person could buy a currency option on it.  He could wait until it was time to go through with the option to see if fulfilling the option and then turning around and trading back would make a good profit.  The cost of the option will cut into his profit, but it will also protect him from losing money if he would have lost by investing in a weakening currency.

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While trading forex online, we’ll inevitably have to deal with a large number of scenarios and conditions that are often difficult, if not impossible to predict in advance. Traders have different responses to this unpredictability problem, but many prefer to make use of fundamental tools for gaining long term visibility while analyzing the price action. A trend following strategy is an excellent tool with which we can take advantage of fundamental methods, and here we examine two main approaches in which this trend following approach applies to the market.

Since prices demonstrate fractal behavior, one can create a trend following strategy on a five-minute or five-day chart with equal efficiency, if we exclude the compensation of the broker. When this last factor is taken into account, however, a trend following strategy is more favorable the longer the time frame of the trade is.

1. Short Term Trend Trading

We suggest this approach mostly for practice trading. An excellent way to practice the trend following method is to apply it to five minute charts with a tiny commitment of capital (and small position size and leverage), so that within the framework of a trend following approach a large number of strategies can be tested, with only limited risk. If we were to study trading on long term charts, we would have to wait a long time before we could gather the necessary experience. The fractal nature of market action makes it possible that we apply the same strategies that work on a five-minute chart to a five month chart with the same effectiveness. Of course, while evaluating the results of short term educational trading, the spread cost must be excluded from the end result in order to achieve a better representation of potential long term gains (where with long term price action the effect of the spread is mostly negligible.)

2.  Long-term Trend Trading

This is the main method favored by those who practice the trend following approach. There are more advantages associated with this method than the scope of this brief article would allow us to detail, but we can mention the lower number of trades (hence lower fees for the forex broker), greater benefit from fundamental analysis, the possibility of adopting a meaningful layered approach, the added confidence gained from being able to hold a position for the longer term. Nonetheless, it is difficult for a beginner to apply this method right from the beginning, and that is why we suggest that the introduction take place through the exploitation of short-term trends.

Trend following is just one of many possible forex strategies, but it has the best potential for profitability, and also for inculcating the necessary qualities in your trading psyche. Trading requires commitment, and by a committing to a long term strategy you will improve your chances of success considerably.

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