Saturday, 28 November 2015

WHY DO SHARES MOVE UP AND DOWN IN VALUE?

Basically it comes down to supply and demand.

If more people want a particular share than already own it, it will drive the market price of that share up if people don't want it and more people are motivated to sell it it will drive the price down.

There are a lot of reasons why people may want to hold or sell off a particular commodity these may include:

Company performance a good or poor performance at reporting time or any time news or data is released can move the price of a share around, especially around the time of dividend payouts and announcements

An extraordinary event like a disaster - like a mining collapse, senior  management being indicted for fraud... or takeover bid,

Market sentiment - which can include random fear or optimism for a range of reasons, like threat of war, fear or expectations of interest rates moving up and down, or even a reaction to fears like the Greek and Chinese issues of late, environmental disasters and lots more.

Institutional trading- while the average investor probably isn't going to move the price of a share around by simply buying or selling if a hedge fund or bank decides to offload or buy a bunch of shares for whatever reason it may have nothing to do with the performance of the company itself this can move the price around in a big way

Triggered Selling - this is a hard one to gauge but a sharp movement in price of any commodity share or index may trigger off a bunch of sell or buy orders that people have previously put in the market and move the price of that commodity around as well.  Since much trading is done online and executed by computers this can really come into play in what I call 'flash crashes'




Thursday, 26 November 2015

COPING WITH MARKET VOLATILITY

Holy crap the markets have been volatile of late! At the time of writing this my chosen index the ASX200 has taken a huge beating over the last couple of weeks. Peaking at 5410 in late October to dropping like a ton of bricks to 4976 a couple of weeks later ... Then rallying for 5 days and making 300 of those points back and then flailing around around like a dying fish for the next week. That equates to a range of 434 points from top to bottom, It also equates to a few headaches for me and a LOT of beers consumed to help calm the nerves. What is going on? Who the hell knows? Bloombergs doesn't .... no other stock site I subscribe to has any idea whats going on...... and quite frankly neither do I. Unfortunately fear is ruling the market as I write this and how the f--k do we cope with these trading conditions? Here's my thoughts, ideas and practices on the matter:

My trading strategy (with the amount of money I had in there at the time)  really only allowed me to trade with a range of 350 points. Obviously this creates a problem and means I would have gotten sold out if I had not employed a range of strategies to counteract this fall.

TOP OF THE MARKET:
Looking at the graph at the peak, you'll notice the huge gains the market made on the right before the drop began. I felt this was unusually high. Lets say I was trading 3 x lots of ASX200 with each position I took out, but i had a feeling that high was an artifical high and stripped my trades back to 1 x position for the first few trades , then up to 2 x positions and the 3 x positions so that if/when the markets fell over I would not be trailing losses on x2 or x3  positions all the way down to the bottom of the market. This provided some very useful padding

SELL POSITIONS:
I took out sell positions against my buys so I was making money on market fluctuations in both directions my idea was to take out 1 sell every 20 points apart at the top of the market and 1 buy 20 points apart and later 2 x buys  when the market dropped a little this meant I was making money a little faster and added to my trading fund a little faster and gave me yet more padding to ride the wave down. This works well in normal market conditions and serves to help buffer your trading fund with a little extra cash in case  a big sell off occurs, but realistically it does  it NOT prepare you for a really big sell off, but it is still useful.



When it became painfully obvious that the big sell off was imminent (this is partly gut feeling / experience / news reports showing fear in the market) I took out more sell positions to counteract my buy positions. Not too many more so that if the sell off didn't occur I would be in a lot of trouble but enough that I could profit off the falling markets and keep my own positions secure. I then let the markets sell off that next day and closed off some profitable positions to boost my own cash reserves and hedge the bets in case it did go back up and put profitable sell orders on others in case of a reversal meaning i wouldn't get caught with a bunch of sells at the wrong end of the market in the event of a sudden reversal

Read: HEDGING YOUR BETS FOR MORE INFORMATION ON THIS

IMPORTANT:

With IG markets if you are trading both ways it is of the utmost importance to press the "force trade:" box on the trade screen right before you execute the trade otherwise your trade will cancel out an existing trade and invariably this will result in a  postion being closed at a loss (usually a big loss)  Ring your provider whether you are with IG markets or someone else about this and make sure you know how trading both ways works, IT IS ONE OF THE MOST IMPORTANT THING YOU NEED TO KNOW

Again, this does not mean you will survive a big fall but it does increase the odds of you surviving such a fall. Employing these strategies is how I survived he last fall. I WOULD have been closed out for sure.

I don't think things are going to quieten down anytime soon either.













Thursday, 19 November 2015

MY MAIN TRADING STRATEGY

HERES A SIMPLE  EXAMPLE OF MY MAIN TRADING STRATEGY:

IT IS A BASIC RUN DOWN OF HOW I DO THINGS BUT BY NO MEANS MY COMPLETE STRATEGY I WILL BE PUTTING THIS UP HERE IN SECTIONS BIT BY BIT,  AS TIME ALLOWS. IM STARTING TO GET SOME TRAFFIC TO THIS SITE NOW, SO IF YOU WANT THE INFORMATION TO APPEAR FASTER KEEP SHARING THIS SITE AND MAKE ME FEEL WANTED   :P

REMEMER: No strategy on the stock market is bullet proof or guaranteed to make you money. All we can do is stack the odds in our favour and hope it works out (which if you do the right thing it generally does work out well) Again .... Don't bet money you can't afford to loose, Capeesh?

First up: I use the http://www.igmarkets.com appication to trade on. Sign up with them and get yourself familiar with the platform. its fairly easy to use but if you want to use another platform thats up to you, i get nothing out of this and its more important you feel comfortable on what you use. The figures however may change dramatically on other platforms so be careful to take that into account when using this method.


I jump into the market with $2000 of my own money which means YOU have to deposit money in to your account. I generally feel that $2000 is a safe number in normal market conditions but if you're willing to take a punt on less money thats your choice.

I buy positions in the asx200 to go up and / or  down (depending on where the market is at the time) This would be one contract (which at time of writing this uses  around $26 of your equity)  If you can't find this search ASX200 $1 mirco contract in the search section and add it to your watchlist

Lets say for this example and for the purposes of keeping shit simple the market is low on my entry point into the market. I would buy one position to go up.

Then i wait to see what happens. It will either go up or down.

EXAMPLE 1:  IF IT GOES UP: lets say it goes up 10 points ..... I usually close off the position and take my money. In this example we are trading on 1 x ASX200 and each point it goes up makes me $1 so that would be a total of $10 (remember I use Australian money) 

This means if you put in $2000  you would have used $26 equity to buy the position and a small amount of brokerage it it showed a gain of $10 and you sold it then you would be left with $2010 in your account and nothing in your open postions screen. You can choose how much profit you want to take per trade but when trading on one contract I'm usually happy to take anything over $5

Then i would buy the same position back at the current market price and wait again.



EXAMPLE 2:  IF IT GOES DOWN: Don't panic let it ride out ... if it goes down more than 20 points (which will work out to $20 AUD) buy another position.

This will work out to $26 you have spent on the first position and $26 you have spent on the second position and a $20 loss of equity you have sustained on the first position. your account will therefore show $200 minus $56 (equity) and a loss of $20

Then again we sit back and wait.

It will either go up or down and (as in the previous example)  and you either take some profit as shown in example 1,  or wait and buy again if it goes down another 20 points. Then you sit back and wait again. Lets say the markets bounce back a little and your second position showed a gain of 10 points you would sell it and you would be left with your original position showing a loss of around $10 and your total would be $2010 with a loss of $10 with an available to trade balance of $1974 which is $2010- $26 (for the first postion) and $10 loss + $10 which you made on the last trade

YOUR SAFETY MARGIN

Basically if it goes down 20 or more points buy it again if it goes up sell it. This pattern works with a fair range so if you started at a certain point, lets say 5400 on the ASX200 this pattern will allow you to keep the pattern going for 15 or so positions going the wrong way with a range of 350-400 points  so around 5000 points. Basically if the market goes down more than that you stand to loose your money. Generally speaking I find it a safe trading range to start out and of course the more trades you make and the more equity you build up the safety margin increases. This also assumes that you buy them every 20 points apart. Obviously you can't watch the markets 24 hours a day so there will be many postions you buy say 35 or 30 or 40 points apart which will only increase the trading range you have.

Obviously the more money you have in your account the greater your trading range will be. The more of those little trades you close off at a profit builds up equity in your trading stash. I would generally make around $50 per day off trading on contract like this so if you trade for more than a month you might find you have $3000 equity and can track the market down a lot further, increasing your trading to range to around 500 points.

Generally speaking a 400-500 point range will be fairly safe in normal market conditions. However if you get caught up in a market crash you will most likely lose your deposit. But of course, I will show you other ways to safe guard your trading fund in future articles :)

This by no means is my entire strategy but it's the major part of it. It's shit simple and easy and has worked for me for many years now.

I will post more articles soon on:


  • How to safeguard your trading fund
  • Coping with market volatility
  • How to withdraw money
  • How to increase your gains
  • How to hedge your bets in falling and rising marketts
  • What to do in a crash
Stay tuned!

Monday, 16 November 2015

MORE ON MARKET VOLATILITY




Here's a great article on Bloombergs recently about the strange and highly volatile times we have been trading through of late.

http://www.bloomberg.com/news/articles/2015-11-12/five-strange-things-that-have-been-happening-in-financial-markets

Defs worth a read. Like I said before I've been trading a long time and I've never seen the markets swing around so violently and unpredictably. But at least I know I'm not the only one!

Saturday, 14 November 2015

KEEP IT SIMPLE - BUY AND HOLD STRATEGIES (Cont...)

Some more info on the "BUY AND HOLD" strategy.

I'm  a big believer in keeping things simple.

Stock markets through history have basically always travelled on an upward trajectory. Historically at a rate of 7-12% per year, depending on what index you're looking at. This sits true for most first world markets (US, UK, Australia, Germany etc...)

Long story short, look at a bunch of shares in your country that sit in the top 50 shares. Most Experts will say that you should spread your purchases over at least 10 companies in a few different asset classes. They'll mostly go up at some point and you'll be bound to make some money off either the share price increase or the dividend payouts. Its not that hard is it?

For more information buy local financial magazines and check out stock market websites for recommendations on what to buy in your country, look at company reports for dividends/earnings/forecasts etc.... you might be able to give your capital gains a good shot in the arm by picking the right shares set to rise

High dividend stocks are usually a winner too.... look at the dividend history of the company you are investing in, consistent high dividend yeilds will usually hold value better in turbulent markets and rise faster in strong markets

Of course there are some exceptions to this rule. What if you bought right before the 2008 GFC? Yes fair call there are some shares which are still lagging and feeling the effects of that doozy as I write this at the tail end of 2015. Even in that worst case scenario you would still be receiving dividend payouts from your investments.

Of course if you were putting in regular contributions to your share fund, anything you bought after that (like say in the latter half of 2008-2010) you would have gotten a lot cheaper than the pre 2008 prices so time would have equalized much of that out anyway.

Not everything you will be a winner, you'll have some purchases that really pay off for you in a big way and some that flounder around doing nothing and some that die a horrible death. But that's really just life isn't it?

In regards to buying and selling ..... just look at the graphs for that particular stock... check it out over the course of a year and and see where it sits in relation to the rest of the year. Is it down ? Buy it. Is it up? Either don't buy it, or if you do own it sell it.

You don't need any huge amounts of financial knowledge to play the markets like this.  I think its a great way to get started and a relaxed way to learn more about the financial world while your building your share portfolio.  Yes there is some risk but if you do the right thing and keep it consistent you'll come out ahead, and usually a long way ahead of someone that just kept their money in the bank.  If you're adverse to risk then really you shouldn't be involved in the markets to begin with or even reading this site. Anything worth achieving will have SOME risk component to it.

Basically find a pattern you feel comfortable with and stick to it.











Saturday, 7 November 2015

SWINGING MARKETS


As you get more exposure to the world of stock trading (and it is its own little world) you'll have a better understanding of what's going on around you and how certain things can affect the markets. I've been involved in varying degrees in the markets for almost 20 years now and things still suprise me. Lately I've seen a lot of movements that really seem counter intuitive, confounding me and many of the so called experts.  I have to say since the GFC many of the logical rules of trading have gone right out the window, never more so than the last couple of years where I've seen some massive swings in the market for virtually no reason (except maybe for market manipulation and computer generated trades)

Infact I will say I've NEVER seen the market so constantly swing around like this. this makes it really hard for anyone on borrowed money (either margin lending or CFDs) to hold their positions without getting sold out.

If you're buying shares outright you really don't have too much to worry about in this situation.... just keep holding on to your shares till they bounce back to a point where you can sell them (hopefully at a tidy profit). With the huge swings we've been having you might find there are plenty more profit taking/buying  opportunities if your timing is good

If you're on borrowed money you really NEED to do the calculations and figure out how big the swings in your particular feild have been and whether or not you can hang on to them if (and when)  those swings occur again. Again because I trade on the Australian market I look at the ASX200 as my purchase of choice and need to either be able to loose the positions I have in the even of a big swing going against me or hold on them (this year the ASX200 which is what I buy and sell routinely swung by 1300 points from top to bottom of the cycle. Outside of the major crash which sparked off the GFC I've never seen that happen. I would have to ask myself "Is it worth trading to a 1300 point (20%) swing?" The capital requirements for that would be exponentially larger than trading to  say a 600 point swing.

For the most part there's no real right or wrong answer for this but as long as you're aware of the risks and capital requirements for each scenario and most importantly you're not playing with money you can't afford to loose, I would say its always worth the effort and time


NOW FOLKS STAY TUNED VERY SHORTLY I'LL BE DETAILING MY TRADING STRATEGY WHICH ALLOWS ME TO LIVE OFF THE SHARE MARKET :)