Amid thousands of stocks actively trading in global markets, a significant percentage are very thinly traded stocks, in other words, stocks that trade irregularly at low volumes. Investors should be aware of the considerable risks of trading in these low-volume stocks.
One risk of low-volume stocks is that they lack liquidity, an important criterion in stock trading. Liquidity is the ability to be easily bought or sold in the market without a change in price. This means that a stock which is trading at $25 per share should be easily bought or sold in large amounts (say 100,000 shares) while still maintaining the price of $25 per share. For stocks, a good measure of liquidity is the average daily trading volume. In general, any stock...
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Twitter Inc, a website and mobile platform where individuals post a 140 (and soon to be 280) character thought, or “tweet”, represents one of the newer social media resources out there. It was only a matter of time before individuals started to use it to develop stock and market trading strategies and they may be on to something.
A 2012 study by researchers at UC Riverside and Yahoo! Research Barcelona concluded that analyzing tweets about the share prices of underlying companies could improve stock trading strategies. The study, entitled “Correlating Financial Time Series with Micro-Blogging Activity” considered Twitter the foremost micro-blogging authority and created sets of filters to analyze tweets about companies and whether this...
The Securities and Exchange Commission (SEC) refers to a "penny stock" as a security issued by a small company that trades at less than $5 per share, and which is generally quoted over-the-counter, for instance on the OTC Bulletin Board or OTC Link (formerly known as the "pink sheets"). Penny stocks are highly speculative, and the odds of losing your entire investment in a penny stock are far greater than is hitting a home run and raking in huge profits. Still, millions of people still trade penny stocks on a daily basis. Here are 10 types of penny stock investors, whether they're found on the long side, short side or both.
1) Experienced penny stock traders
Many who thrive in the frenetic world of trading do so by carving out a niche...
Every good investor knows that in order to make money on any investment, you must first understand all aspects of it, so let's look at why most trading volume is concentrated at the beginning and end of the day.
If you have ever come home from work and used your evening hours to research stocks and place trade orders for the next day, you and others like you are the reason for the first hour high volume. As soon as the stock market opens, a rush of programmed trades enters the market and is quickly filled.
Along with the trades executed for retail investors, much of the volume comes from mutual funds, hedge funds and other high volume traders. Another source is day traders who have to set their positions for the day during the first...
Most investors by nature will "go long" when they buy stocks. Few investors naturally will short stocks (or bet on their decline) because they really don't know what to look for. Some investors see the shorting process as somewhat counter-intuitive to the traditional investing process, since many stocks do appreciate over time. That said, there is a lot of money to be made by shorting and, in this article, we'll give you a list of signs that show when a stock might be ripe for a fall.
Technical Trends
Look at a chart of the stock you are thinking about shorting. What is the general trend? Is the stock under accumulation or distribution?
It is not uncommon to see a stock that has been in a downtrend continue to trade in that same...
A momentum strategy seeks to profit from buying high and selling higher on the long side while selling low and covering lower on the short side. Most traders fail in this enterprise because they haven’t mastered the five elements of a perfect momentum trade. Once in place, the profit and loss statement can improve dramatically, adding significant capital to the bottom line.
Trading momentum markets require sophisticated risk management rules to address volatility, over-crowding and hidden traps that steal profits. Market players routinely ignore these rules, blinded by an overwhelming fear they’ll miss the rally or sell-off while everyone else books windfall profits. The rules can be broken down into five elements: selection, risk...
After decades of analyzing stocks and equal time spent investing for clients, I'm happy to share in plain English what's involved in this process, what works, and what doesn't. Keep in mind the reality that successful stock picking is an effort to maintain a good batting average. In baseball, a batting average of 0.30 or better is considered quite good. With stock picking, you have to do better than 0.50, which means you have more winners than losers
No one gets it right all of the time and it's not even close. Wall Street analysts all have their selected lists and the financial media regularly hawk their 10 Stocks to Buy Now or something similar. Following that road usually is a direct route to disaster so don't be tempted...
Any investment portfolio is bound to take some lumps in a volatile market place like that experienced by most investors in the last 14 months. During an economic market cycle, market pullbacks and corrections are commonplace and naturally occurring parts of normal market growth. Even so, they can be difficult to stomach and send investors reeling for less volatile asset classes. When the volatility pendulum swings, investors can stay too long in the way of a poorly performing investment. Riding upward growth is euphoric for most investors but the contrary is disproportionately crushing to the psyche while plundering the pocketbook. How do you stop the madness when you're holding and you should be letting go?
No matter which type of...
Among Wall Street researchers, there are two main approaches to stock picking: fundamental analysis and technical analysis. Fundamental analysis subscribes to the belief that the shares of companies will reflect changes in forward progress and financial health. In contrast, technical analysis concentrates on stock price action and how such changes reflect shifts in investor psychology. Technical analysis is totally indifferent to underlying company developments.
Therein lies its fatal flaw. As one might suspect, there are different approaches to technical analysis and there is what purports to be an academic treatise on the subject: Technical Analysis of Stock Trends, the ninth edition of which devotes nearly 800 pages to the subject...
Option trading can be a great way to make money, offering strategies for traders from beginner level to the most advanced.
Before we can begin to make it work, though, there a few basic things that we need to understand.
What You Need to Understand About Options Trading
A listed stock option must be one of only two things:
Call option – A right to buy 100 shares of a stock at a fixed price, good through a definite future date
Put option – A right to sell 100 shares of a stock at a fixed price, good through a definite future date
It sounds simple with only two elements, but then so do the numbers 0 and 1. And with just those two digits, in different combinations, anything and everything in the universe can be represented (that’s...
The term “stock exchange” tends to conjure up images of a room crowded with men in suits – one hand pressing phone firmly to ear, the other waving furiously in the air. Once upon a time those iconic images were an accurate representation of the controlled chaos that was the floor of the venerable New York Stock Exchange, or NYSE as it is known.
When NASDAQ launched in 1971 as the world’s first electronic stock market, it set in motion the changes that would lead to the complex and fragmented status of markets today. A status better represented by the image of the "1s" and "0s" in a line of binary code. As alternative market centers proliferated – some exchanges, some not – so too did the choices of where to execute a trade. Today there...
Many books offering investing advice discuss how investor psychology plays a key role in determining an individual’s success in building and maintaining a strong portfolio. Investors need to be aware of their own personality traits and how those qualities could affect their decision-making process. Successful investors take advantage of their positive traits that lead to advantageous investing decisions, and either control or eliminate negative attitudes that cause bad investment decisions. A bad decision about when to sell a stock can cause a significant loss.
Bad Habits and Big Mistakes
While some bad habits can lead to flawed decisions about buying stocks, other bad habits lead to mistakes in selling or not selling investments. Many...
Compare the average investor’s returns around the world to the average Wall Street firm’s returns. I think we would all agree that the average Wall Street firm is making the lion’s share of the money, while the average investor hardly ever comes close to achieving their financial goals. Next, think about what the average investor does in the markets; they “buy stock”. Now, think about Wall Street’s primary business; they “sell stock”. Hmm… One group is selling and producing very high returns each year, and the other, who is buying, struggles financially. And, this is happening in a market that typically goes up. Understand that I am not at all suggesting the average investor should stop buying stocks and start selling. What I am...
Technical indicators have long been misused by traders and investors alike. Many learn the traditional style of using the indicators and then try to massage the data to fit certain strategies of trading only to have them fail when the market conditions change. Others simply do not understand their use properly and misinterpret the data.
As a Chartered Market Technician and member for the Market Technician’s Association, I was required to gain a deep understanding of how most indicators and oscillators work. I was fortunate enough to learn some special tricks for using these indicators so that they work much better than originally intended, in any market!
One such modified indicator is the popular Relative Strength Index (RSI). I...
Point-and-figure (P&F) charts have been a part of the technician's toolbox for more than a century. They were used by Charles Dow in the late 1800s and Victor deVilliers published the first detailed explanation of this technique in 1933 in his book, "The Point & Figure Method of Anticipating Stock Price Movements". P&F charts track only price changes and ignore time. Proponents of this technique believe that focusing solely on price changes eliminates day-to-day market noise. By ignoring smaller movements, traders believe that it should be easier to identify significant support and resistance levels. In this article we'll introduce you to several popular P&F patterns that may be useful in identifying potential breakouts.
Using a...
The world of investment presents us with many paradoxes. One of these is the fact that, although there is an enormous body of literature out there, in the form of books, magazines, newspaper articles, seminars, internet sites, TV programs and so on, investment remains a tricky business, fraught with dangers and risks of various kinds. It is just not easy to earn a consistently good return at a reasonable level of risk without something or other going wrong at various times. This all raises a fundamental question: What and how much can one really learn?
Fundamental Barriers to Learning
At almost any point in time, there are some people who claim that the markets will go up and others who claim that it will drop, according to says German...
When shorting equities, one often faces the challenge of distinguishing between a topping formation and a change in trend. Many successful short sellers will try to focus their efforts by looking at clues that are offered from the schools of technical analysis and fundamental analysis. Read on to find out how studying these different methods a trader can gain confidence in shorting the market
Technical Analysis
Since the equities markets are primarily dominated by long traders, short traders try to prey on the weak longs to trigger breaks and start downtrends. They try to put enough pressure on the market to create situations where the weaker long gets out because of the fear of giving back gains. It is the job of the short seller to...
You can never really understand investing until you weather a market downturn. The valuable lessons learned can help you through the bad times and can be applied to your portfolio when the economy recovers. Listed below are some common investor experiences during tough economic times and the lessons each investor can come away with after surviving the events.
Lesson 1: Evaluate Your Egg Baskets
You're pulling your hair out because everything you invest in goes down. The lesson: Always keep a diversified portfolio, regardless of current market conditions.
If everything you own is moving in the same direction, at the same rate, your portfolio is probably not well diversified, and you could stand to reconsider your asset-allocation...
A moving average is the average price of a security over a specified period of time. Analysts frequently use moving averages as an analytical tool to make it easier to follow market trends, as securities move up and down.
Moving averages can establish trends and measure momentum, therefore, they can be used to indicate when an investor should buy or sell a specific security. Investors can also use moving averages to identify support or resistance points in order to gauge when prices are likely to change direction. By studying historical trading ranges, support and resistance points are established where the price of a security reversed its upward or downward trend, in the past. These points are then used to make, buy or sell decisions...
When asked how he likes to trade, Dan Zanger responds using a race car analogy.
"I like to go 180 mph just inches from the wall. That means being margined 2 to 1 and either long or short a stock that is highly volatile and getting ready to make a big move," he says.
Zanger puts his money where his mouth is. He holds the unofficial record in trading stocks by turning $11,000 into more than $18 million in 18 months in 1999-2000. He grew that to an incredible $42 million in less than two years and has the tax receipts to prove it.
First introduced to stock markets in 1976, Zanger dabbled for a few years while working his full-time pool contracting business. His two biggest mentors during his formative years as a trader were Gene...
With the new year only a few days old, there’s still plenty of time for retail investors to craft their strategy for 2015. Like last year, 2015 is full of promise and better overall economic conditions are ahead. Globally, we should continue to improve since the depths of the Great Recession and credit crisis. But the best conditions for stock market gains could be found in the United States.
According to several market strategists and analysts, the U.S. is still the best nation to bet on in 2015. For investors, that means staying strong or even adding to their U.S. stock holdings in the New Year.
Hoping For a Four-Peat
When it comes to picking which stock market may be the best horse to ride, investors may want to stick with the...
There are times when an investor should hold onto a stock when a company has just reported solid earnings or made some other positive announcement. However, there are also times when an investor should bail the second good news hits the tape. So how can you tell when to "sell on the news"? Let's take a look at some of the instances where bailing out might be the best option.
Look for Something Offsetting
Very often, companies are aware that a particular piece of bad news will have an adverse impact on their stock price. In an effort to limit the potential damage, they combine it with a positive announcement and then disseminate it to the wire services, hoping that Wall Street will overlook it. Don't be fooled by this tactic! Read the...
A “Risk Reversal Strategy” offers a big potential pay-off for very little premium. While risk reversal strategies are widely used in the forex and commodities options markets, when it comes to equity options, they tend to be used primarily by institutional traders and seldom by retail investors. Risk reversal strategies may seem a little daunting to the option neophyte, but they can be a very useful “option” for experienced investors who are familiar with basic puts and calls.
Risk reversal defined
The most basic risk reversal strategy consists of selling (or writing) an out-of-the-money (OTM) put option and simultaneously buying an OTM call. This is a combination of a short put position and a long call position. Since writing the put...
How should investors assess risk in the stocks they buy or sell? As you can imagine, the concept of risk is hard to pin down and factor into stock analysis and valuation. Is there a rating - some sort of number, letter or phrase - that will do the trick?
One of the most popular indicators of risk is a statistical measure called beta. Stock analysts use this measure all the time to get a sense of stocks' risk profiles.
Here we shed some light on what the measure means for investors. While beta does say something about price risk, it has its limits for investors looking for fundamental risk factors.
Beta
Beta is a measure of a stock's volatility in relation to the market. By definition, the market has a beta of 1.0, and individual...
Swing Trading combines fundamental and technical analysis in order to catch momentous price movements while avoiding idle times. The benefits of this type of trading are a more efficient use of capital and higher returns, and the drawbacks are higher commissions and more volatility. Swing trading can be difficult for the average retail trader. The professional traders have more experience, leverage, information and lower commissions; however, they are limited by the instruments they are allowed to trade, the risk they are capable of taking on and their large amount of capital. (Large institutions trade in sizes too big to move in and out of stocks quickly.) Knowledgeable retail traders can take advantage of these things in order to...
We’ve all heard pundits refer to the first ten years of the new millennium as the “lost decade.” Folks who invested in a stock-index fund such as the DIAMONDS Trust Series ETF (DIA) at the beginning of 2000 and held it through December 31, 2010 saw a gross return of around zero. Factor in inflation and the real return drops to around minus 3% per year. In other words, cash was king and it would have been better to keep your money in bonds or in the bank.
Some experts, including Martin Pring author of a new book entitled Investing in the Second Lost Decade (McGraw Hill, 2012), believe that with high levels of debt, persistent high unemployment rates and economic turmoil around the globe, that there is a good chance that we will see...
When the equities market is in distress, is taking a long position in gold a profitable strategy?
The conventional thinking among pundits supports taking a long position in this precious metal as a way of mitigating strong losses in the equities market. Fortunately, many active market participants prefer to run the numbers before acting on this long held assumption about market direction. This study attempts to prove or disprove this form of hedging strategy by performing an analysis on two active funds: the spiders (SPY), which are the best representation of the equities market (averaging 205 million shares per day), and the SPDR Gold Shares fund (GLD) with 15.7 million shares a day serves as our dependent variable.
In this study...
Never buy stock again! Fortunes can be made in the securities market, but there is a better way than buying stock for the long haul. And that better way is the use of stock options, a little employed technique that is known by few, except as a speculative technique akin to gambling. The purpose of this article is to discuss some of the techniques that make the buying of stock an error.
Buying Calls, a Lower Cost Option
When stock is purchased, the investor puts up 100% of the purchase price, or 50% in a margin account and pays interest on the debit or loan balance. And an investor should only buy stock if the security is expected to rise immediately and dramatically. If the stock rises 15%, from 50 to 57 ½ for example, there is...
Many widely accepted financial models are built around the premise that investors should expect higher returns if they are willing to accept more risk. However, will investing in a portfolio of risky stocks really help increase your investment returns over time? The answer may surprise you. Read on to learn about what is being dubbed the "low-volatility anomaly," why it exists, and what we can learn from it.
The Low Down on Low-Volatility Stocks
If the modern portfolio theory holds true, a portfolio of risky, highly-volatile stocks should have higher returns than a portfolio of safer, less-volatile stocks. However, stock market researchers are discovering that this may not always be the case. A March 2010 study by Malcolm Baker...
The Chinese capital market has experienced dramatic development over the past twenty years. We can read the stories in the candlestick charts of every rise and fall. By recalling past market performance, we are able to understand the theme that ran through the history of the A-shares.
A turn of peaks and dips
According to the large cycles that comprise both the bull and bear markets that the A-share market has experienced over the past twenty years, we can divide the history of Chinese A-share market into three stages.
The first stage was from 1990 to 1999, during which time the A-shares experienced the swapping of bull and bear markets four times. The Shanghai Composite Index started at 100 points, making 1,000 points its average...