FINANCIAL KNOWLEDGE: BASIC INVESTMENT
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| The Successful Investment Journey The most successful investors were not made in one day. Learning the ins and outs of the financial world - and your personality as an investor - takes time and patience, not to mention trial and error. In this article, we'll lead you through the first seven steps of your expedition into investing and show you what to look out for along the way.  1. Getting Started . Know What Works Read books or take an investment course that deals with modern financial ideas. The people who came up with theories such as portfolio optimization, diversification and market efficiency received their Nobel prizes for good reason. Investing is a combination of science (financial fundamentals) and art (qualitative factors). Science, however, is a solid place to start and should not be ignored. But don't fret if science is not your strong suit: there are many texts, such as "Stocks For The Long Run" (1994) by Jeremy Siegel, that explain high-level finance ideas in a way that is easy to understand. Know what works in the market, you can come up with simple rules that work for you. For example, Warren Buffett is one of the most successful investors ever. His simple investment style is summed up in this well-known quote: "If I cannot understand it, I will not invest in it." It has served him well. While he missed the tech upturn, he avoided the subsequent devastating downturn of the high-tech bubble of 2000. 3. Know Yourself Nobody knows you and your situation better than you do. Therefore, you may be the most qualified person to do your own investing - all you need is a bit of help. Identify the personality traits that can assist you or prevent you from investing successfully and manage them accordingly. 4. Know Your Friends and Enemies Your friends may be reliable investment books, reputable media and investment professionals with experience, long-term perspective and integrity. However, beware of false friends who only pretend to be on your side, such as certain unscrupulous investment professionals whose interests may conflict with yours. You must also remember that as an investor, you are competing with large financial institutions that have more resources, including greater and faster access to information. Bear in mind that you are potentially your own worst enemy. Depending on your personality, strategy and particular circumstances, you may be sabotaging your own success. If you are a guardian and you see all your friends making a ton of money in the short term on the latest market craze, you would likely be going against your personality if you joined in . Because you are risk averse and a wealth preserver, you would be affected far more by large losses that can result from high-risk, high-return investments. Be honest with yourself - identify and modify factors that are preventing you from investing successfully or are moving you away from your comfort zone. 5. Find the Right Path Your level of knowledge, personality and resources should determine the path that you choose. Generally, investors adopt one of the following strategies: Don't put all of your eggs in one basket. In other words, diversify. Put all of your eggs in one basket, but watch your basket carefully. Combine both of these strategies by making tactical bets on a core passive portfolio. Most successful investors start with low-risk diversified portfolios and gradually learn by doing. As investors gain greater knowledge over time, they become better suited to taking a more active stance in their portfolios (i.e. tactical bets). 6. Be Disciplined Sticking with the optimal long-term strategy may not be the most exciting investing choice. However, your chances of success increase if you stay the course without letting your emotions, or "false friends", get the upper hand. 7. Be Willing to Learn The market is hard to predict but one thing is certain: it will be volatile. Learning to be a successful investor is a gradual process and the investment journey is typically a long one. At times, the market will prove you wrong - acknowledge it and learn from your mistakes. When you succeed, celebrate. Conclusion What you achieve as an investor will depend on your goals, but sticking to these seven simple steps will help keep you on the right path. Bon voyage! |
| Ten Tips For The Successful Long-Term Investor While it may be true that in the stock market there is no rule without an exception, there are some principles which are tough to dispute. We'll review 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Keep in mind that these guidelines are quite general, each with different applications depending on the circumstance. But every point embodies some fundamental concept every investor should know.  1) Sell the losers and let the winners ride! - Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in hopes of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help 2) Don't chase the "hot tip" - Whether the tip comes from your brother, cousin, neighbor, or even broker, no one can ever guarantee what a stock will do. When you make an investment, it's important you know the reasons for doing so: do your own research and analysis of any company before you even consider investing your hard earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips may sometimes pan out. But they will never make you an informed investor, which is what you need to be to be successful in the long run. 3) Don't sweat the small stuff - In tip No.1, we explained the importance of realizing when your investments are not performing as you expected them to - but remember to expect short-term fluctuations. As a long-term investor, you shouldn't panic when your investments experience short- term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few cents difference you might save from using a limit versus market order. Granted, active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself. 4) Do not overemphasize the P/E ratio - Investors often place too much importance on the P/E ratio. Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued. Resist the lure of penny stocks - A common misconception is that there is less to lose in buying a low- priced stock. But whether you buy a $5 stock that plunges to $0 or a $75 stock that does the same, either way you'd still have a 100% loss of your initial investment. A lousy $5 company has just as much downside risk as a lousy $75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it. 6) Pick a strategy and stick with it - Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely territory most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-oriented strategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed. 7) Focus on the future - The tough part about investing is that we are trying to make informed decisions based on things that are yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most. A quote from Peter Lynch's book "One Up on Wall Street" about his experience with Subaru demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought Subaru after it already went up twenty fold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that." The point is to base a decision on future potential rather than on what has already happened in the past. 8) Investors adopt a long-term perspective - Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills. Neither investing style is necessarily better than the other - both have their pros and cons. But active trading can be wrong for someone without the appropriate time, financial resources, education and desire. Most people don't fit into this category. 9) Be open-minded when selecting companies - Many great companies are household names, but many good investments are not household names (and vice versa). Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps: over the decades from 1926-2001, small-cap stocks in the U.S. returned an average of 12.27% while the S&P 500 returned 10.53%. This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Dow Jones Industrial Average, and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains. 10) Taxes are important, but not that important - Putting taxes above all else is a dangerous strategy, as it can often cause investors to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in investing are to grow and secure your money. You should always attempt to minimize the amount of tax you pay and maximize your after-tax return, but the situations are rare where you'll want to put tax considerations above all else when making an investment decision . Conclusion In this article, we've covered 10 solid tips for long-term investors. We started off saying that there is an exception to every rule, and we can't overemphasize this point. Depending on your circumstances, you might even disagree with some of these pointers. However, we hope that the common sense principles we've discussed benefit you overall and provide some insight into how you should think about investing. |
| Having A Plan: The Basis Of Success Any veteran market player will tell you, it's vital to have a plan of attack. Formulating the plan is not particularly difficult, but sticking to it, especially when all other indicators seem to be against you, can be. This article will show why a plan is crucial, including what can happen without one, what to consider when formulating one as well as the investment vehicle options that best suit you and your needs.  The Benefits As the "Sage of Omaha" says, if you can grit your teeth and stay the course regardless of popular opinion, prevailing trends or analysts' forecasts, and focus on the long-term goals and objectives of your investment plan, you will create the best circumstances for realizing solid growth for your investments. Maintain Focus By their very nature, financial markets are volatile. Throughout the last century, they have seen many ups and downs, caused by inflation, interest rates, new technologies, recessions and business cycles. In the late 1990s, a great bull market pushed the Dow Jones Industrial Average (DJIA) up 300% from the start of the decade. This was a period of low interest rates and inflation and increased usage of computers - all of these fueled economic growth. The period between 2000 and 2002, on the other hand, saw the DJIA drop 38%. It began with the bursting of the internet bubble, which saw a massive sell-off in tech stocks and kept indexes depressed until mid-2001, during which there was a flurry of corporate accounting scandals as well as the September 11th attacks, all contributing to weak market sentiment. Amid such a fragile and shaky environment, it's crucial for you to keep your emotions in check and stick to your investment plan. By doing so, you maintain a long-term focus and thus assume a more objective view of current price fluctuations. If an investor had let their emotions be their guide near the end of 2002 and sold off all their positions, they'd have missed a 44% rise in the Dow from late-2002 to mid-2005. Sidestepping the Three Deadly Sins The three deadly sins in investing play off three major emotions: fear, hope and greed. Fear has to do with selling too low - when prices plunge, you get alarmed and sell without re-evaluating your position. In such times, it is better to review whether your original reasons (i.e. sound company fundamentals) for investing in the security have changed. The market is fickle and, based on a piece of news or a short-term focus, it can irrationally oversell a stock so its price falls well below its intrinsic value. Selling when the price is low, which causes it to be undervalued, is a bad choice in the long run because the price may recover. The second emotion is hope, which, if it is your only motivator, can spur you to buy stock based on its price appreciation in the past. Buying on the hope that what has happened in the past will happen in the future is precisely what occurred with internet plays in the late '90s - people bought nearly any tech stock, regardless of its fundamentals. It is important that you look less at the past return and more into the company's fundamentals to evaluate the investment's worth. Basing your investment decisions purely on hope may leave you with an overvalued stock, with which there is a higher chance of loss than gain. The third emotion is greed. If you are under its influence, you may hold onto a position for too long, hoping for a few extra points. By holding out for that extra point or two, you could end up turning a large gain into a loss. During the internet boom investors who were already achieving double-digit gains held on to their positions hoping the price would inch up a few more points instead of scaling back the investment. Then when prices began to tank, many investors didn't budge and held out in the hopes that their stock would rally. Instead, their once large gains turned into significant losses. An investment plan that includes both buying and selling criteria helps to manage these three deadly sins of investing. (For further reading, see When Fear And Greed Take Over, The Madness of Crowds and How Investors Often Cause The Market's Problems.) The Key Components Determine Your Objectives The first step in formulating a plan is to figure out what your investment objective is. Without a goal in mind, it is hard to create an investment strategy that will get you somewhere. Investment objectives often fall into three main categories: safety, income and growth. Safety objectives focus on maintaining the current value of a portfolio. This type of strategy would best fit an investor who cannot tolerate any loss of principal and should avoid the risks inherent in stocks and some of the less secure fixed- income investments. If the goal is to provide a steady income stream, then your objective would fall into the income category. This is often for investors who are living in retirement and relying on a stream of income. These investors have less need for capital appreciation and tend to be adverse to stock market risks. Growth objectives focus on increasing the portfolio's value over a long-term time horizon. This type of investment strategy is for relatively younger investors who are focused on capital appreciation. It's important to take into account your age, your investment time frame and how far you are from your investment goal. Objectives should be realistic, taking into account your tolerance for risk. Risk Tolerance Most people want to grow their portfolio to increase wealth. But there remains one major consideration - risk. How much, or how little, of it can you take? If you are unable to stomach the constant volatility of the market, your objective is likely to be safety or income focused. However, if you are willing to take on volatile stocks then a growth objective may suit you. Taking on more risk means you are increasing your chances of realizing a loss on investments, as well as creating the opportunity of greater profits. However, it is important to remember that volatile investments don't always make investors money. The risk component of a plan is very important and requires you to be completely honest with yourself about how much potential loss you are willing to take. Asset Allocation Once you know your objectives and risk tolerance, you can start to determine the allocation of the assets in your portfolio. Asset allocation is the dividing up of different types of assets in a portfolio to match the investor's goals and risk tolerance. An example of an asset allocation for a growth-oriented investor could be 20% in bonds 70% in stocks and 10% in cash equivalents. It is important that your asset allocation is an extension of your objectives and risk tolerance. Safety objectives should comprise the safest fixed-income assets available like money market securities, government bonds and high-quality corporate securities with the highest debt ratings. Income portfolios should focus on safe fixed-income securities, including bonds with lower ratings, which provide higher yields, preferred shares and high-quality dividend-paying stocks. Growth portfolios should have a large focus on common stock, mutual funds or exchange-traded funds (ETFs). It is important to continually review your objectives and risk tolerance and to adjust your portfolio accordingly. The importance of asset allocation in formulating a plan is that it provides you with guidelines for diversifying your portfolio, allowing you to work towards your objectives with a level of risk that is comfortable for you. The Choices Once you formulate a strategy, you need to decide on what types of investments to buy as well as what proportion of each to include in your portfolio. For example if you are growth oriented, you might pick stocks, mutual funds or ETFs that have the potential to outperform the market. If your goal is wealth protection or income generation, you might buy government bonds or invest in bond funds that are professionally managed. If you want to choose your own stocks it is vital to institute trading rules for both entering and exiting positions. These rules will depend on your plan objectives and investment strategy. One stock trading rule - regardless of your approach - is to use stop- loss orders as protection from downward price movements. While the exact price at which you set your order is your own choice, the general rule of thumb is 10% below the purchase price for long-term investments and 3-5% for shorter-term plays. Here's a reason to use stops to cut your losses: if your investment plummets 50%, it needs to increase 100% to break even again. You may also consider professionally managed products like mutual funds, which give you access to the expertise of professional money managers. If your aim is to increase the value of a portfolio through mutual funds, look for growth funds that focus on capital appreciation. If you're income-orientated, you'll want to choose funds with dividend-paying stocks or bond funds that provide regular income. Again, it is important to ensure that the allocation and risk structure of the fund is aligned with your desired asset mix and risk tolerance. Other investment choices are index funds and ETFs. The growing popularity of these two passively managed products is largely due to their low fees and tax efficiencies; both have significantly lower management expenses than actively managed funds. These low-cost, well-diversified investments are baskets of stocks that represent an index, a sector or country, and are an excellent way to implement your asset allocation plan. Summary An investment plan is one of the most vital parts for reaching your goals - it acts as a guide and offers a degree of protection. Whether you want to be a player in the market or build a nest egg, it's crucial to build a plan and adhere to it. By sticking to those defined rules, you'll be more likely to avoid emotional decisions that can derail your portfolio, and keep a calm, cool and objective view even in the most trying of times. However, if all of the above seems like too tall an order, you might want to engage the services of an investment advisor, who will help you create and stick to a plan that will meet your investment objectives and risk tolerance. |
| Five Things To Know About Asset Allocation With literally thousands of stocks, bonds and mutual funds to choose from, picking the right investments can confuse even the most seasoned investor. However, starting to build a portfolio with stock picking might be the wrong approach. Instead, you should start by deciding what mix of stocks, bonds and mutual funds you want to hold - this is referred to as your asset allocation.  What Is Asset Allocation? Asset allocation is an investment portfolio technique that aims to balance risk and create diversification by dividing assets among major categories such as cash, bonds, stocks, real estate and derivatives. Each asset class has different levels of return and risk, so each will behave differently over time. For instance, while one asset category increases in value, another may be decreasing or not increasing as much. Some critics see this balance as a settlement for mediocrity, but for most investors it's the best protection against major loss should things ever go amiss in one investment class or sub-class. The consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make. In other words, your selection of stocks or bonds is secondary to the way you allocate your assets to high and low-risk stocks, to short and long-term bonds, and to cash on the sidelines. We must emphasize that there is no simple formula that can find the right asset allocation for every individual - if there were, we certainly wouldn't be able to explain it in one article. We can, however, outline five points that we feel are important when thinking about asset allocation: Risk vs. Return The risk-return tradeoff is at the core of what asset allocation is all about. It's easy for everyone to say that they want the highest possible return, but simply choosing the assets with the highest "potential" (stocks and derivatives) isn't the answer. The crashes of 1929, 1981, 1987, and the more recent declines of 2000-2002 are all examples of times when investing in only stocks with the highest potential return was not the most prudent plan of action. It's time to face the truth: every year your returns are going to be beaten by another investor, mutual fund, pension plan, etc. What separates greedy and return-hungry investors from successful ones is the ability to weigh the difference between risk and return. Yes, investors with a higher risk tolerance should allocate more money into stocks. But if you can't keep invested through the short-term fluctuations of a bear market, you should cut your exposure to equities. (To learn more about bond investing, see Bond Basics Tutorial. Don't Rely Solely on Financial Software or Planner Sheets Financial planning software and survey sheets designed by financial advisors or investment firms can be beneficial, but never rely solely on software or some pre-determined plan. For example, one rule of thumb that many advisors use to determine the proportion a person should allocate to stocks is to subtract the person's age from 100. In other words, if you're 35, you should put 65% of your money into stock and the remaining 35% into bonds, real estate and cash. But standard worksheets sometimes don't take into account other important information such as whether or not you are a parent, retiree or spouse. Other times, these worksheets are based on a set of simple questions that don't capture your financial goals. Remember, financial institutions love to peg you into a standard plan not because it's best for you, but because it's easy for them. Rules of thumb and planner sheets can give people a rough guideline, but don't get boxed into what they tell you. Determine Your Long and Short-Term Goals We all have our goals. Whether you aspire to own a yacht or vacation home, to pay for your child's education, or simply to save up for a new car, you should consider it in your asset allocation plan. All of these goals need to be considered when determining the right mix. For example, if you're planning to own a retirement condo on the beach in 20 years, you need not worry about short-term fluctuations in the stock market. But if you have a child who will be entering college in five to six years, you may need to tilt your asset allocation to safer fixed-income investments. Time Is Your Best Friend The U.S. Department of Labor has said that for every 10 years you delay saving for retirement (or some other long-term goal), you will have to save three times as much each month to catch up. Having time not only allows you to take advantage of compounding and the time value of money, it also means you can put more of your portfolio into higher risk/return investments, namely stocks. A bad couple of years in the stock market will likely show up as nothing more than an insignificant blip 30 years from now. Just Do It! Once you've determined the right mix of stocks, bonds and other investments, it's time to implement it. The first step is to find out how your current portfolio breaks down. It's fairly straightforward to see the percentage of assets in stocks vs. bonds, but don't forget to categorize what type of stocks you own (small, mid, or large cap). You should also categorize your bonds according to their maturity (short, mid, long-term). Mutual funds can be more problematic. Fund names don't always tell the entire story. You have to dig deeper in the prospectus to figure out where fund assets are invested. There is no one standardized solution for allocating your assets. Individual investors require individual solutions. Furthermore, if a long-term horizon is something you don't have, don't worry. It's never too late to get started. It's also never too late to give your existing portfolio a face-lift: asset allocation is not a one-time event, it's a life-long process of progression and fine-tuning. |
| The Importance Of Diversification Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk. Here we look at why this is true, and how to accomplish diversification in your portfolio.  Different Types of Risk Investors confront two main types of risk when investing: Undiversifiable - Also known as "systematic" or "market risk", undiversifiable risk is associated with every company. Causes are things like inflation rates, exchange rates, political instability, war and interest rates. This type of risk is not specific to a particular company and/or industry, and it cannot be eliminated or reduced through diversification; it is just a risk that investors must accept. Diversifiable - This risk is also known as "unsystematic risk", and it is specific to a company, industry, market, economy or country; it can be reduced through diversification. The most common sources of unsystematic risk are business risk and financial risk. Thus, the aim is to invest in various assets so that they will not all be affected the same way by market events. Why You Should Diversify Let's say you have a portfolio of only airline stocks. If it is publicly announced that airline pilots are going on an indefinite strike and that all flights are canceled, share prices of airline stocks will drop. Your portfolio will experience a noticeable drop in value. If, however, you counterbalanced the airline industry stocks with a couple of railway stocks, only part of your portfolio would be affected. In fact, there is a good chance that the railway stocks' prices would climb as passengers turn to trains as an alternative form of transportation. But you could diversify even further because there are many risks that affect both rail and air because each is involved in transportation. An event that reduces any form of travel hurts both types of companies - statisticians would say that rail and air stocks have a strong correlation. Therefore, to achieve superior diversification, you would want to diversify across not only different types of companies but also different types of industries. The more uncorrelated your stocks are, the better. It's also important that you diversify among different asset classes. Because different assets - such as bonds and stocks - will not react in the same way to adverse events, a combination of asset classes will reduce your portfolio's sensitivity to market swings. Generally, the bond and equity markets move in opposite directions, so, if your portfolio is diversified across both areas, unpleasant movements in one will be offset by positive results in another. There are additional types of diversification and many synthetic investment products have been created to accommodate investors' risk tolerance levels; however, these products can be very complicated and are not meant to be created by beginner or small investors. For those who have less investment experience and do not have the financial backing to enter into hedging activities, bonds are the most popular way to diversify against the stock market. Unfortunately, even the best analysis of a company and its financial statements cannot guarantee that it won't be a losing investment. Diversification won't prevent a loss, but it can reduce the impact of fraud and bad information on your portfolio. How Many Stocks You Should Have Obviously owning five stocks is better than owning one, but there comes a point when adding more stocks to your portfolio ceases to make a difference. There is a debate over how many stocks are needed to reduce risk while maintaining a high return. The most conventional view argues that an investor can achieve optimal diversification with only 15 to 20 stocks spread across various industries. (To learn more about what constitutes a properly diversified stock portfolio. Summary Diversification can help an investor manage risk and reduce the volatility of an asset's price movements. Remember though, that no matter how diversified your portfolio is, risk can never be eliminated completely. You can reduce risk associated with individual stocks, but general market risks affect nearly every stock, so it is important to diversify also among different asset classes. The key is to find a medium between risk and return; this ensures that you achieve your financial goals while still getting a good night's rest. |
| Ten Steps to Building a Winning Trading Plan There is an old saying in business: "Fail to plan and you plan to fail." It may sound glib, but those who are serious about being successful, including traders, should follow these eight words as if they were written in stone. Ask any trader who makes money on a consistent basis and they will tell you, "You have two choices: you can either methodically follow a written plan, or fail."  If you have a written trading or investment plan, congratulations! You are in the minority. While it is still no absolute guarantee of success, you have eliminated one major roadblock. If your plan uses flawed techniques or lacks preparation, your success won't come immediately, but at least you are in a position to chart and modify your course. By documenting the process, you learn what works and how to avoid repeating costly mistakes. Whether or not you have a plan now, here are some ideas to help with the process. A plan should be written in stone while you are trading, but subject to re-evaluation once the market has closed. It changes with market conditions and adjusts as the trader's skill level improves. Each trader should write his or her own plan, taking into account personal trading styles and goals. Using someone else's plan does not reflect your trading characteristics. Building the Perfect Master Plan What are the components of a good trading plan? Here are 10 essentials that every plan should include. Skill assessment - Are you ready to trade? Have you tested your system by paper trading it and do you have confidence that it works? Can you follow your signals without hesitation? If not, it's a good idea to read Mark Douglas's book, "Trading in the Zone", and do the trading exercises on pages 189–201. This will teach you how to think in terms of probabilities. Trading in the markets is a battle of give and take. The real pros are prepared and they take their profits from the rest of the crowd who, lacking a plan, give their money away through costly mistakes. 1-Mental preparation – How do you feel? Did you get a good night's sleep? Do you feel up to the challenge ahead? If you are not emotionally and psychologically ready to do battle in the markets, it is better to take the day off - otherwise, you risk losing your shirt. This is guaranteed to happen if you are angry, hungover, preoccupied or otherwise distracted from the task at hand. Many traders have a market mantra they repeat before the day begins to get them ready. Create one that puts you in the trading zone. 2-Set risk level – How much of your portfolio should you risk on any one trade? It can range anywhere from around 1% to as much as 5% of your portfolio on a given trading day. That means if you lose that amount at any point in the day, you get out and stay out. This will depend on your trading style and risk tolerance. Better to keep powder dry to fight another day if things aren't going your way. 3-Set goals – Before you enter a trade, set realistic profit targets and risk/reward ratios. What is the minimum risk/reward you will accept? Many traders use will not take a trade unless the potential profit is at least three times greater than the risk. For example, if your stop loss is a dollar loss per share, your goal should be a $3 profit. Set weekly, monthly and annual profit goals in dollars or as a percentage of your portfolio, and re-assess them regularly. 4-Do your homework – Before the market opens, what is going on around the world? Are overseas markets up or down? Are index futures such as the S&P 500 or Nasdaq 100 exchange-traded funds up or down in pre-market? Index futures are a good way of gauging market mood before the market opens. What economic or earnings data is due out and when? Post a list on the wall in front of you and decide whether you want to trade ahead of an important economic report. For most traders, it is better to wait until the report is released than take unnecessary risk. Pros trade based on probabilities. They don't gamble. 5-Trade preparation – Before the trading day, reboot your computer(s) to clear the resident memory (RAM). Whatever trading system and program you use, label major and minor support and resistance levels, set alerts for entry and exit signals and make sure all signals can be easily seen or detected with a clear visual or auditory signal. Your trading area should not offer distractions. Remember, this is a business, and distractions can be costly. 6-Set exit rules – Most traders make the mistake of concentrating 90% or more of their efforts in looking for buy signals but pay very little attention to when and where to exit. Many traders cannot sell if they are down because they don't want to take a loss. Get over it or you will not make it as a trader. If your stop gets hit, it means you were wrong. Don't take it personally. Professional traders lose more trades than they win, but by managing money and limiting losses, they still end up making profits. Before you enter a trade, you should know where your exits are. There are at least two for every trade. First, what is your stop loss if the trade goes against you? It must be written down. Mental stops don't count. Second, each trade should have a profit target. Once you get there, sell a portion of your position and you can move your stop loss on the rest of your position to break even if you wish. As discussed above in number three, never risk more than a set percentage of your portfolio on any trade. 7-Set entry rules – This comes after the tips for exit rules for a reason: exits are far more important than entries. A typical entry rule could be worded like this: "If signal A fires and there is a minimum target at least three times as great as my stop loss and we are at support, then buy X contracts or shares here." Your system should be complicated enough to be effective, but simple enough to facilitate snap decisions. If you have 20 conditions that must be met and many are subjective, you will find it difficult if not impossible to actually make trades. Computers often make better traders than people, which may explain why nearly 50% of all trades that now occur on the New York Stock Exchange are computer-program generated. Computers don't have to think or feel good to make a trade. If conditions are met, they enter. When the trade goes the wrong way or hits a profit target, they exit. They don't get angry at the market or feel invincible after making a few good trades. Each decision is based on probabilities. 8-Keep excellent records – All good traders are also good record keepers. If they win a trade, they want to know exactly why and how. More importantly, they want to know the same when they lose, so they don't repeat unnecessary mistakes. Write down details such as targets, the entry and exit of each trade, the time, support and resistance levels, daily opening range, market open and close for the day, and record comments about why you made the trade and lessons learned. Also, you should save your trading records so that you can go back and analyze the profit/loss for a particular system, draw-downs (which are amounts lost per trade using a trading system), average time per trade (which is necessary to calculate trade efficiency), and other important factors, and also compare them to a buy-and-hold strategy. Remember, this is a business and you are the accountant. 9-Perform a post-mortem – After each trading day, adding up the profit or loss is secondary to knowing the why and how. Write down your conclusions in your trading journal so that you can reference them again later. 10-Parting Notes "No one should be trading real money until they have at least 30 to 60 profitable paper trades under their belts in real time in real market conditions before risking real money," says Novak. Successful paper trading does not guarantee that you will have success when you begin trading real money and emotions come into play. But successful paper trading does give the trader confidence that the system he or she is going to use actually works. The exercises in "Trading in the Zone" walk the trader through trading a system based on a simple indicator, entering the market when the indicator gives a buy and exiting when it gives a sell. Deciding on a system is less important than gaining enough skill so that you are able to make trades without second guessing or doubting the decision. There is no way to guarantee that a trade will make money. The trader's chances are based on his or her skill and system of winning and losing. There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn't be there. By letting his or her profits ride and cutting losses short, a trader may lose some battles, but he or she will win the war. Most traders and investors do the opposite, which is why they never make money. Traders who win consistently treat trading as a business. While it's not a guarantee that you will make money, having a plan is crucial if you want to become consistently successful and survive in the trading game. |
FINANCIAL KNOWLEDGE: The Successful Investment Journey, Ten Tips For The Successful Long-Term Investor, Having
A Plan: The Basis Of Success. --------------CLICK BELOW, GO BELOW!
A Plan: The Basis Of Success. --------------CLICK BELOW, GO BELOW!
HOME BUYING PROCESS
WE ARE LICENSED MORTGAGE BROKER; FOR YOUR REAL ESTATE FINANCING, MORTGAGE & LOANS, HOME REFINANCING, HOME EQUITY,
REAL ESTATE INVESTMENTS.
CONTACT Mr. ANTONY AT (786)-709-6577 WE'RE COMPETENT, WE'RE LOYAL, & WE'VE ALL THE EXPERIENCE NECESSARY IN REAL
ESTATE, FINANCE & MORTGAGE TO HELP YOU!
WE ARE LICENSED MORTGAGE BROKER; FOR YOUR REAL ESTATE FINANCING, MORTGAGE & LOANS, HOME REFINANCING, HOME EQUITY,
REAL ESTATE INVESTMENTS.
CONTACT Mr. ANTONY AT (786)-709-6577 WE'RE COMPETENT, WE'RE LOYAL, & WE'VE ALL THE EXPERIENCE NECESSARY IN REAL
ESTATE, FINANCE & MORTGAGE TO HELP YOU!
| BUYING, SELLING, LEASING A PROPERTY IN SOUTH FLORIDA. COMMERCIAL, RESIDENTIAL, OR MOBIL HOME PLEASE CALL A PROFESSIONAL REALTOR AT: 786-709-6577.----Fortune International Realty |
| FLORIDA REAL ESTATE: HOME BUYING, LEASING, RENTING, LISTING. PLEASE CALL US AT: 786-709-6577 HELP IS AVAILABLE TO HELP YOU OR SOMEONE YOU KNOW SELL A PROPERTY. WE SELL FAST, QUICK AND FOR THE TOP PRICE. ---CALL Mr. ANTONY AT: 786-709-6577 AN EXPERIENCED PROFESSIONAL REALTOR--- FORTUNE INTERNATIONAL REALTY |
| REAL ESTATE FINANCING IS AVAILABLE FOR INVESTORS AT VISION MORTGAGE BANK. MORTGAGE HOME LOANS, HOME REFINANCING, HOME EQUITY IS JUST SIMPLE AND EASY. AT VISION MORTGAGE BANK, INC. WE'RE HERE TO GUIDE YOU, TO INFORM YOU, AND WE HAVE GREAT DESIRE TO HELP YOU FIND THE BEST MORTGAGE PRODUCT AT THE LOWEST RATE POSSIBLE! CALL US AT: 786-709-6577 FOR SOUTH FLORIDA |
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| REAL ESTATE: BUYING, SELLING, LEASING A PROPERTY IN THE SOUTH FLORIDA AREA . IT'S THE AFFAIR OF AN EXPERIENCED, A COMPETENT REAL ESTATE PROFESSIONAL! CALL Mr. ANTONY AT: 786-709-6577 --- Fortune International Realty |
A step by step guide to gaining control of your financial life.
Setting priorities
Here's help for the first -- and often the hardest -- step in achieving your financial goals: deciding which goals to pursue.
LESSON 2
Making a budget, saving money
How to bring your spending under control, so that you get the most out of every dollar.
LESSON 3
Basics of banking and saving
Here's how to get the best banking services at the best price, either online or off.
LESSON 4
Basics of investing
An introduction to making money in stocks, bonds and mutual funds REIT'S, real estate.
LESSON 5
Investing in stocks
The market can be a great place to turn savings into wealth -- or to lose your shirt. Here are some fundamentals of investing wisely.
LESSON 6
Investing in mutual funds
It's a mutual-fund jungle out there. Here's how to create a simple portfolio that works.
LESSON 7
Investing in bonds
Bonds can provide a steady and reasonably secure income, while adding ballast to your portfolio--but only if you really understand what you're buying.
LESSON 8
Buying a home
Owning your home is part of the American Dream, but if you’re not prepared, buying it can be a nightmare. Here are some fundamentals for buyers and sellers.
LESSON 9
Controlling debt
You've got to know when to hold debt--and when to fold it. This lesson shows you how to accomplish your financial goals by making debt work for you.
LESSON 10
Home Selling
WAYS TO SELL A PROPERTY FAST AND EASY FOR THE TOP PRICE!
Selling a home is a big decision and requires a lot of work. From getting the house ready to reviewing the escrow papers, our helpful guide will walk you through the process of selling your home.
LESSON 11
INSURANCE
Health Insurance, Life Insurance, Home Insurance, Car Insurance
Great things to know about insurance
Buying a car, Auto loans. Great things to know:
Buying a car is like no other shopping experience. The choices seem to be endless. This lesson helps you sort through your options.
FINANCIAL FREEDOM: A SMARTEST WAY TO PREPARE A BETTER FUTURE. YOUR PATH TO WEALTH STARTS RIGHT NOW.
It's a fact: today, anyone can become a millionaire
– In the history of the world, there has never been
a better time to create wealth than right here, right
now in real estate.
Setting priorities
Here's help for the first -- and often the hardest -- step in achieving your financial goals: deciding which goals to pursue.
LESSON 2
Making a budget, saving money
How to bring your spending under control, so that you get the most out of every dollar.
LESSON 3
Basics of banking and saving
Here's how to get the best banking services at the best price, either online or off.
LESSON 4
Basics of investing
An introduction to making money in stocks, bonds and mutual funds REIT'S, real estate.
LESSON 5
Investing in stocks
The market can be a great place to turn savings into wealth -- or to lose your shirt. Here are some fundamentals of investing wisely.
LESSON 6
Investing in mutual funds
It's a mutual-fund jungle out there. Here's how to create a simple portfolio that works.
LESSON 7
Investing in bonds
Bonds can provide a steady and reasonably secure income, while adding ballast to your portfolio--but only if you really understand what you're buying.
LESSON 8
Buying a home
Owning your home is part of the American Dream, but if you’re not prepared, buying it can be a nightmare. Here are some fundamentals for buyers and sellers.
LESSON 9
Controlling debt
You've got to know when to hold debt--and when to fold it. This lesson shows you how to accomplish your financial goals by making debt work for you.
LESSON 10
Home Selling
WAYS TO SELL A PROPERTY FAST AND EASY FOR THE TOP PRICE!
Selling a home is a big decision and requires a lot of work. From getting the house ready to reviewing the escrow papers, our helpful guide will walk you through the process of selling your home.
LESSON 11
INSURANCE
Health Insurance, Life Insurance, Home Insurance, Car Insurance
Great things to know about insurance
Buying a car, Auto loans. Great things to know:
Buying a car is like no other shopping experience. The choices seem to be endless. This lesson helps you sort through your options.
FINANCIAL FREEDOM: A SMARTEST WAY TO PREPARE A BETTER FUTURE. YOUR PATH TO WEALTH STARTS RIGHT NOW.
It's a fact: today, anyone can become a millionaire
– In the history of the world, there has never been
a better time to create wealth than right here, right
now in real estate.
FORECLOSURE INVESTMENT
The Time is Now to Profit from Foreclosure
A “Perfect Storm” of events has made investing in foreclosure properties better than ever - and now’s the time for you to profit...
THE HOME BUYING GUIDE!--------------------IMPORTANT THINGS TO KNOW BEFORE BUYING...
The home-buying process doesn't need to be scary. Our step-by-step guide will walk you through the process and answer your questions on what you should expect from us as your realtor,
where
to look for loans, and what to watch out for when closing the deal.
HOME SELLING: WAYS TO SELL A PROPERTY FAST AND EASY FOR THE TOP PRICE!
Selling a home is a big decision and requires a lot of work. From getting the house ready to reviewing the escrow papers, our helpful guide will walk you through the
process of selling your home.
SHORT SALE: REAL ESTATE INVESTMENT OPPORTUNITY FOR ALL
SHORT SALE allows you to buy as many properties as you want.
Flip them, Hold them, Rent them, Refinance them and make profits.
PRE-CONSTRUCTION, A GREAT WAY TO INVEST IN REAL ESTATE. BUT YOU HAVE TO KNOW THE SECRETS OF IT.
Florida Real Estate for sale: Wonderful prices, great location,extraordinary view,very spacious.
NO OTHER INVESTMENTS BUILD WEALTH LIKE REAL ESTATE!
NOW REALLY IS A GREAT TIME TO BUY A PROPERTY:
COMPETITIVE PRICES, LOW INTEREST RATES, MANY CHOICES
COMMERCIAL REAL ESTATE; A BETTER WAY TO INVEST AND GET RICHER! MULTI-WAYS TO WIN BIG IN REAL ESTATE
1031 Exchange, Tax Saving Tips for Real Estate Investors and landlords Give Financial Advantage
MIAMI REAL ESTATE: The Time is Now to Profit from Real Estate investing--
A “Perfect Storm” of events has made investing in Real Estate properties better than ever - and now’s the time for you to profit...
CALL Mr. ANTONY AT: 786-709-6577 --- Fortune International Realty
COMMERCIAL LEASE: Before you rent space for your business, be sure you understand these basic facts about commercial leases.
Manufactured Homes, Mobile Homes, an Affordable Housing Alternative
We are dedicated ourselves to helping bring prospective buyers of manufactured homes in contact with retailers who sell homes in their area. We aim to help buyers wade through the excess
of information providing a simple directory that enables buyers to quickly and efficiently contact us to help them find the dealers in which they are interested.
The Time is Now to Profit from Foreclosure
A “Perfect Storm” of events has made investing in foreclosure properties better than ever - and now’s the time for you to profit...
THE HOME BUYING GUIDE!--------------------IMPORTANT THINGS TO KNOW BEFORE BUYING...
The home-buying process doesn't need to be scary. Our step-by-step guide will walk you through the process and answer your questions on what you should expect from us as your realtor,
where
to look for loans, and what to watch out for when closing the deal.
HOME SELLING: WAYS TO SELL A PROPERTY FAST AND EASY FOR THE TOP PRICE!
Selling a home is a big decision and requires a lot of work. From getting the house ready to reviewing the escrow papers, our helpful guide will walk you through the
process of selling your home.
SHORT SALE: REAL ESTATE INVESTMENT OPPORTUNITY FOR ALL
SHORT SALE allows you to buy as many properties as you want.
Flip them, Hold them, Rent them, Refinance them and make profits.
PRE-CONSTRUCTION, A GREAT WAY TO INVEST IN REAL ESTATE. BUT YOU HAVE TO KNOW THE SECRETS OF IT.
Florida Real Estate for sale: Wonderful prices, great location,extraordinary view,very spacious.
NO OTHER INVESTMENTS BUILD WEALTH LIKE REAL ESTATE!
NOW REALLY IS A GREAT TIME TO BUY A PROPERTY:
COMPETITIVE PRICES, LOW INTEREST RATES, MANY CHOICES
COMMERCIAL REAL ESTATE; A BETTER WAY TO INVEST AND GET RICHER! MULTI-WAYS TO WIN BIG IN REAL ESTATE
1031 Exchange, Tax Saving Tips for Real Estate Investors and landlords Give Financial Advantage
MIAMI REAL ESTATE: The Time is Now to Profit from Real Estate investing--
A “Perfect Storm” of events has made investing in Real Estate properties better than ever - and now’s the time for you to profit...
CALL Mr. ANTONY AT: 786-709-6577 --- Fortune International Realty
COMMERCIAL LEASE: Before you rent space for your business, be sure you understand these basic facts about commercial leases.
Manufactured Homes, Mobile Homes, an Affordable Housing Alternative
We are dedicated ourselves to helping bring prospective buyers of manufactured homes in contact with retailers who sell homes in their area. We aim to help buyers wade through the excess
of information providing a simple directory that enables buyers to quickly and efficiently contact us to help them find the dealers in which they are interested.
WHAT GUIDELINES ARE REQUIRED FOR A MORTGAGE LOAN?
Mortgages are used by individuals and businesses wishing to make large value purchase of real
estate without payment the entire value of the purchase up front. Mortgages are also known as lien
against property, or claims on property. Mortgage is a legal agreement that creates an interest in a
real estate property between borrower and the lender.
HOW TO UNDERSTAND THE HOME LOAN PROCESS?
Understand that in order to finance or refinance a loan the lender requires documentation to verify
and substantiate your employment, credit and financial situation to assure its investors
that you have the ability to repay the MONEY
HOME REFINANCING: 10 GREAT REASONS TO REFINANCE A PROPERTY. NOW IT'S THE BEST
TIME FOR REFINANCING, THE INTEREST RATE IS VERY LOW.
MORTGAGE LOAN MODIFICATION PROGRAMS; AN ALTERNATIVE TO REDUCE MONTHLY
MORTGAGE PAYMENT, TO AVOID FORECLOSURE, TO SAVE YOUR CREDIT RATING, TO SAVE
YOUR PROPERTY.
REVERSE MORTGAGE
NO MORTGAGE PAYMENTS EVER AGAIN: IF YOU OWNED A HOME AS YOUR PERSONAL
RESIDENCE.
TO IMPROVE YOUR QUALITY OF LIFE AND LIVE WITH NO STRESS!
IF YOU'RE 62 YEARS OF AGE OR OLDER, YOU CAN ACHIEVE THIS, THROUGH A REVERSE
MORTGAGE, REGULATED BY THE U.S. GOVERNMENT.
FINANCING YOUR REAL ESTATE INVESTMENT; BUYING YOUR FIRST, SECOND, AND OR THIRD
PROPERTY. HOW AND WHERE TO FIND MONEY? CLICK RIGHT HERE!
FHA: F H A MORTGAGE LOANS, THE GOVERNMENT IS THERE TO HELP YOU PURCHASE YOUR
HOME. PLEASE CONTACT US WE WILL SHOW YOU THE WAY .
MORTGAGE LOAN PRE-QUALIFICATION, LOW INTEREST RATES,
8 Reasons to Get Pre-Approved for a Home Loan
Learn why pre-approval is one of the smartest moves you can make when shopping for a home
Subprime Mortgage
 A type of mortgage that is normally made out to borrowers with lower credit ratings. As a result
of the borrower's lowered credit rating, a conventional mortgage is not offered because the lender
views the borrower as having a larger-than-average risk of defaulting on the loan.
FINANCING YOUR REAL ESTATE INVESTMENT; BUYING YOUR FIRST, SECOND, AND OR THIRD
PROPERTY. HOW AND WHERE TO FIND MONEY? CLICK RIGHT HERE!
RENTAL PROPERTY / COMMERCIAL REAL ESTATE / COMMERCIAL LEASE Tips for Making Solid
Business Agreements and Contracts
Mortgages are used by individuals and businesses wishing to make large value purchase of real
estate without payment the entire value of the purchase up front. Mortgages are also known as lien
against property, or claims on property. Mortgage is a legal agreement that creates an interest in a
real estate property between borrower and the lender.
HOW TO UNDERSTAND THE HOME LOAN PROCESS?
Understand that in order to finance or refinance a loan the lender requires documentation to verify
and substantiate your employment, credit and financial situation to assure its investors
that you have the ability to repay the MONEY
HOME REFINANCING: 10 GREAT REASONS TO REFINANCE A PROPERTY. NOW IT'S THE BEST
TIME FOR REFINANCING, THE INTEREST RATE IS VERY LOW.
MORTGAGE LOAN MODIFICATION PROGRAMS; AN ALTERNATIVE TO REDUCE MONTHLY
MORTGAGE PAYMENT, TO AVOID FORECLOSURE, TO SAVE YOUR CREDIT RATING, TO SAVE
YOUR PROPERTY.
REVERSE MORTGAGE
NO MORTGAGE PAYMENTS EVER AGAIN: IF YOU OWNED A HOME AS YOUR PERSONAL
RESIDENCE.
TO IMPROVE YOUR QUALITY OF LIFE AND LIVE WITH NO STRESS!
IF YOU'RE 62 YEARS OF AGE OR OLDER, YOU CAN ACHIEVE THIS, THROUGH A REVERSE
MORTGAGE, REGULATED BY THE U.S. GOVERNMENT.
FINANCING YOUR REAL ESTATE INVESTMENT; BUYING YOUR FIRST, SECOND, AND OR THIRD
PROPERTY. HOW AND WHERE TO FIND MONEY? CLICK RIGHT HERE!
FHA: F H A MORTGAGE LOANS, THE GOVERNMENT IS THERE TO HELP YOU PURCHASE YOUR
HOME. PLEASE CONTACT US WE WILL SHOW YOU THE WAY .
MORTGAGE LOAN PRE-QUALIFICATION, LOW INTEREST RATES,
8 Reasons to Get Pre-Approved for a Home Loan
Learn why pre-approval is one of the smartest moves you can make when shopping for a home
Subprime Mortgage
 A type of mortgage that is normally made out to borrowers with lower credit ratings. As a result
of the borrower's lowered credit rating, a conventional mortgage is not offered because the lender
views the borrower as having a larger-than-average risk of defaulting on the loan.
FINANCING YOUR REAL ESTATE INVESTMENT; BUYING YOUR FIRST, SECOND, AND OR THIRD
PROPERTY. HOW AND WHERE TO FIND MONEY? CLICK RIGHT HERE!
RENTAL PROPERTY / COMMERCIAL REAL ESTATE / COMMERCIAL LEASE Tips for Making Solid
Business Agreements and Contracts