Flexible Investment Strategies » Stocks

The Actual Reason Why Gold is Set to Double

mahesh — Thu, 01 Jul 2010 09:16:38 +0000

Let me be clear from the outset, although: I’m a big fan of the gold. I hold physical bars moreover I do believe the metal’s brightest days are clearly ahead.

My focus is to facilitate buyers must be buying for really good reason.

If you are depending on inflation, you could be truly un happy. The shortage of reported inflation may persist for a while, especially given the hedonic government massaging of Customer Price Index.

In reaction to tepid inflation readings, you can put your gold holdings-simply to determine the metal’s price turn much higher. You will watch, puzzled … babbling such as media experts that gold is in a bubble and that the cost is irrational, given the lack of inflation.

The price will not be irrational. It will be absolutely rational, however according to things unrelated to inflation.

Imagine on it: If gold really was an inflation play, then, in the theory, it need to be in free-fall these days-or, on the very smallest amount, should have settled markedly lower from its recent level.

After all, inflation in month of April declined 0.1% and, for the previous 12 months, inflation is running at a modest 2.2%.

Still at almost $1,240 per troy ounce, give or receive, gold is only marginally under the nominal record highs over the $1,250 level that it touched at an earlier time this month.

To lots of people, gold only isn’t reacting way it must to this economic situation.

In reality, if you have a look at gold from the correct point of view, it is acting simillar to it must.

Correlation? There is No Stinkin’ Correlation …

Gold basically isn’t an inflation hedge — at least, not in actual meaning of word.

Plus it is indeed not an asset whose price action relies upon inflation/deflation/reflation … whatsoeverflation.

Actually, statistics from Ibbotson Associates indicates the correlation between gold rates as well as inflation is just 0.09 going back to 1978.

For all those new to correlation, the range works from -one (which means 2 measures move reverse of one another) to +1 (which means two measures move similar to one another).

At 0.09, gold and inflation are almost completely non-correlated. They simply won’t change each other’s orbit to any real degree. Apples as well as oranges tend to be more correlated; at the least they are both fruits that grow up on trees.

Definitely, the investment community categorizes gold as a commodity alongwith silver plus copper and wheat plus, in Japan, azuki beans.

But sticking gold into certain random box isn’t most exact than the historic partitioning of the many African plus Middle East nations. It is mainly for the sake of expedience and often makes no sense.

Actually, what makes gold a commodity?

Farmers has good reason to protect their production of corn or soybeans. Hail, flooding, drought, flames, blights plus pests can all quickly render a crop which cannot be sold.

Likewise, an electronics firm that makes use of a many silver in its production processes have good reason to protect against a silver cost spike.

Those are actual commodities consumed in all the time manufacture techniques.

Gold? Mmmmm, not so much.

Sure, gold plating goes into various techniques, but it’s not similar to gold is a significant industrial component. Certainly not in the scale of silver or else copper.

Gold just sits approximately, in bar or coin form, gathering dirt in the bank vault or even a shoebox in someone’s home safe.

Yet jewelry is not consumed. When consumers no longer wear a gold necklace or gold earrings, the items be placed in the drawer for years or else were offered for scrap, only to be melted right down to re-enter the worldas a fresh gold bar, coin otherwise bracelet.

So, if gold is not a real commodity, then what exactly is it?

Gold is often a currency. A shadow currency, at that – the currency of last choice, a task it has always played, regardless of efforts to shoehorn it into a box with bacon and orange juice.

Gold sits on the other edge of see-saw from the dollar. As the dollar rises, gold gets less-interesting plus, therefore, sinks. As dollar sinks, gold becomes increasingly appealing plus, hence, rises.

This concept of gold as real currency (not commodity) explains why the yellow metal done so poorly after it spiked in early ’80s.

And it addresses the one statistic-the one statistic-the media trot out while asserting gold is in the bubble: They suggests that gold served poorly for inflation protect with the early ’80s with the middle years of this decade.

That is correct. However it absolutely misses the real point since it presupposes the original argument that gold is definitely an inflation-hedging commodity.

Gold collapsed after its early-’80s peak for one primary reason: The dollar was strengthening.

The Dollar Index, which measures the greenback versus a basket of additional currencies, rose nearly 65% in that period. Gold costs crashed since there was no reason to concern about the power of dollar.

Since the Dollar Index lost altitude in previous half of ’80s, gold briefly surged, however finally simply bounced around for years as Dollar Index bounced around…

Still through America’s previous true bout of inflation-the 1970s-gold’s movements followed the dollar’s lead. Inflation was just the sideshow to the true action: the tug-of-war between the dollar and gold.

Fine as inflation started toward spike in nineteen seventythree, the Dollar Index declained. In the same time, gold surged. The Index would briefly rally from 1975-’77 and gold tumbled. When the Index sustained its drop-a freefall now-gold blasted past $800 an ounce.

Then what of Clinton years, at the time the U.S. balance sheet enhanced noticeably? Remember budget surpluses? Real or not, those surpluses drove the dollar index upper. Gold prices, in return, fell towards the $300 as well as high-$200 range.

Still since then, the United Sates balance sheet has gradually worsened. Debt have exploded away from all rationality, plus the Dollar Index has dived (though it’s recently rebounded due to woes struggling with the greenback’s only rival, the euro).

Furthermore what’s happened to gold? It’s up big.

So why is gold up big? And, most important to where it is going, why have it remained elevated?

Fear and loathing.

Worry that the United States dollar is destined to drop since policymakers have larded the weak currency with most debt than the country can handle; loathing as People are increasingly put out by a government that’s blind-or, poorer, indifferent-to the impacts its events own on the once-proud, now-sad greenback.

If you look the U.S. currency when it comes to gold, it’s obvious the dollar is not more powerful in the wake of credit/housing/financial crisis. The dollar is just the tallest midget in room. Plus gold is rallying … plus has rallied, except not because of inflation; there is no inflation to speak of.

Gold’s rate stability is a transparent sign that, in the face of indicators that should preferably be signaling lesser gold prices, the world see of gold is reflecting an annoying fact: Gold can be an genuine currency reflecting the horrendous state of the world’s fiat currencies.

It’s not, I’ll speak again, a commodity motivated by inflation.

In – and – out traders who chase rapid-term performance-the so-called hot money -are driving gold costs at the margin these days.

Europe burps and the traders rush to buy or sell gold, pushing as well as pulling in the price.

Small doubt they are part of reason GLD, the gold ETF, saw a record inflow of $1.8 billion in only one week in recent times, plus why GLD continues to view huge demand.

However underneath is a rising core of important gold consumers-average people who would never consider themselves investors. They purchase gold for 1 simple reason: It can be a common currency without the liability of misguided central bankers.

These fundamentalists are those keeping gold prices up since they don’t seem to be selling into gold’s recent strength. They are in this game for the long-term; they understand we are still in first innings.

These guys notice the text on the wall:

You can not erase a debt crisis by ladling on extra debt.
You can not correct a floundering financial system by propping up breakdown.
You can’t permit capitalism to heal by itself through injecting government into all corner.

Briefly, they’re worried regarding the collapse, or else a minimum of the deep degradation, of fiat currencies.

Someday, a disaster of belief may strike the currency markets … U.S. dollar included. While that occurs, the dollar might not really go down versus other currencies-it could well remain the tallest midget.

Otherwise, possibly it loses its reserve currency position to some other player or a basket of players.

Who is aware of?

You’ll make out, still, the dollar is tanking because gold costs will be much higher than they are today.

How high? Again — who knows? Some of really intelligent investors I know at QB Asset Management has through a well-reasoned instance indicating gold might drive toward $8,000/ounce or more in a blow-off scenario … though somewhere between $2,500 and, perhaps, $5,000 looks reasonable.

Regardless of the ultimate price, at the happiest people will be persons buying gold for the basic purpose that it is a metallic currency, not a commodity, as well as that its worth will come as the direction of dollar, not at the whims of the inflation.

When you harbor some worries regarding the dollar, regardless of inflation or deflation, then gold is your protected destination.

Gold Market Monitor is a subscription based membership site that uses an exclusive gold timing strategy. It shows its members the best time to invest in gold bullion or gold stocks and when to exit to the safety of cash. Try the Gold Market Monitor for 60-days and safely profit from up and down trends in the gold market.

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Using Currency ETFs for Forex Investing

mahesh — Tue, 29 Jun 2010 10:27:02 +0000

Investment with the foreign currency market, more normally known as forex trading, used to be off-limits to of retail traders. Until recently, forex trading was reserved in favor of professionals on huge investment financial institutions, hedge money and central banks.

However now, any investor who really wants to understand methods to participate in foreign currency market. Obviously, that doesn’t suggest forex trading is meant for everybody.

To be sure, you can find compelling factors to think about forex as an investment alternative. Initially, the market is open twenty four hours every day, seven days a week, allowing someone to trade while at the Asian markets open if you are so inclined. Second, forex trading broker agents recommend a considerable quantity of leverage, meaning you’ll open an account by just several 100 dollars and have the ability to trade a a large sum of money. Finally, the foreign currency market is the generally liquid financial market of the world. Every single day an abundance of money changes hands in this market than all world’s stock market and bond markets combined.

Then again this actually is a trader’s market and not every investor may be a trader. Luckily, there is a way to obtain your forex solution without being chained to some computer. ETFs are the easiest way for traders to gain exposure to many currencies without possessing to trade with the daily instability of forex market. Let us take a look on a few of significant forex Exchange-traded funds buyers must know about.

PowerShares DB US Dollar Index Bullish ETF (NYSE: UUP)
Within a forex world, the dollar still rules the roost. That makes UUP essential – be aware of among currency ETFs, from it mirrors the dollar’s performance. UUP is one among the most liquid currency ETFs on the market by normal daily buying and selling volume of more than 4.7 million shares. This is a vital consideration since lots of currency Exchange-traded funds are lightly traded, even a few that track major currencies.

UUP tracks the U.S. Dollar Index, measuring the dollar’s strength against the euro, the British pound, the Japanese yen, the Canadian dollar, the Swedish krona plus the Swiss franc. Buyers should also pay attention to UUP’s bearish equivalent, the PowerShares DB US Dollar Index Bearish ETF (NYSE: UDN), if a short dollar position is more suitable.

CurrencyShares Euro Trust (NYSE: FXE)
The euro, employed by 16 European nations with economic giants France plus Germany, is the next most greatly traded currency subsequent the U.S. dollar. The euro is considered as a dangerous asset than either the dollar otherwise yen, thus when the market’s appetite for risk is excessive, the euro generally outperforms other main currencies.

The other holds genuine too: traders flee more volatile currencies when risk appetite wanes. Luckily, FXE has a preferred bearish counterpart that ought to be also in your list of currency Exchange-traded funds: The ProShares Ultra Short Euro ETF (NYSE: EUO).

WisdomTree Dreyfus Emerging Currency ETF (NYSE: CEW)
Investment in rising market equities could be tough, although investing emerging market currencies may be downright risky. It’s possibly better for many investors to get exposure through an emerging currency ETF like CEW. CEW invests in some currencies that can be measured conservative emerging market plays, like the Brazilian real, Chinese yuan and Indian rupee. However CEW’s other constituents, including Chile, Hungary, Israel, Malaysia plus Mexico, put together this an ETF worth a look for all those eager to include substantial risk to their portfolios.

PowerShares DB G10 Currency Harvest ETF (NYSE: DBV)
DBV focuses completely on developed market currencies. DBV is comprised of futures contracts in ten different currencies, together with the euro, yen, Australian dollar, Canadian dollar, pound, franc plus Norwegian krone. Note that DBV will not calculate the strength of the U.S. Dollar relative to its other holdings. Rather, the Dollar is in basket of ten currencies tracked by DBV.

CurrencyShares Australian Dollar Trust (NYSE: FXA)
The Australian currency is often known as a commodity currency, which means its worth has a powerful correlation to the cost of commodities – in this case gold. History has shown that while gold costs go upper, the Aussie dollar typically follows in step. Which means buyers know how to indirectly profit exposure to gold via having FXA. One more reason to think about FXA is the overall willingness of Reserve Bank of Australia to raise interest levels – excellent news for buyers having Australian dollars.

CurrencyShares Canadian Dollar Trust (NYSE: FXC)
The Canadian dollar is a different commodity currency. Also recognized as the loonie, the Canadian dollar has a historical correlation to crude oil costs because Canada is one of biggest crude producers in the world. In fact, the Canadian oil sands region is believed to carry one of the leading oil reserves outer the Middle East. Oil has a big impact on Canada’s financial system plus, consequently, on the worth of loonie. Consider FXC like a backdoor play on oil prices, especially because oil companies may be planning to move operations from the Gulf of Mexico as offshore drilling becomes more regulated.

If you are feeling anxious and nervous about foreign currency trading, then I suggest you to learn how to use currency ETFs for forex investing which help you to make profits in different foreign currencies.Subscribe to the FREE Weekly Wealth Letter and learn how to use currency ETFs which help you to make profits in forex investing.

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Discover how to Make Money using Advanced Stock Trading Strategies in Uncertain Times

mahesh — Fri, 11 Jun 2010 07:37:32 +0000

Stock market timing tactics might be long or else short term. The approaches are unique designed for particular stocks than they’re designed for mutual funds, naturally. With particular stocks you establish your plan on your awareness of a specific company. Finding the basics of a company; profit, revenues, property, expertise as well as administration. The background of over all marketplace of the service or product that this company creates can also be significant to decide when to purchase as well as when to sell.

It will be easy to determine the intention of stock market timing techniques. Just to illustrate, Warren Buffet will state repeatedly, all you must accomplish is purchase low after that sell high. The difficult part, naturally understanding at what time. It is usually impossible to always be correct, but it really can be made being right enough often enough to remain in game.

Several specialists recommend a buy and hold approach. This beliefs is determined by the historical proven truth that markets climb in value after some time, in spite of recessionary blips. However still at a buy and hold system, one need to be capable of understand when a stock reaches a long-term retreat. Expertise changes as does the competitive landscape. One must just think of this web businesses that declained after the tech bubble burst to find out that buy and hold is really a dangerous approach at some point in a bubble.

Setting limits is recognized as a normally used tactic in relation to stock market timing methods. Purchasing stocks if they are at their highest level is simply the right timing approach when the business is a penny stock which has created some form of fundamental revolution.

Mining stocks are the best example of this. If a mining stock hits the mother-load, purchasing it early on, even they have risen to its peak forever, is possible as you could have real metal in soil to make safe your money.

However, entering in the tip of the bubble with no a best intention meant for doing this away from the truth that the stock is moving ahead may be a reason for ruin. Because of this, we are able to found a safe rule for stock market timing strategies: don’t purchase on the bubble; simply purchase on the base of the latest ingredient in a firm principles (profit, business, administration, belongings, and so on).

So far as funds go, this is market ground rules that one have to listen to. Yet again, the technology sector provides us major examples. As the technology bubble started out to go down during February of 2000, the devaluation continued well into 2001. Getting from technology-dependent mutual funds in spring of 2000 protected lots of traders from ruin. Investors who bought and held even next it turned obvious many of that tech companies may not survive paid greatly.

Stock market timing approaches versus buy and hold can be a discussion that can remain far so long as there’s stock markets. The market moves on emotion, but it really earns on fundamentals. Day traders earn their income on stock market timing ideas. For the common investor, though, buy and hold, however remaining learned as well as being eager to jump when fundamentals warrant, are the order of that day.

It is not easy to make profits on your investments when you stick on to the Buy and Hold strategy. Subscribe to the Swing Timing Alert and discover the Advanced Stock Trading Strategies to make money in both Bull and Bear Markets. Swing Timing Alert can help you maximize your investment returns starting today. Start your 30 day trial now for just $4.97 and get 10 Amazing Bonuses.

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Do not Mix Value Investing and Stock trading

mahesh — Tue, 25 May 2010 10:11:15 +0000

Virtually every stock market investor speaks regarding “recognizing value.” I have found that interest in value investing ebbs and flows based on the market. Nobody really wants to overpay for a stock, or keep holding one if the price makes nutty.

And that leads to ask a straightforward doubt: How do you discover value in the stock market?

It depends whom you ask…

The fathers of value investing, naturally, were Ben Graham and David Dodd, two teachers at Columbia Business School who wrote the investment classic, Security Analysis.

Both argued that value investing is in relation to buying companies that are selling lower their intrinsic price.

How do you determine that? As per Graham & Dodd, which means buying firms that…

Deal at major discounts to book value. Receive high dividend yields. Have low price-to-earnings (P/E) ratios.

Trade therefore is not only supposed to result in higher profits. It is also designed to offer a big “margin of safety.” The thought is that if you buy a security right, your loss is partial.

A number of academic research has revealed that if you ever adhere to the principles of Graham and Dodd, you need to perform well over the long term.

However you can find possible problems with this method…

To begin with, stocks are rarely as cheap like they used to be back in the 1930s when Security Analysis was printed. Or even as low-priced like they used to be back in 1982 while the standard stock offered for less than book value and 8 times earnings as well as yielded just above 6%.

And if you sat out the last 28 years out because stocks had been too expensive, you missed an awful many chances.

If you do locate a stock that does meets Graham and Dodd’s stringent requirements, you furthermore may need to be patient. Why? For the reason that companies which are the lowest are from help for a cause. Sales are often level or downward. Earnings are weak. Gain margins are low.

You cannot succeed simply by buying a company that’s cheap. (It may always turn out to be inexpensive.) You have to buy a firm that can sometime – and perhaps not too far off – be dear for others. Or else, when will you take profits?

So possibly Graham and Dodd’s message needs modifying. (Warren Buffett, Graham’s most famous student, has definitely found ways to change it.)

I have found the definition of value as well as the options to realize a margin of security are flexible. Also The Oxford Club has established winning methods to bend them.

To my mind, every stock that goes from $10 to $50 was a “value” at $10. I don’t worry what the P/E or price-to-book was at the time. With the luxury of hindsight, it had been clearly a discount. Why quibble?

But die-hard value traders will claim that if the stock was “overvalued” at $10, it’s only more grossly so at $50 – and thus, you’re at great danger holding it.

I oppose. If you use trailing stops your upside is limitless and your gains totally protected. Provided a stock maintains trending up, we’re satisfied to hold on – it doesn’t matter what the valuation. As the stock sooner or later turns, as entirely do eventually, our stops will remain the profits from slipping by way of our fingers.

As for value analysis, quite frankly, we don’t pay out a lot of time poring over P/Es and book values. We’re now serious about finding companies which are likely to prove dramatic, better-than-expected growth in quarters in the future. These shares are usually more costly than regular, just like companies that could give you an idea about a small amount or no development are typically cheaper than normal.

Growth stocks often run. Gains often come faster rather than later. Generally investors don’t have the patience to be good value investors. John Templeton, for instance, held companies in the flagship Templeton Growth Fund an average of 7.5 years.

But clients will begin to grouse if a stock doesn’t progress for 6 months. They name it “dead money” and begin itching to move it away.

I know this instinct. But deep value investment as well as quick investing don’t combine.

If you are a patient, truly long-term oriented investor, value investing can perform wonders. If you are not, you’ll be more happy looking for companies which are set to smash estimates.

Once it doubles or triples – or else go up 50-fold or more like Apple (Nasdaq: AAPL) and Amazon (Nasdaq: AMZN) – do not worry, other investors will concede it had been “value” before.

Investing in stocks is difficult, especially in today turbulent and uncertain times. Subscribe to the Best Blue Chips which shows you the TOP 10 blue chip stocks to buy in this uncertain times. Click here to get your free Best Blue Chips Newsletter and build your long-term core holdings portfolio.

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Trade Futures Like The Turtles And Make A Fortune!

Ahmad Hassam — Tue, 02 Mar 2010 20:14:08 +0000

Financial markets are huge. Daily billions of dollars change hands in these markets when different financial instruments change hands. You can trade stocks. You can trade bonds. Ever heard of the futures market and futures trading? Well, futures are a security just like stocks and bonds. Stocks give you the ownership in part of a company while bonds are issued by governments and companies to borrow money from the investors. Futures are somewhat different than stocks and bonds!

Futures contract as the name implies is a binding contract between two parties for the delivery of a commodity or an asset or even a financial instrument at some future date between the buyer and seller of that contract. Futures market is a highly regulated market with the CFTC responsible for its regulation. Buyers and sellers don’t come in direct contact with each other. In between is the Central Clearing House that enforces the contract reducing the risk of party default!

Futures market is the backbone of the whole sale and retail commodity market ranging from oil, wheat, corn, heating oil, meat, cattle, soybeans and other foodstuff. So you can well imagine the importance of the futures market. Futures market serves the purpose of hedging and speculation.

These contracts get regulated through a central clearing hours so the risk of one party backing out of the contract is minimal. This limits the time and risk exposure experienced by hedgers and speculators. Now, futures contracts are by design time bound and expire at a fixed date.

Now you can easily trade these contracts by opening an account with a FCM brokerage and deposit an amount to start trading these contracts on margin. The minimum amount with most of the brokers is something like $5,000 but it can less too! Brokers allow leverage upto 10:1 when you trade on margin. Compare this to the leverage of 2:1 allowed by stock brokers. In the last decades, electronic trading has become highly popular among the traders. This includes futures as well.

In US, open outcry trading still takes place during the official hours at the different futures exchanges. However, most of these futures contracts also get traded electronically. GLOBEX allows electronic trading of most of these futures contracts 23 hours each day. Electronic trading provides a more level playing field, more price transparency and lower transaction costs.

CME, NYMEX and CBOT are the three most important Futures Exchanges. GLOBEX allows you to trade most of the contracts that get traded on these exchanges. The popular contracts that get traded on GLOBEX are the E-minis like the S&P 500, NASDAQ 100 and Dow. You can also trade E-mini gold futures as well as crude oil futures on GLOBEX.

GLOBEX trading overnight tends to be thin and more volatile than during the official trading hours that are from 8:30 AM EST to 4:15 PM EST. If you trade financial news on Bloomberg or CNBC before the stock market opens officially, you will find quotes on S&P 500 futures and other taken from GLOBEX.

These GLOBEX quotes are real time and if you have taken a position with sell stop or a buy order, early next morning, you might find your position executed with a new position or out of the position altogether. Futures can be highly profitable if you know how to do it!

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What Is Momentum Investing? How It Can Make You Rich?

Ahmad Hassam — Mon, 01 Mar 2010 14:33:55 +0000

As a trader, you are always looking for short term profit. While as an investor, you are willing to invest long term in a company or a security to make capital gain. In trading, you are always looking for making profit from the volatility in the market. Day trading has a short term time horizon of only one day. A day trader opens a trade and closes that trade in the same day to make a quick profit. Day traders need quick reflexes as well as a keen observation of the market volatility. Many people day trade successfully. However, on the other hand hand, many people have a long term time horizon of many months to years. They have a long term financial goal and this matches with their investment style.

Investors in theory can wait for a long time to see their stock pick to play out. A company’s stock may be ridiculously cheap. But it may stay like that for a long time before it catches everyone else’s attention and the price is bid up. It might be good for investors to learn a few tricks from traders especially day trading that can help them make a few quick bucks.

Successful day trading requires an innate sense of discipline. Successful day trading requires the sense when to commit money to a trade and when to cut the losses and run. However, if you are an investor who has never day traded, you might have done so much research and committed so much time waiting for a position to work out that you might forget the cardinal rule of traders: The market doesn’t know you are in it.

However, if too many investors start practicing momentum investing, it sometimes leads to bubbles like the tech bubble that happened at the end of 1990s. Now, when doing momentum investing, you need to also do some fundamental research behind the company. As most of the momentum investing done during the dot com bubble was on hearsay without being supported by any strong fundamentals!

One of the tricks that you can learn from day traders is momentum investing. In momentum investing, you look for securities that are expected to go up in prices accompanied by the underlying momentum. When investing, you try to buy low and sell high. In momentum investing, you buy high and sell even higher!

How to you find that a security has got momentum behind it? You can use these technical indicators like the MACD ( Moving Average Convergence and Divergence), RSI (Relative Strength Index) or the Stochastic. A swing trader is also looking to ride a trend as long as it lasts. A trend lasts as long as it has got momentum behind it. Momentum investing is similar to swing trading.

Mr. Ahmad Hassam has done Masters from Harvard. Read this shocking 40 page PDF FREE FRWC Brutal Truth Report on trading robots!Turn $200 into $100K in just 3 months with this FREE Penny Stock Report.

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Back Testing Your Trading System-Know These Shocking Limitations

Ahmad Hassam — Sun, 28 Feb 2010 16:02:56 +0000

Developing a trading system is not easy. It requires first of all good trading experience. Than you need to test your trading system under live trading conditions. It might take time as well as involve the risk of losing money. To overcome this difficulty in testing a trading system or a trading strategy, backtesting has been developed. Backtesting is possible with the use of software. A trading system might comprise of a set of two or more indicators with a set of rules that tell when to enter or exit the trade.

How to do backtesting? Backtesting uses historical data to test the performance of the trading system under the past market conditions. Using a backtesting software makes it very simple and easy.

There are many problems with historical data. There is no slippage in backtesting. Slippage is one of the most important problem that a trader faces while trading live. The other problem that the backtest ignores is the widening of spreads under volatile market conditions. So backtesting results are no guarantee that the trading system will perform well under live market conditions. Things that worked in the past might not work now. Similarly something that didn’t work in the past, may work now! You never know!

In other words, no two trades work out in exact the same way twice. SO you have to be careful when looking at the back testing results and take it with a pinch of salt. However, there are still some advantages of back testing a trading system.

Some markets are highly seasonal. For example, if you are a commodity trader and tend to trade agricultural commodities like the grain, seed or the livestock, these have a fixed planting and harvesting cycles.

For example, some markets especially the commodities market is highly seasonal and cyclical in nature. We can take the example of agricultural commodities like wheat, grains,corn, cotton, coffee and stuff like that. In case of the stock market, there is much talk of the January Effect. Well, it is there no doubt about it. Some years, it is highly pronounced and others it is not that pronounced. Similarly stock prices tend to rise at the end of each month and the first few days of the new months. The reason for this is that many institutional investors tend to put the new funds to work at the end of the month and the beginning of the new month! Now in other markets, you might not find any seasonal trends. For example, there is very little seasonality in curreny market or the bond market.

Back testing can also help you establish the amount of time a particular market tends to run in a certain direction. For example, in case of US Dollar Index, its trend lines tend to last for months to years.

Now when you back test your trading system and the set of indicators, you can check their accuracy. For example, if you using a trading system based on moving average crossovers, you can back test it using different combinations. Then monitor each combination under live conditions to see which works the best.

Mr. Ahmad Hassam has done Masters from Harvard University. Download these Forex Scalping Cheatsheets FREE! Read this shocking FREE 40 page PDF FRWC Brutal Truth Report that exposes everything about trading robots!

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Stock Trading Market- Making Money in The Market

Henry Mangult — Sat, 27 Feb 2010 10:01:58 +0000

Are you new to the Stock trading market? Are you just now thinking about opening a trading account or broker account? Or are you just looking to learn a little more about where your 401(k), IRA or mutual funds are being invested? Either way here is a beginner’s introduction to the Stock trading market.

Firms or individual companies often trade equity known as stock. The purchase of the stock on the stock trading market gives the purchaser a small percentage of ownership in that company or those companies that he or she chooses to invest in. Stock traders known as day traders often look to the stock trading market for short-term gains. Often times their investment time frames are measured in days and weeks rather than months or years. These are often times professionals who work on a full or part-time basis allowing themselves to hold full-time employment in other vocational arenas. However financial advisors or financial managers actually manage other individuals portfolios taking a commission based on trading activity in the stock trading market.

Then there are individuals or stock trading investors who look at the stock trading market as being a much longer-term investment. These individuals or companies hold their stocks for months or years at a time. In this instance the entity investing in the stock trading market has looked at a companies’ financial health on a fundamental level and feels that the long term prognosis for that particular company is positive.

So ultimately while some individuals are taking a long-term position within the stock trading market other individuals choose to take a much shorter term position pulling their earnings off the table on a much more frequent basis. Either method of trading can make money however an individual who’s completely unfamiliar with the market should seek the advice of a financial advisor in order to prevent the risk of lost capital.

So always keep in mind whether you’re getting in to the stock trading market as a long-term investment or for short-term gains, you can make money in a bear market and in a bull market but if you get greedy ultimately you will lose.

Want to find out more about stock trading market, then visit Henry Mangult’s site on how to choose the best stock market guide for your needs.

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Inverted Hammer Candlestick Pattern-An Accurate Signal On Trend Reversal!

Ahmad Hassam — Sat, 27 Feb 2010 06:39:57 +0000

There are simple as well as complex candlestick patterns that are used by traders to identify trend reversal as well as trend continuation. Candlestick charting has become one of the most important tool in the trading arsenal of any trader. Almost all the trading platforms now have candlestick charts in their menu. One candlestick pattern does not occur frequently but when it does it means that the trend will reverse itself soon is the Inverted Hammer.

Now an inverted hammer can get formed in a downtrend as well as an uptrend. In a downtrend, the first day is a bearish candle signalling that the bears are still in control of the market. An Inverted Hammer is a quite rare pattern as the price action needed to produce it does not takes place frequently. But if it does, it is an important signal that you shouldn’t ignore.

An inverted hammer has a very small body at the bottom with a long wick at the top. As the high is way above the body, most of the trading took place near the small area close to the low. This low serves as the support for the upcoming days.

Now, you should wait for the confirmation the following day in order to trade this bullish inverted hammer pattern. If the open of the next day after the appearance of the inverted hammer pattern is higher than the low of the previous day, the inverted hammer pattern is a true pattern and you can trade it by putting the stop at the same level of the open of the day.

Now, when an inverted hammer is formed in an uptrend, it means that the uptrend is about to reverse itself into a downtrend. On the first day, you will find the usual bullish candle signalling that the bulls are in control of the market. This is followed by a gap opening and more buying.

When you idenfity a bearish inverted hammer pattern, you can safely go short by putting a stop near the open of the signal day or the day when inverted hammer was formed. Soon the bears start to take control of the market and push the prices down. The close of the day is equal to or close to the low of the day.

Once, you have placed the stop, you have limited your risk. In case, the market moves in the direction as anticipated, you make a nice profit. Placing a stop loss is very important in trading risk management. If the subsequent price movements do not confirm the inverted hammer, the stop loss comes into action and takes you out of the market at an acceptable loss. If you are an aggressive trader, you can place the stop loss close to the high of the inverted hammer.

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Understanding Stock Markets

Roger Williams — Fri, 26 Feb 2010 12:24:42 +0000

Timing

This Stock Market Guide explains the basics of Market Timing and other simple Market Analysis.

Let us first take common stocks. Consider both the earnings and the dividends as they relate to the price. Check the historical trading pattern of the shares concerned. This will give you a clue as to whether the stock has been a volatile performer and whether it has fluctuated with cyclical trends in the economy and the stock market.

One of the most important economic indicators is the bank prime rate — the rate of interest at which commercial banks lend money to their best customers. This interest rate is a good indicator of the general level of interest rates, since most other rates rise and fall with it.

You should seek to determine whether interest rates are likely to rise or fall in the near future. The financial press frequently discusses these matters. Often in the past, stock and bond prices have generally fallen when interest rates rose. As a result, if you expect a rise in interest rates, you should consider keeping your funds liquid. On the other hand, if you expect that interest rates will fall, you should consider investing in stocks and bonds as interest rates start to drop.

Price-earnings ratios

For stocks, the price-earnings ratio and the dividend yield are important indicators. The price-earnings ratio, or earnings multiple, as it is sometimes called, is the ratio of the price of a company’s stock to the annual earnings per share. The P/E is simple to calculate: Divide a company’s annual earnings per share into the prevailing price of one share of the stock. If ABC Corp. had profits of $2 per outstanding share in its latest full fiscal year and its shares are trading at $18, then ABC would have a P/E of 9. If the stock was selling at $50, its P/E would be 25.

What does a P/E mean and what does it indicate? When you buy a stock, you buy a piece of the company and its profit potential. Thus, the greater the potential for growth, the higher the potential value of its shares. A P/E of 10 indicates that the market is willing to pay the equivalent of 10 years’ profits for the stock. At 20 times earnings, the market has put a much more optimistic and thus more expensive value on the shares. A stock with a low P/E is often considered to be low growth, or mature, and a stock with a high multiple is considered to have high potential.

Price-earnings ratios are also a good guide to risk. A stock with a low P/E may not have much growth potential, but it is a lot less vulnerable to a sharp drop in price than a high flyer. Nothing drops as fast as a stock whose profit growth does not live up to the market’s optimistic expectations. As the sad truth finally dawns on investors, the stock price will drop back to a level justified by the more modest earnings.

Most financial and daily newspapers provide regular information on P/E and average dividend yields. Before you buy any security, you should always check its P/E in relation to its growth potential and compare it with other comparable stocks and to the broad market indexes.

Changes in price-earnings ratios

The price of any stock reflects two dynamic forces: its profit potential and the value the market puts on this potential.

Stock prices often begin to rise before profits begin to grow because the markets “expect” that profits will increase. Thus, investors are willing to pay a higher P/E multiple for the shares. On the other hand, rising profits are no guarantee that the stock price will continue to move up. If the rate of profit growth is not up to the market’s expectations, then the market will, in effect, place a lower P/E multiple on the issue and the price will drop. This is termed a multiple correction.

The phenomenon of the multiple correction has trapped many small investors in the stock market. The trap works something like this: The investor buys a high multiple stock on rumors that profits are likely to continue rising. But not knowing how to interpret the high multiple, the investor fails to bail out in time when growth rates are dampened by, say, anti-inflationary monetary policies.

The perfect situation is a sleeper stock with an unsuspected earnings potential and a low multiple. The odds are that its stock price will rise much faster than its profits once investors discover its new horizons. Their buying will push up the P/E multiple.

Now, what is a low multiple and what is considered a high multiple: Historically, the average P/E of stocks covered in the Standard & Poor’s Composite Index ranges from about 5 to 25 times average annual earnings. There is a wide variance within various industrial groups and within the other major groups. High-technology stocks often trade as much as 50 times their earnings per share or more, while bank stocks have traded at 4 to 15 times earnings.

The higher P/E for high-tech stocks indicates the speculative expectation that data processing demands, micro-circuitry development and the accelerating use of computer hardware and software will create rapid and substantial growth in the profits of these companies.

The low P/E for bank stocks reflects the market’s view that this industry’s growth is slowing and that investors expect no immediate improvement. However, it could also indicate an overlooked stock or perhaps a temporarily out-of-favor one.

Dividend yield

The dividend yield is very simple: Divide the annual dividend rate by the market price for the stock. A 50 cents dividend on a $10 stock works out to a 5 percent yield.

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