| |
| |
|
|
Stocks and Mutual Funds |
|
Stock Trading Diversification
This is the continuing story of our two imaginary traders, Peter and Paul. Peter is a professional trader, Paul is not. Peter has a tested, proven, written trading plan that he follows each time he enters a trade, Paul does not. Peter and Paul have had vastly different Stock trading experiences - Peter has just made another substantial profit - this time from the Bear market, Paul has lost heavily. A chance meeting with Peter's group of friends one day at lunch launches Paul on a learning curve that will see him become a good trader, but not without some hard lessons along the way. In discussing the different attitudes of our two hypothetical traders, Peter and Paul, I have tried to share with you the thought processes that make a successful trader. If you read any of the marketing material from the Financial Planning community or the Mutual Fund promoters, they all stress the principle of diversification. They say it enhances returns while minimizing risk - Peter believes that ,as Frank Watkins says in his book, Exploding the Myths, "Diversification is another word for risk minimization, but it has very little to do with making profits." As one of the World's greatest Investors, Warren Buffet, has said on many occasions - diversification is simply an antidote for ignorance! Diversification for diversification's sake simply means that you will have your money in a lot of Stocks or markets that aren't performing to their fullest potential - some will be rising, some will be falling, some will be going nowhere. Hardly the best way to run your trading Business is it? Peter's view of diversification is different to that of the herd - use technical analysis to find several quality Stocks that are rising, then buy all of them in equal dollar amounts to reduce the risk of one Company crashing and taking all of his capital with it. When these quality Stocks stop going up, sell, take a profit and move on. Why hold Stocks in a Portfolio that are not rising, or worse, falling in value, simply because you want to have some diversification? If you look at the typical Brokers Portfolio recommendations, they will include Stocks that are in various stages of trends, both up and down. When you ask them why they would recommend something that is falling in price, they tell you, "Well you have to have some diversification. And based on fundamentals, it's valued at much more than the Market is quoting it. Don't put all your eggs in the one basket, spread your risk through different sectors, etc. etc." Peter merely takes the prudent step of diversifying across several quality Stocks that are rising in price. Simple. Below are some charts of Stocks that Peter found met his criteria - of course, this is in no way a recommendation to go out and buy any of these - they are simply examples of Stocks that met Peter's buy criteria at the time of entry. They might not fit the buy criteria now, and some have given Peter sell signals, but they will give you an idea of what to look for when a Broker or well meaning friend gives you that 'hot tip' and says you should buy as many of 'such and such stock' as you can get your hands on straight away. (Charts available at www.StockTradingReview.com) Study the charts above and you will notice that all of these Stocks were trending strongly with small reactions. The moving averages crossed and gave a buy signal - some gave a sell signal early and then another buy signal, and then they never looked back. Of course, not every Stock Peter bought rallied like these did. If they didn't, they were sold and the proceeds were used to buy something that had more potential. These are the types of trends Peter looks for and diversifies into. He doesn't buy, hold and hope for profits, based on some imagined intrinsic value that his Broker says the market hasn't identified yet... Remember though, if things don't go according to plan, Peter gets out quickly and looks for the next trade - but while the price is going his way, he simply looks for opportunities to compound his position. "Remember this simple rule", Peter tells Paul with monotonous regularity - "With any Stock you are considering buying, don't buy it or hold onto it if it isn't going up!!" Pretty simple advice, really... To Your Trading Success, Tony Spann and the Team Stock Trading Review is dedicated to helping you succeed as a trader by sharing with you simple and easy to follow tips and techniques. Discover more insider secrets and the exact proven strategies to trade stocks profitably: http://www.stocktradingreview.com Copyright(C)2005 Stock Trading Review
MORE RESOURCES:
Stocks-Mutual-Funds - Google News |
|
|
|
RELATED ARTICLES
Different Ways of Buying Stocks Let's say you are interested in this one company. You read its annual report, like what you see and your calculation indicates that the stock is trading way below its fair value. What the SEC Really Thinks About Mutual Funds! Let's go into the details of why non-indexed mutual funds are such a bad deal. When Arthur Levitt became the head of the Security Exchange Commission in 1993 he had to sell off all of his individual stocks so that people would not claim that he was doing any dirty inside dealing. Whos Calling? Its dinnertime and the phone rings. It's Joe Noname with SuchNSuch Investment Company and has he got a deal for you. It Cant Be Done Wouldn't it be nice if you were only in the stock market when it was going up and have everything transferred to cash while it is going down? It is called 'market timing' and your broker or financial planner will tell you "it can't be done". What that person just told you is he doesn't know how to do it. Hot Stock Investing ... How to Pick Hot Stocks with Momentum Stock Trading Profitable day traders recognize that momentum trading is among the fastest & most effective ways to harvest BIG piles of cash in the stock market.The problem is that if you don't know what stocks to look for and how to approach them while limiting your risk, you won't even get close to making some profits. Why the Majority Fail at Stock Investing The gleam and bright lights of Wall Street lure in many new investors each year, only to send them home crying to their friends and family. Why do so many people fail when it comes to the stock market? The reason is very simple: Hard work! Most people are looking for a quick buck or a fast path to riches. Alfred E. Newman What! Me worry?Many of you remember the cover of MAD magazine. It was one of my favorites. Trading Stocks -Never Forget About A Past Trade We all know that emotions control every decision that an investor makes in any type of money related vehicle. Whether is be the stock market, real estate, art work or antiques, emotions ultimately set the final price on both sides of the transaction. Hedge Funds: the Good, the Bad, and the Ugly Alfred Winslow Jones started hedge funds in 1949. He was a pioneer of non-traditional investment strategies. Look Out The Window Quick, look out the window. It's raining. Why Buy and Hold? Since I can remember, and that's a long time ago, the Wall Street brokerage companies, mavens and mutual fund managers have been exhorting the mantra of Buy and Hold for all your investments. There have been erudite studies published that this is the only way to go. KISS Formula There are formulas for just about everything, but it has been shown that the simpler the formula or method of doing a particular task the better it works. It has evolved down to KISS - Keep It Simple Stupid. Financial Crime Congress recently passed another new law that is supposed to outlaw financial crime. Corporate officers will be sent to jail for "cooking the books" as it is called. Duck Duck! No I don't mean a quack, quack. I meant get down, look out for a huge blob of brown stuff is heading your way. Investing in Dividend Paying Stocks I was recently interviewed for a press release through a financial question and answer format. One of the questions asked of me in the interview was:Where do you think the stock market is headed over the next five years?My Answer!Charles M. Where Is The Beef? Where is the beef? Or maybe it should be where is the bull? Market, that is? The chief investment strategists and analysts of the major brokerage houses have been promising us a new bull market.So far the bull hasn't come in from the distant pasture. Race Horses and Mutual Funds For years investors have been taught to look into the composition of a mutual funds. In other words the "experts" want you to take the time to analyze the stocks within the mutual fund portfolio, categorize them by industry group and try to understand the objective of the fund manager. Discover the Retirement Breakthrough the Federal Government Created for You - The Roth IRA! If you don't know what a Roth IRA is then stop everything, print this article and read it carefully as this will certainly be the most valuable information you read this year. This next retirement account is to your net worth what light bulb was to electricity. Selling Strategies - Setting a Stop Loss Sometimes the best way of lowering exposure to risk is not to invest at all! However, when we make the decision to jump into the muddy waters of the stock market, its always a good idea to have a life jacket ready, just in case.We all have stories of that "must have" "can't lose" stock that looking back, we didn't really need to buy, and it definitely lost. War Market There is no question that the stock market is being affected by war jitters. When it looks like peace we have a strong rally.
|
||||||||||||||