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I have been obsessively working on a new trading and investing strategy using vertical spread options. I have been back testing for about 5 months and live trading it for about 3 months. So far, the results are favorable.
If you thought I dropped off the planet, not so! I hope to have a profitable strategy with share with you soon.
Investors and traders know that their goal is to buy low and sell high, but how many times does just the opposite happen? If you have a stock that is in an ascending channel and it is at an all time high, do you buy? Usually not. You will normally want the stock to pull back down for a few days. If you buy at this point – when the price is lower, you can normally sell at a higher price. How do you know if your stock is in an ascending channel? Look at the free charts available on line. Please see my video that was posted on November 2, 2009 titled “VIDEO – Chart Your Stock or Trade.”
Chart Your Stock or Trade (VIDEO – Left click on the phrase to the left. May need to give your computer a minute to load.)
How to read a stock chart at a glance. Look at highs and lows. When did you buy? When did you sell? As you know, the point is to buy low and sell high. Is this what you did? Most people took a tremendous loss in September 2008. I hope you were not one of those folks, but if you were, I want to make sure that never happens to you again!
Looking at charts is essential before making investing decisions. It is like the old addage “a picture is worth a thousand words.” Learning to read a chart is easy and as soon as I get my software issues solved, I will show you a video on where to find free charts and how to read them. We will pick up with the previous post and move on from there.
Ever find yourself listening to your uncle telling you how a particular stock is definately going up? Ever hear your neighbor tell you that the same stock is definately going down? Frustrating, isn’t it? The beauty of knowing how to read a stock chart is that you are only looking at the facts, and not at the emotions of your uncle, neighbor or your own.
Look at the data you collected last week. In order to figure your cost basis, take the price of the stock at purchase times the number of shares. To that add the broker fees, planner fees, front loads if mutual fund. Take this total sum and divide it by the number of shares that you purchased. This is your cost basis per share.
Next week we will look at a stock chart and begin learning how to read a stock chart.
Jo
Look at just one of your current investments. This might be a stock or a mutual fund. If you are now in all cash, consider a stock or mutual fund that you were in. Look back into your records or call your broker to find out the date that you purchased the stock or fund. Find or ask what price you actually paid for this stock or fund, and how many shares you bought. What is the ticker (up to 4 letters) for the stock or fund? Then research or ask what expenses you paid to enter the trade. What did the broker charge? The planner? Was there a front load on the purchase of your mutual fund? What other fees did you pay to enter this stock or mutual fund?
Please don’t allow yourself to get overwhelmed. Only choose 1 stock or 1 fund – for now. You have no more than 1 week to gather this info. Be sure to visit my site next week for step 2. Have a good week!
Jo
This is an important part of my money management system. The most I will invest on one trade is 10% of my trading account. This rule helps diversify my holdings.
If you are reading my postings, please leave me a comment so I know who you are. Thanks!
Earlier today I received some terrific questions from a very sharp woman about trading and Stop Losses. I really appreciate the questions as it guides me to know what my readers want to know. So Nancy H – thank you very much.
In an earlier posting about using a 15% stop loss, I only covered what to do if you bought a stock or an option and it lost value. I do not want to lose more than 15%. I want to cut my loses short and let my winnner run. Once I am in a trade, I will look at my chart daily after the market closes when I will then adjust my stop upward – never downward.
If my trade is positive my 5%, I will move my 15% stop loss to a -10% of my original entry price. Let’s say that the next day, my trade was up by 15% from my entry price. In this case, I will move my stop loss to breakeven or at the price that I bought the stock/option. The next day, say my stock/option was up by 25%, so I would move my stop to +10% of the original entry price.
At this point, I know that I will keep some money in my pocket. If the stock moves up to +50%, my stop will be at +35% (50% – 15%). If the stock drops down below my 35% profit, my stop will automatically get me out of the trade. I don’t want to get greedy. I am pleased with a 35% profit. A little better than a 2% return on a typical savings account!
Following a stop loss rule such as the above, keeps me out of emotional trading. I don’t second guess the market. I don’t second guess the stock. I have no sleepless nights wondering if my stock will come back.
Make sense? Your thoughts and comments are appreciated.
I heard from a few friends about my last posting. The confusion seemed to come from thinking that women are emotional, therefore not suited to trading. Just to clarify, women are often more successful at trading and investing because they follow their rules as if they were following a recipe. When trading, women seem to access their left side, logical brain. Although women are normally associated with being emotional, when it comes to trading, women seem to make logical trading decisions.
Of course these are broad generalizations. The point I want to make is that women who think that they could not become good traders are just plainly wrong. I hate to see women, as well as men, limit their capabilities. Almost anyone can become a successful trader or investor. Just like everything else, it takes time and interest.
If I were Queen, I would have trading and investing education that began in grade school. Most people work hard to accumulate savings. I want people to learn how to make their savings work for them. A return of 2-5% a year is just too low.
I will be guiding those who are interested in learning to trade and don’t know where to start. Stay tuned. Your comments and questions are appreciated.
Just DON’T do it! It is emotional investing that keeps people up at night, that wastes time and energy lost in worry, that takes the joy/fun out of investing.
Examples of emotional investing may go something like this - “I know it can’t go any lower, so I will just hold on” (unless the value is 0, it can go lower), “this stock has made me a lot of money in the past. I know that it will come back up.” (past – is the operative word here), “my uncle said it was a good stock, so I just won’t look at it until it goes back up.” (kind of dark down there?)
When you find that you are trying to “convince” yourself one way or the other, it is probably emotional investing or trading. If you sound like you have just consulted with your crystal ball, this is emotional investing. Take the emotion out and put your actions into measurable steps such as a pre-determined stop loss percentage that you will NEVER move lower. Trust me on this.
Imagine the freedom from worry that you could have enjoyed if only you understood why emotional investing is so detrimental to your consistent investing success.