Stock Trading 103

DISCLAIMER: I am not a registered or licensed investment adviser and I am not affiliated with any finance company or bank. I have no interest in pushing any particular investment or product, other than its investment merit. Investing in stocks and all other forms of investment makes you an entrepreneur, which makes you a risk taker. All investments of money, and even time and energy spent working, are forms of gambling and thus carry risk. By reading further you agree to accept full responsibility of your own investments and stock purchases, including any and all forms of loss, that are in any way influenced by my writing. If you are not comfortable with this and do not agree, then stop reading now and do not read further. I deny all individuals who cannot accept the full responsibility of their own losses permission to read my writing. Past performance does not guarantee similar future results. Do your own due diligence, including if necessary, consulting with your licensed and registered financial or investment adviser.
      Now that you've had adequate practice with your updown.com account, I'm ready to fix those little difficulties that you might be having still and to prepare you for some pitfalls to beware of when you first put your money down on a business.  But, by now I'm sure you're tired of me droning on about how to make things safe and how to get in good practice, so here's the first trade strategy that I have to teach you.

Momentum

      Many advisers will tell you that the market contains a huge psychological factor.  It works like this: the value of a stock is determined by what most human beings who are trading it are valuing it at.  I emphasize that these are human beings because we, despite our vast skills at the top of the food chain, are horrible calculators.  Most of the time we're even too lazy to pick one up, especially when we're excited about the chance to make money if we act fast. 

      Computers make way better calculators, and for this reason, the more experienced and well established traders out there have computers at work that allow them to get the best trades before anyone else gets a chance to cut in. These individuals often get to become what's known as the "market maker" for a stock.  Think of the market maker as a bit of a bully in the trade system.  They take all of the tiny gains and make a good profit for themselves, but you're still able to make a good profit around them if you are patient and think more in the long term.  

      Despite the many computers on the market that are making trade decisions for their owners, their programs still need to accommodate human psychology, something which a meat-bag like you can predict way better than any pile of circuits.  The most common mistake that a stock investor ever makes is not following the universal advice that is offered to anyone who picks up The Hitchhiker's Guide To The Galaxy, "Don't Panic." 

      The majority of trades occur due to investors panicking, getting excited, transferring their investments to other investments they believe will make them more money, and simply taking money out for their retirement or normal living expenses. For this reason, there will always be a good spread of different types of investors trading a particular stock at any given time. The higher the volume, the higher the density of that spread, and therefore, the more likely you can be able to swoop in as someone trying to make money from someone else who is practically giving it away. 

     The psychology of the market shows an interesting phenomena which I refer to as "momentum."  Imagine two identical companies who have the exact same industry, business, liquidation value, product and success. Let's call them Company 12A and Company AB1.  They only differ in their cost per share.  They will therefore have a completely different trend behavior on the open market.

      Company 12A decided that they would like to divide all of their shares into $0.10 per share.  Company AB1 decided to divide all of their shares into a value of $100.00 per share.  The only difference between these companies is how you, the investor, are going to profit off of them.

      The psychology of the market perceives these stocks as having different "masses" so to speak.  When good news or bad news strikes about the industry or the competing companies, AB1 with it's greater mass is going to move a little, while 12A is going to take off!  For the investor, good news is great for AB1 and off the charts for 12A.  Bad news on the other hand is hardly a big deal for AB1, but has convinced lesser-willed investors to jump off of a building if they had invested in 12A. Don't forget that most common mistake that investors make.  Trust me, you wont be able to thank Douglas Adams enough for his advice.

      Every morning when I check my Zecco account, the first chart that Zecco shows me is GOOG.  I think, but I'm not sure, that this is due to Google being the highest value per share company on the public market.  If there's one higher than it or regularly competing with it, then please send the ticker my way, and I'll study and post some info about it.  Currently, as I write this, GOOG is valued at $534.44 per share. 

      Eventually when I decided to try and go long with it I noticed a pattern. When GOOG starts to rise on one day, it continues to rise the next day, and more often enough the next day after that, until it reaches past a significant height for a Zecco trader like myself, who could only afford to invest in one share, to make a profit.  Then it would eventually reach a day where it started to move downward, almost with an equal slope that had set it in motion upwards to begin with, and I could expect the negative version of that same pattern to follow, much like how in physics, a body that is set in motion stays in motion until an equal and opposite force puts it back to it's original state of rest.

      The reality is that, with or without good news, most human beings who are trading GOOG just check if it was higher or lower than where it was at at the start of the day.  There are also many individuals who will look at a day chart and imagine a straight line through the middle of the stock's average throughout the day and buy or sell based on that.  This follows the same rule of thought that many good investors will preach, "Buy on the rumor, sell on the fact."

      The truth is that it takes even less than a rumor to effect a stock value like this. One individual could decide to buy a lot of shares one day because they love the company.  Let's say that individual put in a market order for 5% of the previous day's volume for that stock.  Then, it just so happens that the size of this order as a market order sets off a chain reaction of  many limit orders, producing a nice bump near the beginning of the day's trade value.  Other investors look at this and reason that there might be something that one guy knows about that they don't, so they start to invest in it more and for at least the next 3 days, the stock goes up.

      In GOOG, this sets the value into an upwards motion for anywhere from a week to a month before the negative version of this occurs and sends the stock value downward again. When you see this happening, you along with every other investor who recognizes the pattern, will sell and wait for the next trend upwards to buy in again.

      Following this pattern made me anywhere between $6 to $40 per sell point, and by not even following it as religiously as I should have, it made me an extra $60 per month on average. I came to learn that professional investors do this all the time, where they will consider a general time frame that they are looking at (every second, daily, monthly, quarterly, or annually), and determine what they should expect by drawing a straight line through the average of the stock's value over that period.  It thus follows reasonably, that until one is shown evidence to the contrary, the stock should continue to follow that trend line and you can make your investments based on those expectations.

      In this case I am suggesting that you look at your investment in GOOG daily.  GOOG is great, in that despite it's huge cost per share, it's volume consistently shows millions of shares being traded every day.  When you google GOOG, the chart that you see represents hundreds of millions of dollars being exchanged every day over one company, right at your fingertips.  Google is also a company that you can trust will stay around for a long time (hmm... just saying that makes me want to make a planet Google in my sci-fi novel I'm writing).

      It's a household premium-product name that got it's fame and fortune by employing the most brilliant minds and cornering the market by having the most honest strategies and practices available.  Google got to where it is by studying and practicing game theory, which teaches the strategy that the best way to gain the most and stay on top of a complex game is to do what's best for yourself AND everybody else.  When the internet was still growing from it's infancy, I watched as Google made valuable information FREE to everyone when other competing companies were trying to charge massive amounts of money for the same thing.  I'd only be happier if Google could take over the banking industry next (those bastards).

      Listen to me talk about Google. This is the psychology of business!  Be the first person in the market to offer fairness and people will worship you and want to outright give you more power and wealth for it. The audacity and evil of Murdoch and company at Newscorp simply isn't competing with a company of equal audacity in terms of doing the right thing!  That's what they really owe to their success, no hard competition for having a backbone.... But again, that will be for another blog.

 Some Precautions And Pitfalls To Beware Of: 

          1 - This pattern is not perfect.  The odds will be in your favor, but from time to time you will lose a little value and thus lose money if you sell at a loss because you didn't think things would get better or because you need your money back sooner rather than later.  Because the odds are in your favor, over time you will see more gains than losses and will thus be able to profit the more you employ this method.

          2 - Not all high value per share stocks show this pattern.  Some companies are involved in more risky or more controversial business practices even if they range from $100-$300 per share. They could potentially have a volatility that ranges through those values every few days. It's important to look at the long term history of a stock and test this theory by looking at it's past values.  Practice with your updown.com account a few times just to be sure.

          3 - Beware when your stock is in it's historic peaks.  For example, the highest value that GOOG has ever been traded at is around $715 per share.  More common high peaks have been around $630 per share. If we have some luck and find ourselves investing in GOOG while it nears $600, we must keep a tighter watch on it as it is likely to change direction towards it's average value any day.  Unless you find some big news to justify the trend that suggests a major long term improvement in the company (like the opening of the first Bank Of Google), you should know that you are taking bigger risks than you were taking when GOOG was below it's average. Such times are often better spent investing in other stocks that happen to be below their average while GOOG is far above it's own.

         4 - Limit Orders are your friends. Try working with the limit order on your updown.com account so that you know how it works.  If you're stubborn like I am, you can use limit orders to make sure that you either get what you want for a share or wait longer if that trade opportunity doesn't come around.  You can also use it to your advantage if you don't have time to check the market at all hours of the day.  Just put in your limit order at the price you want and wait for it to go through when the market crosses that threshold. This works for buying and selling shares. Market orders will make sure that you get the trade that you want but at the current market value, which can change every microsecond that it takes for your trade to go through.

        5 – Aim for 10% in gains as a minimum. If you've surpassed 10% in gains and start to feel worried about a stock, you should sell. This is a reasonable and healthy rate at which you should expect to profit from the stock market annually, since when you place your money in a savings account or a mutual fund, CD or bond through a bank, you are only going to be promised 5% at best. 10% in gains is also a very reasonable amount to expect in one month, let alone a year, from trading stocks.
      Realize too that if you are successful at that, your money will more than double by the end of the year. Do you remember hearing once about a story involving someone who asked a king for a reward of one piece of gold to be placed on one square of a chess board and for each space to sequentially double the amount of the space prior to it? There are 64 spaces on a chess board. What age were you planning to retire?

        6 – In case you happen to be a very well off person who is learning about the stock market for the first time through my advice, be warned that there is a limit to how much you can buy or sell of a given stock without hurting your investment. If a billionaire wanted to buy as much as he could one day of GOOG, he would see the value of GOOG rise incredibly high as he bought it, and then subsequently would see it make it's way back to where it was before his buy. This means huge losses to our investor. The same thing happens in the other direction when you try to sell too much of a stock all at once.

      Here are some helpful math tools that I made for myself early on in learning how to trade. You can plug them into a calculator like the one I recommended on my squidoo.com lens. 

       y = x (b - a) - 2c , where 'y' is overall profit or loss, 'x' is the number of shares, 'a' is the initial value per share, 'b' is the final value per share, and 'c' is your commission cost per trade.

       In order to make a profit:  b > a( 1 + 2c/I ), where 'I' is the value of your initial investment, not including the commission cost (if you bought 5 shares of a $5 per share stock, then I = $25). I found this through setting y = 0 and solving for b:
0 = I/a(b-a)-2c = Ib/a-I-2c => Ib/a =I+2c => b = (a/I)(I+2c) => b = a(1+2c/I)

     Can you tell that I love math?  So, now you are ready, either to employ the momentum strategy to your real money brokerage account or to practice and test it more on your updown.com account.  I suggest the latter first.  Follow me on my lens at Squidoo.com to see my predictions and their successes and failures in trading GOOG shares.  Happy Trading!

Stock Trading 102

DISCLAIMER: I am not a registered or licensed investment adviser and I am not affiliated with any finance company or bank. I have no interest in pushing any particular investment or product, other than its investment merit. Investing in stocks and all other forms of investment makes you an entrepreneur, which makes you a risk taker. All investments of money, and even time and energy spent working, are forms of gambling and thus carry risk. By reading further you agree to accept full responsibility of your own investments and stock purchases, including any and all forms of loss, that are in any way influenced by my writing. If you are not comfortable with this and do not agree, then stop reading now and do not read further. I deny all individuals who cannot accept the full responsibility of their own losses permission to read my writing. Past performance does not guarantee similar future results. Do your own due diligence, including if necessary, consulting with your licensed and registered financial or investment adviser.


      How was your first week trading? Was it good? Horrible? Stayed about the same? Believe me, many people will reach this lesson and have a wide range of responses for their first time. If you did great, you're probably well on your way to becoming an excellent investor. There's a set of human instincts which are not shared by all that help with trades of all sorts. If that sounds like you then you might not need my help much more beyond this lesson. Research and curiosity are what originally led me to the knowledge that I am sharing with you and with the internet at your fingertips, you have the ability to quickly surpass your teacher whenever you like.


      If your first trade experience led you in the other direction, still skeptical of what it has to offer you, fear not.  The strategies and techniques that I will teach you are simple and you still have a good chance of learning how to make money grow.  Now, on to the next lesson.


      In business and trade there is a participant often referred to as "The Middle Man." It's this type of figure that gets the most profit for the least amount of work in the economy. A middle man is an unnecessary go-between or intermediary in a trade or business operation. In most cases, the middle man is a person who buys a product or service from a seller at a very cheap price and sells the product or service to a buyer at a significantly higher value. The work of a middle man usually involves simply finding the buyer and the seller and negotiating the trade for both. For this reason the money made by a middle man is sometimes referred to as a "finder's fee."


      When making money, saving money, or improving the efficiency of a business, you either want to be a middle man, or to cut out the middle men in your trade and business operations. The reason for this is plain simple; the middle man is getting the most money for the least amount of work!


      This means that when a business decides to cut their work force in half for the hope of catching themselves if the business fails or needs to be sold, they are being ridiculously stupid IMHO because what they should be doing is cutting out middle men. NOT hard working loyal employees! 


      But I digress. In this immediate situation of our interaction I am a middle man in a few ways. As someone who puts affiliate links on a web page and profits from clicks and purchases, I am the middle man who gets paid for leading people to buy a product. While this is potentially arguable since I do produce a bit of necessary work by making this page interesting enough to read, I'm still being paid for the near zero effort required on my part to connect the buyer to the seller. Even the work that I do on this page will continue to work for me indefinitely, so long as it's well written and I keep it updated. Being well on my way towards retiring from 3-7 days worth of work sounds good to me, how about you?


      I'm also the middle man as it applies to your education in the stock market. You could have just as soon gone to the library or a book store to read up on stock trading for free and with no other individuals to profit from it, rather than go to my blog or any other online resource or even taking courses at your local school on the subject. Maybe I appeal to your learning style or the fact that you don't have to leave home is the best opportunity for your situation. Regardless, the point is that I am expendable as it applies to your profits in stock trading.


      I should make a minor change to my earlier advice concerning middle men. One type of middle man that you don't usually want to cut out is one that costs you nothing and doesn't share in any of your profits or savings in the deal. That's free labor baby! Yes, as your free teacher in the Dark Arts Of Stock Trading I serve you completely and loyally for F-R-E-E...... my Master [bows low to the ground...then goes on a 20 minute coffee break and forgets to make you any hehehe].


      CEOs and business owners are the biggest middle men of all. They stand as the intermediary between the worker and the profits made by the worker's labor. Unless you work for one of the few but highly effective employee owned companies out there and you are not a CEO or business owner, you are most definitely a victim of this scam. Running a business does involve a lot of hard work, but when a business is afloat, eventually anyone who runs a business (if they so choose) can just sit back and do next to nothing while money flows into their coffers.


      There's also plenty that I have to say about religious middle men, but I'll save that for another blog. If you are interested, contact me directly and I'll be happy to help guide you right to the perfect way to give up your money out of "faith" and make the world a better place for it [wink].


      So, when I say that CEOs and business owners are middle men, what should that make you think? Either get rid of them or become them. Trust me, for the time being, the latter is much easier to achieve.


      In stock trading, protected and enforced by law, the stock broker is your primary middle man. Most investors I've come across have a broker who treats them as a personal friend and does all of their trading for them. This often incurs high risks and expensive maintenance fees which vastly contribute to the bum reputation that stock trading has these days. The broker of this type gets what they need to get by and maintain their middle to high class income by charging those maintenance fees. Whether they gain or lose your money, they mostly have nothing to lose by trading it. Plus, some of them will charge you for the commission costs of each trade that they make with your money just so that no work for them goes unpaid. So they sit on your nest egg, play with your money, and win no matter what happens to it.


      While it's true that they have more money to gain by making more money for you (due to a percentage that they take for the gains that they make you) you are still putting your trust into their gambling habits, not their expertise. Look at it this way, if someone said that you could place a free bet on a horse in a race, thus making it clear that you have nothing to lose, would you bet on the horse that's a good bet but with little payout or would you bet on the horse with the worst odds of winning but the best payout?  Now imagine if you were given 50 chances to do that every day and would never lose a penny if a horse you bet on doesn't win.  


      While I wont yet get into detail as to why, this is exactly the kind of gambling in the banking system that ultimately put us into the recession that we are now in. Now those are some middle men who 100% deserve to be cut (no pun or violence intended).


      It's also true that such brokers don't maintain their clients if all they do is lose their client's money (unless they have a great advertising campaign like etrade or scottrade).  That being said, this still makes excuses like the plummet of the DOW or NASDAQ taste like sweet candy to the bad ones out there.  You are always going to be better off using your own trade choices and paying no maintenance fees or hidden fees for the simple right to trade stocks. Below is a referral link to the online brokerage that I use for just that purpose.


http://Zecco.popularmedia.net/click/share/e1e400a2c2cd1cec88a4d14609ba76d4


      I will not lie to you, I am a free middle man to you if you sign up with them. If you sign up with Zecco through this link I will be getting $75 if you deposit $500 by the end of your first 60 days after signing up.


      Honestly, unless it rightfully gains me great profits solely derived from my merits as an honest writer, and from this brokerage's merits as an honest business, I don't care what you do. You can sign up, drop in $300, make great gains from my advice and make not so much as a cent for me, and I'll still be happy for you and would love to hear back from you!  Other than being a loyal member, I am in no way affiliated with this brokerage.  I have been trading exclusively with Zecco since I first started trading because I did my research and found that Zecco is the best deal out there to trade stocks.  Zecco is a middle man within a system that requires you to have a middle man by law.  Thus it's only wisest to either be a stock broker (which will take time, school, and money) or get the cheapest middle man available. That's what Zecco is.


      No, your next assignment is not to start up a Zecco account. You should do that when you are ready to make a real trade.  Bookmark my link or just keep it in mind for the future if you are interested.  First, you should take a good hard look at your updown.com portfolio.  If you are in the green and understand exactly why, then you are ready to move forward and make a real trade.  But for the rest of you, which should be most of you, you should go back to the drawing board and keep on looking at your progress with trading on updown.com. 


      If there are some terms or values that are confusing you, you can feel free to post questions to me below., However, another great resource that I've used for learning about the stock market is investopedia.com. They are an excellent resource for learning the exact definitions and more easily explained definitions of trade and business terminology.  They also offer great tutorials, some of which might just happen to be better than mine for all I know.  Since I get absolutely nothing for referring you to Investopedia I am free to say that you should not trust the ads on that site.  Most of those ads are just human parasites who are aiming to bleed you dry. That being said, you might giggle if you see Zecco being advertised there or on updown.com.  Yes, it looks like I'm contradicting myself, but I assure you that I am not.  Zecco is the exception and not the rule on those sites.


     If you are struggling on updown.com or just want to be more certain of your gains before investing real money, keep working at it for another week or so.  Try researching a few terms that are confusing you.  Try trading shares of stock on updown.com that are mentioned in my predictions and stock picks on my squidoo lens or on this blog.  Sometimes you might be trading too many stocks that are risky or it might take more than a week for your stocks to be at height that makes for a lucrative enough sell point. Becoming obsessed enough to check the charts every few minutes is a good thing in this business.


      When you're ready, keep an eye out for my next post Stock Trading 103 for some guidelines and beginning trade strategies.  Keep up the good work.  Happy Trading!

Stock Trading 101

DISCLAIMER: I am not a registered or licensed investment adviser and I am not affiliated with any finance company or bank. I have no interest in pushing any particular investment or product, other than its investment merit. Investing in stocks and all other forms of investment makes you an entrepreneur, which makes you a risk taker. All investments of money, and even time and energy spent working, are forms of gambling and thus carry risk. By reading further you agree to accept full responsibility of your own investments and stock purchases, including any and all forms of loss, that are in any way influenced by my writing. If you are not comfortable with this and do not agree, then stop reading now and do not read further. I deny all individuals who cannot accept the full responsibility of their own losses permission to read my writing. Past performance does not guarantee similar future results. Do your own due diligence, including if necessary, consulting with your licensed and registered financial or investment adviser.


      Stock shares are pieces of paper which represent portions of ownership of a company to the owner of the shares of stock. Often when ownership of a company becomes public, the total ownership of the company is divided into relatively small shares which are distributed among the original owners. More shares are then sold on the public market to build funds for the company so that it can build, develop, and expand. Then, until the company undergoes liquidation, those shares are continuously bought and sold on the open market by people who wish to cash in or invest at any time based on the perceived value and future value of the company as a whole.

      This is where I tell you what in my honest opinion separates the noble from the peasant class in today's society. The defining factor of a present day American Noble is ownership of property. Not the everyday run of the mill stuff you buy and watch deteriorate indefinitely in value from the day you bought it (ex: toys, cars, clothes, entertainment, etc) but company and land property.

      If you are the owner of a home, you are the land-"lord" retaining almost the same Lord Of The Manor rights of old. In my honest opinion, home rental is the most clear case of indentured servitude in this country. The solution I would suggest would be to put caps and limits on what can be charged for rent or better yet create a mandatory rent to own program, but that's a different subject to save for a rant later. The great thing about stocks is that you don't need credit to own them or even an unreasonable amount of money to invest to start. Yet when you own a share of stock, you own a part of that company that it represents. You have a greater right to observe what that company is doing and they have a legal obligation to cooperate with your best interests.

      Though it's not the perfect investment, consider if you invested in 9 shares of Verizon stock (VZ) for $25 each. A friend of yours simultaneously signs up for a 2 year contract with Verizon, buys a $100 phone that will only work with Verizon, and pays $125 per month. Your friend then mentions a real problem that he has with the company and decides to complain. To help out a little you decide to call the investor relations of Verizon to make the same complaint about how Verizon is doing business. Who's voice do you think will have a greater impact? The investor's. What's more, if you reallly believe that things can be done better than that at Verizon, you can go to meetings and presentations exlusively meant for investors and you can help vote for where the company should lead its practices.

    Your money is also more valuable than your friend's money, because it's growing in value. As your friend will never see a dime of his back, you can cash yours out probably a month or so or later for about $35 per share and make an extra $80 after commission on top of your initial investment. When you own in this economy, you float by while everyone else is struggling to earn every penny. The more you own, the easier life gets 10 fold.

    Ok, so with that said, here's step 1 of getting to know how you can make money on the stock market. Go to updown.com, where you can play with fake money on the real stock market. I am in no way benefiting or affiliated with updown.com, so I can say that you should NOT believe any offer or ad on their site. Those ads are often bad sites that want to waste your time and take your money. This is a valuable tool for your education on stock trading, but they are not always very picky about the honesty of their affiliates.

    Your first assignment will be to pick an industry or company that you believe in. Think of the stuff you like the most and find some leading companies that make those items. Each publicly traded stock has a ticker, which is a small acronym that represents them. VZ for example is Verizon's ticker. A great way that I found to locate the ticker of a company is by finding their page on Wikipedia, and looking for it on the upper right side of their page that lists their details.

    Once you've found a company, go to Google or Yahoo, put in a search of the ticker and click on the finance option for the type of search. Take a look at the graphs of the history of its value per share. While being weary of splits (times where shares are divided or combined into smaller or larger values) consider the idea of how you would ideally have liked to buy the stock while it's low and sell the stock while it's high. Consider when it's gone down, how fast it's dropped, and when it's risen, consider how quickly or slowly it's risen.

    Now go to your new updown.com account and buy a few pretend shares of that company with your fake money, even if it looks like it's at it's peak. Just get an idea of what trading is like. Then I suggest that you should do this with at least 5 other companies that you also believe in and over a week try to buy more shares when they are low and sell when they are high on updown.com. Take a good note of the regulations and limitations that updown.com gives you because in reality there's nothing to stop you from making the mistakes that updown.com prevents. You should never invest everything that you own into one stock. Always Always diversify.

    Now have fun with it for a week or so and come back for your next lesson.