Share trading school? Good or not?

Hi,

Well, today I'm not here to answer that question. I'm looking into having a go at a trading school. I figure that it would be better to learn how to do things properly whilst also self educating, to speed up progress, and hopefully limit losses from silly mistakes.

The difficulty that I'm having at the moment is picking such a school. A lot of the schools seem to be hyped up, which doesn't make me want to buy a course from them. I mean, if studying such a course would guarantee to make you millions, I think that they'd be oversubscribed, don't you?

So, I need to find something that gives a good understanding in lots of different trading methods, rather than be focussed on one particular trading strategy or theory - I'm ideally looking at a good grounding, as I realise that experience is the best form of knowledge in the market. I want something that has some form of track record, and I'm looking for something that doesn't cost much, or at least if it does, I'm looking at being able to recoup those losses quite quickly.

If there are any such providers out there, please drop me a comment!

Increase your odds of winning - Money Management

Hello again,

Here's me learning about stock market investing, and thinking I'd really like to find that failsafe strategy for making bucket-loads of cash, with no real risk. Sounds familiar? Well, whilst that's not likely to happen, there are facets of investing that are not really to do with the market itself, that allow you to stack the odds in your favour. What are they? I'm not going to tell you that, otherwise you'll make money. Only kidding.

When you lose money, if you set a limit on your losses, a point at which you get out, and take the loss, like a man (if you're a man) So, let's say that you set a stop loss limit at 5% of your investment.

finally, another way of looking at the market instead, is to set up rules so that when you make say 50% on a share, you sell. Yes, you're foregoing the possibility that you might gain another 50%, but you have 50%, and can get out, and back into another trade? You'd probably use this method if you're not too familiar with technical analysis, otherwise I'd imagine that you'd look for patterns.

Now, there's the upside. It's nice to be able to protect earnings from becoming losses, but if the market is a rampant bull, then better to let that bull run free, and make tons more cash, right? Well, you can do that, but what happens when that stock goes from $10 to $50, and then back to $11? Yes, you've made a dollar, but in effect have lost $49 for each share. So, in comes the profit protection stop loss, which again, you could set to being 5% of the highest price, upon which you cut your losses and take the profit.

So, you get 100 shares at $10 a share, and they go down significantly, when they reach your 5% stop loss point, you sell, which means losing only $0.50 for the share, whereas somebody who doesn't have such a strategy will lose a lot more.

So, if you assumed that the share market at any point in time will go either up, or down, you'd have a 50/50 chance of picking the right direction. In that instance you would make 50% of the increase in prices for the 50% that you get in the right direction, and lose 5% in the 50% that you pick the wrong direction. If you look at those figures you can see that in such a 50/50 market you can't lose more than you make.

Good, isn't it?

More on options - Why they might actually be a good thing.

Hi,

Yet again, I'm writing about options. I truly believe that there are worth looking at further, since there seems to be good reasons to believe you could make good returns in this area.

Writing covered calls seems particularly promising. There are different approaches to this investing strategy.

- Writing In-the-money calls; This is where the share price is already above the strike price, so increases the chances of an option being exercised. It seems like a strange thing to do, but if you think about it, you buy stock at a price slightly higher than the strike price, then the premium, or fee is paid, which reduces what you effectively paid. The fact that the option is already in the money means that it's likely to be bought, and thus give you a chance to receive the maximum return for that option. You must note that this strategy reduces the potential on returns from the stock price moving, but clearly reduces the risk.

-Writing Out-of-the-money calls; This is where the share price is below the strike price. This strategy clearly gives potential for the different in price between when the stock was bought, and the strike price where it could be sold, to be maximised. The downside to this is predicting that that situation will occur.

-Writing On-the-money calls; This is where the share price is at (or very close to) the strike price. This sort of combines the two above strategies. You haven't got as great a potential as out-of-the-money calls for earning from stock price increase, but it's better than in-the-money calls. The risk for this strategy is less than out-of-the-money calls, but but slightly more than in-the-money calls. This could certainly be a good place to start with covered calls, to learn, then perhaps look into the other alternatives.

All things software has moved!

All things software has now moved to a different blog location.

Find it here

I hope you continue to enjoy the information that it provides.

Martin.

Ordinary options - risky or not?

I have recently been reading about a little of the basics of options trading.

Okay, so an option is basically one of the following:

- A contract between a buyer and a seller where the seller promises to sell stock at a particular date, for a particular price, known as the strike price. This is a call option.

- A contract between a buyer and a seller where the seller promises to buy the stock at a particular date, for a particular price, known as the strike price. This is a put option.

Okay, now we have that bit out of the way. So why bother? The real reason could be leverage. You put down some money for the option, at the time you buy, and then when the stock goes up for a call option to a price above the level of the strike price, you can buy stock at a discount. That sounds great doesn't it? Damned right it does. Here's the deal though, can you reliably predict that the price will move in a certain direction? That's pretty tough isn't it? But there is more! Can you also predict the minimum price that a stock will reach, reliably, and repeatably? Then there's the premium that you would pay, as the buyer, can you further predict that the stock price is going to move in the right direction, to a price that is the premium above your stock price, reliably and repeatably? And here lies the problem. I know I wouldn't be comfortable with attempting that great feat. Obviously you can see that the leverage, and big rewards are possible, and with that comes the much higher risk.

The put option is the same, but the market moves in the opposite direction, and you would instead be betting on a bearish market.

You need a strong stomach to participate in that market, for sure. Interesting to see how it all stacks up though, isn't it?

Even more on EMT, and how it applies to different strategies

Hello,

I've getting a handle on how EMT effects investing strategies now. At first I thought of it as a largely irrelevant model that really didn't make any difference to anything at all.

I noticed over time, and talking to people that they corrected me when I said something along the lines of "Investor emotions undervaluing stock prices", and said that really it's that the market has already factored in the issue or event that has taken place. I thought that that was only a bit like the cup is half full, or the cup is half empty. An identical viewpoint with a different explanation. So why would you care, if the intent is the same? It seems that you should, depending upon how you invest.

So, let me try to explain. Let's imagine that you're going to sell or buy options, all shorter term fluctuations in price cannot be gleaned from a company's financial records. Yes, some of the information will be in there, it's a good company with a great future, but there simply is not enough information to be sure where the market would be when the option expires, for example. So here we have an investment strategy that relies more on investor emotion, or EMT to try to predict where a stock will be. It's good to know the fundamentals of the company, because you may see that it's a really bad company to invest in traditional stocks with, for example. However, even that doesn't mean that you won't make money from it, it just means that you might be able to predict the direction in which the price will trend.

So, in that case, what's the alternative? Instead, it's probably better to work thinking in terms on EMT, and looking for price patterns and trends in the prices. Given the cyclic nature of stocks, it seems that you're statistically more likely to pick the correct price than looking at the fundamentals, and hoping.

Then, on the other side of the fence, there's a value investor, someone who looks for undervalued stock. That statement by itself indicates that this breed of investor is at odds with the whole EMT idea. You can't have an undervalued stock, since the price reflects the true value of the stock. Yes, I could rephrase the first statement to make it compatible with EMT, but it indicates where the investor is coming from. He's probably going to be aware of the current stock price, to see if it represents good, value, but probably isn't really interested in recent patterns and trends, since that concept is at odds with his approach.

This information may well be obvious to some readers, but I thought that I'd point it out, since the penny finally dropped, and I can now see how the land lies. I hope this helps readers understand a little more as I now feel that I do.

More on Efficient Market Theory (EMT)

Hi,

Having studied a little more about EMT, I'm now seeing the relevance of it a little more.

If you are a believer in EMT, then you would only ever need to use Technical analysis to gather your information. If on the other hand you do not subscribe to the views of EMT, then you are likely to be drawn away from the Technical analysis, and more toward Fundamentals, and economic factors.

The point of this comes to the fore if you are looking at trends, which according to EMT would lead to the fact that something is going to happen in the company, rather than the other way about. The market has already factored in the event. On that basis, then, the share price indicates the true value of the company at that point.

One thing that EMT appears to do is simplify the view of analysing the stock. Instead of having to look at the company financial records, and research that side of things, it is only necessary instead to consider the price, and how it moves.

I think that it can be seen how that works from the point of view of the current share price, but as yet, I still find it difficult to believe in a view that can give insight into future stock prices through a process of trends and statistics?

Foreign Exchange, Forex, FX - Good or not?

Hi,

I have read a lot of people talking about Forex, so I thought that I'd try to figure out what the deal was. Is it like the lottery, or does it offer some promise to make money? Is it risky? Does it cost a lot?

First things first, Forex trading allow you into a leveraged position. This isn't the same sort of leveraged position as you would get with ordinary shares - margin lending. With Forex, your position is closed out by the amount of money you put in being wiped out. In other words, you can only loose what you put in, that seems to be the case anyway. The upside to that is that you can leverage the market something like 100:1, in other words if you put in $1000, you have access to $100,000. This means that the money you put in is amplified in effect, to give you a greater effect, but this works in both the positive and negative direction.

Forex works through pips, for example, if a currency is trading for 3.1456 and goes up to 3.6556, then it has gone up 200 pips. The other thing that happens is that you but one currency by selling another, and making money from then selling that.

Is Forex like the lottery? Well, in the same way that it would be if you participated in shares without using Fundamental or Technical analysis. If instead you use patterns, trends and so on to make your calls for Forex, you can potentially make a lot of money. So here is another avenue of making money that relies largely upon technical analysis, so on that basis, I will have to learn how that all works, and report back to you all.

Is Forex risky? Well, it can be. If you try to make millions, and are not sensible with protecting your principle, then you can get into risky situations, however if you correctly analyse, and are sensible with trades, it seems plausible that a Forex trader could make some good money.

Finally, does it cost a lot? As previously mentioned, you get a leveraged position, so you don't have to put up a lot of money to make a lot of money, it seems.

Having only just started to read about this area, I would love to hear some feedback from the traders out there who have real experience with how the Forex market works, so that I can talk to you, and you can perhaps write a post of two to help our readers?

Hedge Funds - Good or not?

Hello,

Well, I have just had my parents staying with me, so I've had a lot of my time taken up doing touristy things, and so have no been as active as I might be with my learnings.

I just started reading about hedge funds. They seem an interested product, in that they make money regardless of market direction. The idea of a hedge fund is to reduce risk. We all want to reduce risk don't we? I like the idea of that, but still being able to make money.

The one major downside to a hedge fund is that historically they've had high fees. It seems that if we could get into a situation where we could have a hedge fund with all it's benefits, but lower the fees involved, we might have a winning formula?

So that got me thinking, could I find out about a hedge fund, and how it works, then emulate it for myself, and thus achieve that above.

It seems that hedge funds work on the basic idea that you have short and long stocks, and further to that, you also have option call and put too, and in so doing, you hedge the risk.

It seems then that a hedge fund could be good. I will read on further and detail my findings in future posts.

Secrets of Investing!

Hi,

Well, I'm wondering how many of my readers are interested in what I write, so I thought that I'd take the direct approach, and ask what you all would like to see.

Am I on the right track, or is there something you'd prefer to see, or me using a different style, or whatever?

Whilst this is a personal journey, it would also be nice for other people to be able to benefit from my learnings.

I look forward to hearing your comments,

Martin.