Stocks are not constant. They increase, decrease and disappear. In fact, investing in the stock market is a risky endeavor not to be taken lightly. You name it– you may start out happy with the high standing of your stocks and after an hour or two turn sad because your stocks have somehow lowered down below their original value. They may actually plunge, slamming down to the lowest values fathomable. You may emerge feeling depressed that you’ve lost an investment that you’ve worked hard for and had much hope in. For this reason, investing in stocks can be both exhilarating and disconcerting.

To avoid such unsightly scenario, it would be best to do some research before investing all your hard earned savings on stocks. Stock investment is not for the faint hearted; it is for those smart individuals who knew how to manipulate the stock market for their advantage. These people know the importance of stock research and have spent a great deal of effort, time and even money just to come up with the best tactics that can help them in their quest for enormous stock returns.

The internet is a good venue for conducting research on stocks since you are able to access various online sources pertaining to stocks. The best thing about these sources is the fact that they are free. You might ask yourself why conducting stock research is critical. The answer is clear.

A stock research is conducted in order to know what stocks are favorable for investment and which stocks are to be avoided. It is also conducted to know the fluctuations in the stock market, this way businesses as well as private individuals are guided when to sell or when to buy additional stocks.

In addition, there are some free stock research providers online that offer their expertise by helping people reclaim their money from old bonds and stock certificates. Most of their clients are comprised of banks, estate and stock brokers, lawyers, and private individuals. Their services also include research on a company’s history and old stock shares dating centuries back.

There are also other free stock research providers that offer consultation services and at the same time assist members in choosing the stocks to invest on. These providers are stock investors themselves, what they actually do is to make the initial investment in a certain stock which they assess is profitable and then they let their members to also invest in the same stocks. If they gain their members will also gain. They religiously conduct stock researches in order to update their members when to sell, or when to buy additional stocks.

They also keep track of whatever changes in the stock market since they know that even a slight fluctuation in the stocks have significant effect on their investments as well as on the investments of their members—and the best thing about all of these services is that they are for free. If it’s your first time to invest in stocks it would be best to join such free stock research provider online. Keep in mind, time is critical since they accept only a limited amount of members.

Technorati Tags: stock market, stock research

Investing in penny stocks provides traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading capital quickly. These 5 tips will help you lower the risk of one of the riskiest investment vehicles.

1. Penny Stocks are a penny for a reason.
While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker’s money for an IPO. This doesn’t make them a bad investment, but it should make you be realistic about the kind of company that you are investing in.

2. Trading Volumes
Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn’t trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding “dead money”, where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price.

3. Does the company know how to make a profit?
While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company?

If your company knows how to make a profit, the company can use that money to grow their business, which increases shareholder value. You have to do some research to find these companies, but when you do, you lower the risk of a loss of your capital, and increase the odds of a much higher return.

4. Have an entry and exit plan – and stick to it.
Penny stocks are volitile. They will quickly move up, and move down just as quickly. Remember, if you buy a stock at $0.10 and sell it at $0.12, that represents a 20% return on your investment. A 2 cent decline leaves you with a 20% loss. Many stocks trade in this range on a daily basis. If your investment capital is $10 000, a 20% loss is a $2000 loss. Do this 5 times and you’re out of money. Keep your stops close. If you get stopped out, move on to the next opportunity. The market is telling you something, and whether you want to admit it or not, its usually best to listen.

If your plan was to sell at $0.12 and it jumps to $0.13, either take the 30% gain, or better still, place your stop at $0.12. Lock in your profits while not capping the upside potential.

5. How did you find out about the stock?
Most people find out about penny stocks through a mailing list. There are many excellent penny stock newsletters, however, there are just as many who are pumping and dumping. They, along with insiders, will load up on shares, then begin to pump the company to unsuspecting newsletter subscribers. These subscribers buy while insiders are selling. Guess who wins here.

Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares (an agreement whereby the shares cannot be sold for a predetermined period of time), others in cash.

How to spot the good companies from the bad? Simply subscribe, and track the investments. Was there a legitimate opportunity to make money? Do they have a track record of providing subscribers with great opportunities?  You’ll start to notice quickly if you have subscribed to a good newsletter or not.

One other tip I would offer to you is not to invest more than 20% of your overall portfolio in penny stocks. You are investing to make money and preserve capital to fight another battle. If you put too much of your capital at risk, you increase the odds of losing your capital. If that 20% grows, you’ll have more than enough money to make a healthy rate of return. Penny stocks are risky to begin with, why put your money more at risk?

Technorati Tags: investing, penny stocks, stock market

In trading the stock market, no-one has a crystal ball. The price of stocks can go down, as well as up. What is needed is an exit strategy that will enable you to survive the bad stocks, and make a good profit on the good stocks.  
The method that I have found to work the best is a trailing stop loss. For those who don’t know what a stop loss is, I shall explain briefly. A stop loss is an order for your stock broker to sell your shares if the price dips to the level that you have specified.

There are two ways of doing this. The simplest method is to decide on how much you are willing to lose as a percentage of your investment. A good rule is not to go less than 10%. Work out the price of the stock at this level and set that as your stop loss. As the price of the stock increases, keep moving the level of the stop up to keep the percentage gap the same. Some brokers offer a trailing stop loss service, where you tell them what percentage to set the loss at and they do it for you.

The second method is slightly more complicated, and comes from “Nicolas Darvas” in his book “How I made $2,000,000 in the Stock Market”. The markets tend to flow in stages. a stock on the rise will reach a peak, and then dip back down. It may do this several times at each stage. The idea is to follow the chart of the stock and see where the dips are the lowest, and set the stop loss just below them. A second part which Nicolas propounds is that when the stock breaks out of the sideways trend, to buy more of the stock, and when the stock starts going sideways again to move the stop loss up again to just below the lowest part of the dip.

Using the stop loss as an exit strategy, only works if you stick to it, and not lower it, thinking that the price will go up again in a few days. In a few cases you will be right, but what usually happens is the price keeps moving against you, and you loose even more money. As a secondary to this, the money still tied up in the first stock that is falling can’t be used on another trade.

Finally, a word of warning about using the stop loss system to protect your capital.  There are times when the markets undergoes a fast fall in price, there are regulations about how far a price can fall in one-day. If it falls this maximum distance, it can bypass your stop loss, and you may be unable to sell.  Although these situations are rare, it is better that you know about them.  So that they are not a shock when they do happen to you.

Technorati Tags: stock market

A market correction is a marvelous event, basically the opposite side of a rally, big or small. In theory, even technically are considered, corrections adjust equity prices to their real value or “support levels”. In reality, it’s much easier than that. Prices trend down because of speculator reactions to anticipations of news, speculator reactions to actual news, and investor profit taking. The two former “becauses” are more powerful than ever before because there is more “self directed” money out there than ever before. And therein lies the core of correctional beauty!  Mutual Fund unit holders rarely take profits but often take losses. Opportunities abound!

Here’s a list of ten things to do and/or to think about doing during corrections of any magnitude:

1. You should have adjusted your present Equity Allocation in to your goals and objectives. Defy the impulse to reduce your Asset allocation because you expect a further fall in stock prices. Not only you are making the mistake of attempting to time the market , which is (rather obviously) impossible, but also you are missing out on buying assets at low prices. Proper Asset Allocation has nothing to do with market expectations.

2. The beauty of correction is that, if you take a look at the past,  it is a proven buying opportunity. There has never been a correction that has not proven to be a buying opportunity, so start selecting a different group of high quality, dividend paying, NYSE companies as their move prices move down. I start my shopping spree at 20% below the 52-week high, and before few are left on the shelvesl.

3. Don’t hoard that “smart cash” you amassed in the last rally, and do not look back and get yourself perturbed as you might buy some issues too shortly. There are no crystal balls, and no place for hindsight in an investment plan.

4. Have a look at the future. Nope, you can not tell when the rally will come or how long it will last. If you’re purchasing quality stocks now ( as you definitely might be ) you’ll be able to love the rally even more than you did the last time as you take yet one more round of profits. Smiles broaden with each new realized gain, particularly when most folks are still head scratching’.

5. As (or if) the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely. Hope for a short and steep decline, but prepare for a long one. There’s more to Shop at The Gap than meets the eye.

6. Your understanding and use of the Smart Cash concept has proven the wisdom of The Investor’s Creed. You should be out of cash while the market is still correcting. [It gets less and less scary each time.] As long your cash flow continues unabated, the change in market value is merely a perceptual issue.

7. Despite reduced prices, you notice that your invested funds is still growing, it is adviseable that you inspect your holdings for opportunities to average down on cost per share or to extend yield ( on fixed revenue instruments ). Inspect both basics and price, depend on your experience, and do not force the issue.

8. Identify new buying opportunities using a consistent set of rules, rally or correction. That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on value stocks; it’s just easier, as well as being less risky, and better for your peace of mind. Just think where you would be today had you heeded this advice years ago…

9. Examine your portfolio’s performance: with your asset allocation and investment objectives clearly in focus; in terms of market and interest rate cycles as opposed to calendar Quarters (never do that) and Years; and only with the use of the Working Capital Model, because it allows for your personal asset allocation. Remember, there is really no single index number to use for comparison purposes with a properly designed value portfolio.

10. Finally, ask your broker/advisor why your portfolio has not yet surpassed the levels it boasted five years ago. If it has, say thank you and continue with what you’ve been doing. This one is like golf, if you claim a better score than the reality, you’ll eventually lose money.

11. One more thought to consider. So long as everything is down, there is nothing to worry about.

Corrections (of all types) will vary in depth and duration, and both characteristics are clearly visible only in institutional grade rear view mirrors. The short and deep ones are most lovable (kind of like men, I’m told); the long and slow ones are more difficult to deal with. Most corrections are “45s” (August and September, ’05), and difficult to take advantage of with Mutual Funds. But amid all of this uncertainty, there is one indisputable fact: there has never been a correction that has not succumbed to the next rally… its more popular flip side. So smile through the hum drum Everydays of the correction, you just might meet Peggy Sue tomorrow.

Technorati Tags: asset allocation, invest, stock market, value stocks, working capital

Title:
Greed and fear are the major players in the stock market. These two emotions are the
driving force behind almost all market participants – Institutional mangers, stockbrokers,
Investors, traders and yourself.

You might be saying to yourself that greed and fear will never get in the way of my trading,
but believe it or not they will be. It is not something to be ashamed of. It is something you
have to admit to, come face to face with, If you are to become a successful stock trader or
investor.

What do greed and fear look like in the stock market trading arena?

You have been watching a particular stock for some time now. It has set up perfectly, so you pull the trigger. You bought it at the perfect price and now it is moving higher just as you thought it would.

Now greed steps up to the plate and says to you, this is going to be a rocket ship. So you buy some more shares. Or your stock moves a few points and goes passed the price that you decided to get out. Greed tells you this baby is going higher tomorrow so you hang on.

When stocks make strong moves to the upside greed from all the cumulative market participants joins the move.

Stock prices usually fall faster then they go up, and when this happens, fear now steps up to the plate.

Lets look at the example above, where your stock went through your get out price and you held on because greed was by your side. The next morning the stock price gaps down. Their is heavy selling all morning long. Greed is telling you to hang in there the price will come back. The price keeps going down, now you get a knot in your gut, and your knuckles are turning white. Fear is now by your side, but by now it is to late, your nice profit has turned into a loss.

Everyone goes through this until they have mastered the ugly faces of greed and fear. Master this and you are well on your way to becoming a successful stock trader.

Technorati Tags: Greed and fear is what makes the markets move.