Trading Blog Update

Trading Blog Update

Although the purpose of this trading blog isn’t to have people buy everything I’m bullish on and sell everything I’m bearish on, many seem to find it useful to keep track of what an author’s trading views are at that time. Therefore I always try to list a couple of things I’m buying or selling at the moment (or looking to be), but I try not to include size of positions, risk element, profit expectations etc – just a broad overview to be taken as hearsay and nothing more. Regardless, I thought it might be good to take a quick look back and see how some of the early calls have gone, and where they might be heading:

Trading Online Simplified - Part 2

Trading at its Simplest

Hopefully last week’s beginner’s guide to some online trading language proved useful for those looking to get a better grasp on what some of the new terms that you can’t avoid mean. This is part 2 of the 3 part series, and focuses on some other popular terms that can confuse traders and investors, and get you into a lot of trouble if you don’t understand.

Trading Online Simplified - Part 1

Trading at its Simplest 

Trading language can sometimes be the biggest barrier to new traders and investors learning, and even here I’m sure that I’m guilty of accidentally overcomplicating things that are meant to be made simpler. Those starting to look at investing or trading should certainly check out www.investopedia.com for a simplification of most financial matters, and this post will form part 1 of a 3 part series aimed at simplifying trading and investing language for trading beginners.

Stock Trading - Timing the Market

Stock trading – timing

You don’t need to be the first person onto an idea to make money, you just have to avoid being the last. Having the view that a stock price may rise or fall is one thing, but knowing when to buy it is another. When investing in the stock market, buying too early or too late can be disastrous, and for this reason many stock traders fail to make the trade at all or panic and ignore their teachings. The two most common errors are to either watch stocks fall and buy them because they’re cheap, or to watch stocks rise and sell them because they’re overpriced. Both trading models are inherently risky because you are taking a contrarian view – going against the trend – and as such the average investor often loses money.

Bank Bills and Government Bonds

Bank Bill Rates and Government Bonds

As well as stock trading, it can be useful to consider trading fixed income securities such as bank bills, government notes and government bonds (e.g. US Treasury notes and bonds). The difference is that bank bills have a maturity of less than one year, government notes are between one and ten years, and government bonds are greater than ten years. The definitions of each can be found on www.investopedia.com, but when trading a futures contract over them, their coupons etc become less relevant. A potential use for them can be found at www.pimmtrading.blogspot.com.

Stop Loss Orders to Increase Profits

Stop Loss Orders to Increase Profits

Primarily, a stop loss order is used for risk management purposes – to limit how much you can lose on a trade. An overview of what they are was discussed here http://www.tradingpimm.blogspot.com/2012/01/risk-management.html. However, stop loss orders can also greatly increase profits if used correctly as part of a set of trading rules. Let’s take a basic example:

Risk Management

Risk Management

With some broker accounts, leveraging can greatly amplify returns as well as losses. If your $1000 account is invested in a stock with a 75% leverage ratio, giving you $4000 worth of shares, a 25% fall in the stock price will mean you lose your whole $1000. Any further falls will result in you owing the broker money. It’s a high risk game. A quick tip is to divide 1 by the % that you contribute (e.g. 25% as above), which gives you 4. Any movement in the stock price (e.g. 10%) is amplified 4 times (now 40%) when it comes to working out your return on capital.