“An investment in knowledge always pays the best interest”
These days stock market investment is right very popular. Many young investors gain interest in share market. Regretful to say, most will find lose money more than they earned in their first conjecture. Why youngsters can’t make it in their first venture?
Stock Market is multifaceted. Although anybody can make money in stock market now merely learning the functioning will not make money for them. If you now acquire happening you will find it a scary task to appreciate almost everything at the alike time. You have no choice but to spend least 5 hours per week studying on stock. And prepare to use money to obtain the in turn and tools that is requisite.
Finally Warren Buffet starts investing in stock at 11 and yet regrets not to start much earlier. And the best stock investing advice from him is start investing as young as likely. Other than make sure you are 100pct induces of what you are doing before betting any money into it. Or else mull in excess of invest in low down risk MF first.Many teen investors cannot give the time and money. Also they are so full of activity with the homework and task or enjoy spending time hang out with friends. There is nothing wrong with that but risking money in a bit that they do not know sufficient is financially suicide.
To alleviate the danger of downward money, you should merely invest with money that you can pay for to lose first. Having additional $1000 is now not sufficient. You do not desire to risk your graduates scroll with some losing stocks do you? If not you have so much money or all-consuming cash flow.On the other hand this might not hold true for stock trading just for the reason that stock trading is not an investment but another job instead. So the first establish capital can be from additional investors. Except you need to have what it take to be a stock trader which can be more complicate than stock investment.
Wednesday, January 23, 2008
Sunday, January 20, 2008
The Effect The Current Subprime Loan Crisis Has On Global Markets
Submitted By: Ricky Schmidt
Dear Fellow-Investor.
"Why is it, that this subprime loan crisis has such a rippling effect on many sectors of the economy?"
"Why are even companies outside the USA also affected by the U.S. mortgage crisis?"
In the last 7 days I received lots of emails from my subscribers asking me questions like these, and I'd like to take the opportunity to explain what this housing, mortgage,subprime loan, credit crisis - whatever you want to call it - and the present situation is all about.
Between 2002 and 2004 the interest rates in the United States were as low as never before. At least as far as I can remember. I'm not that old yet! The effect of such low interest rates was a real-estate boom in the U.S. often financed with so-called subprime loans. These are loans given to borrowers who do not qualify for the best market interest rates because of their deficient credit history.
Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others. The term "subprime" refers to the credit status of the borrower (being less than ideal), not the interest rate on the loan itself.
But banks didn't worry too much about this because interest rates were low and simultaneously, real-estate prices were rising continuously in the 90's.
So back in 2002/2004, anyone that could count to 3 was given a loan. Many people in America were suddenly able to afford expensive single family homes and other kind of real-estate that they couldn't before.
But in 2006 the U.S. interest rates had tripled and now, especially the subprime borrowers couldn't pay their monthly installments anymore. So more and more of these subprime loans started to crumble.
But that's not all. Some banks and other financial institutionals converted millions of these subprime loans into bonds. These were then sold for billions of dollars to banks, insurance companies and mutual funds that assumed this to be a secure investment because bonds usually are. That's why they're also considered a safe haven in stormy times.
And not only were these bonds sold to U.S. institutionals, but International ones too. You see, in a nutshell, everyone invests everywhere. America invests in Europe, and Europe invests in America, etc, etc.!
So you can imagine what happened when these loans started to crumble and the practice of converting them into bonds backfired. It all swept over the borders of America into other countries as well. The German industrial bank IKB invested 13 billion dollars in these bonds and now they are looking at a $5 billion loss.
For years this subprime game turned out all right and gigantic amounts of cash were invested into real-estate in Florida, Delaware or Texas by U.S. and international equity markets. No one thought that so many borrowers would go broke at the same time.
According to the U.S.Federal Reserve, loans of up to 100 billion dollars could bounce. At the same time, this seems to just be a drop in the ocean considering the effect it could have on international capital markets.
These bad loans could be the biggest single risk for the global economy. In the past, many in America spent their money stout-heartedly thus, stimulating and cranking up the economy. Their houses became worth more and more and banks literally threw loans at customers with low interest rates.
This could all backfire now putting a lot of pressure on the U.S. economy, because the money that was spent so generously is now being held back. Also because borrowers that are now up to their ears in financial troubles can't spent anymore money because there simply is none left to spend. This, in turn, takes a lot of liquidity out of the markets.
Also companies and corporations that have nothing to do with the current real-estate turmoil are drawn into the subprime crisis. If they want new capital from banks, they have to pay higher interest rates as an additional premium for risk. Or, taking things into extremes, they won't get a loan at all making it difficult for companies to grow, especially if a company wants to merge with another which often costs billion of dollars. This all drops out now thus, reducing earnings and profit outlooks.
And there's another, equally bad effect on all companies. whether attached to any real-estate or not. Hedge funds bought these converted mortgage bonds by the millions and very often using margins i.e. buying on borrowed money. And now they are sitting on a huge heap of losses and debt. In order to pay back those debts they have to sell stocks, commodities and other equity. And this obviously pushes prices down. Also stock prices. It's like a chain reaction.
And that's basically the reason why the markets around the world are in such shambles right now.
Back at the trading floor, for Bullish trading the best hope for continued long trading is in turnarounds and bounce backs. Rather than hold your breath and open new long trades why not take the Bearish pat and trade puts or stand on the side lines for a time?
Is my trading bias still Bullish? In the short-term no. In the mid and long-term, yes. So I'm definitely not opening any new long trades right now. But in the future, we'll be looking at plenty long trade opportunities. That's the good side of it all!
Yours in Successful Trading,
Ricky Schmidt
Dear Fellow-Investor.
"Why is it, that this subprime loan crisis has such a rippling effect on many sectors of the economy?"
"Why are even companies outside the USA also affected by the U.S. mortgage crisis?"
In the last 7 days I received lots of emails from my subscribers asking me questions like these, and I'd like to take the opportunity to explain what this housing, mortgage,subprime loan, credit crisis - whatever you want to call it - and the present situation is all about.
Between 2002 and 2004 the interest rates in the United States were as low as never before. At least as far as I can remember. I'm not that old yet! The effect of such low interest rates was a real-estate boom in the U.S. often financed with so-called subprime loans. These are loans given to borrowers who do not qualify for the best market interest rates because of their deficient credit history.
Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others. The term "subprime" refers to the credit status of the borrower (being less than ideal), not the interest rate on the loan itself.
But banks didn't worry too much about this because interest rates were low and simultaneously, real-estate prices were rising continuously in the 90's.
So back in 2002/2004, anyone that could count to 3 was given a loan. Many people in America were suddenly able to afford expensive single family homes and other kind of real-estate that they couldn't before.
But in 2006 the U.S. interest rates had tripled and now, especially the subprime borrowers couldn't pay their monthly installments anymore. So more and more of these subprime loans started to crumble.
But that's not all. Some banks and other financial institutionals converted millions of these subprime loans into bonds. These were then sold for billions of dollars to banks, insurance companies and mutual funds that assumed this to be a secure investment because bonds usually are. That's why they're also considered a safe haven in stormy times.
And not only were these bonds sold to U.S. institutionals, but International ones too. You see, in a nutshell, everyone invests everywhere. America invests in Europe, and Europe invests in America, etc, etc.!
So you can imagine what happened when these loans started to crumble and the practice of converting them into bonds backfired. It all swept over the borders of America into other countries as well. The German industrial bank IKB invested 13 billion dollars in these bonds and now they are looking at a $5 billion loss.
For years this subprime game turned out all right and gigantic amounts of cash were invested into real-estate in Florida, Delaware or Texas by U.S. and international equity markets. No one thought that so many borrowers would go broke at the same time.
According to the U.S.Federal Reserve, loans of up to 100 billion dollars could bounce. At the same time, this seems to just be a drop in the ocean considering the effect it could have on international capital markets.
These bad loans could be the biggest single risk for the global economy. In the past, many in America spent their money stout-heartedly thus, stimulating and cranking up the economy. Their houses became worth more and more and banks literally threw loans at customers with low interest rates.
This could all backfire now putting a lot of pressure on the U.S. economy, because the money that was spent so generously is now being held back. Also because borrowers that are now up to their ears in financial troubles can't spent anymore money because there simply is none left to spend. This, in turn, takes a lot of liquidity out of the markets.
Also companies and corporations that have nothing to do with the current real-estate turmoil are drawn into the subprime crisis. If they want new capital from banks, they have to pay higher interest rates as an additional premium for risk. Or, taking things into extremes, they won't get a loan at all making it difficult for companies to grow, especially if a company wants to merge with another which often costs billion of dollars. This all drops out now thus, reducing earnings and profit outlooks.
And there's another, equally bad effect on all companies. whether attached to any real-estate or not. Hedge funds bought these converted mortgage bonds by the millions and very often using margins i.e. buying on borrowed money. And now they are sitting on a huge heap of losses and debt. In order to pay back those debts they have to sell stocks, commodities and other equity. And this obviously pushes prices down. Also stock prices. It's like a chain reaction.
And that's basically the reason why the markets around the world are in such shambles right now.
Back at the trading floor, for Bullish trading the best hope for continued long trading is in turnarounds and bounce backs. Rather than hold your breath and open new long trades why not take the Bearish pat and trade puts or stand on the side lines for a time?
Is my trading bias still Bullish? In the short-term no. In the mid and long-term, yes. So I'm definitely not opening any new long trades right now. But in the future, we'll be looking at plenty long trade opportunities. That's the good side of it all!
Yours in Successful Trading,
Ricky Schmidt
Traders worst enemy "Emotional trading"
Schwager wrote: "In our experience, investors are truly their own worst enemies. The natural instincts of many lead them to do precisely the wrong thing at the wrong time--with uncanny persistence…
Proletarian can feel high with the trading or investing excitement. At the short interval of time nobody can get high and make money. Voracity and panic are bound to destroy any trader or investor. Instead of trading on gut feeling, one needs to use their intelligence. Road to untold riches can be open by conquering our emotions of fear and greed.
It’s a human’s natural inclination to follow the crowd. But when it comes of trading, following the crowd can often be make extreme effects. The shrewd trader knows how to look forward to the trend and they also makes sure that he or she sells before the style reverses, and the masses start selling
To become victorious, it was vital to protect one's self interests yet also stay within the bounds of acceptable behavior. In the markets, it is sometimes useful to be conventional. For example, for long term investing, it is wise to put your money in stocks that don't have a great deal of instability and by all indications, have solid fundamentals that will push the stock up consistently for several years. If a large enough crowds believes strongly that the company will produce profits for decades, it would be to your advantage to follow them, if you want a safe investment.
Even though following the crowd isn't bad all the time, there are times when a trader should not follow the crowd. Traders are looking for instability and a good chance for making a big profit. Most of the time that means going your own way. It requires that one think like contrarians, where you are trying to guess what the crowd will do next and trying to capitalize on it. The key is to know when to follow the crowd and when to go against it. The crowd is usually right, until a turning point occurs. When virtually everyone has taken the position that the market is headed in a particular direction, there are almost no traders left to push the trend further. At that point, a countertrend initiates and moves the market in the opposite direction.
The challenge is predicting when that turning point will occur, anticipating it, and developing a trading plan to capitalize on it. Now, this all sounds easy in theory, but in practice, it is difficult to implement a trading strategy to capitalize on this cycle. How can one predict the turning point? Some say it is almost impossible. All you can do is develop a sound method that works most of the time but also admit that it may fail. Whether you use technical indicators or you are lucky enough to use the media news to your advantage, you must temporarily believe in your method, put money on the line, and work under the assumption that overall, luck will be in your favor should you make enough trades.
Going against the crowd takes a special kind of person, a person who isn't afraid of risk but doesn't seek it out, a person who looks inward only, and doesn't need reassurance from others. One must creatively study the markets and try to devise an innovative trading plan. It takes a great deal of experience and thought, but by using the proper perspective, gaining extensive experience, and honing your trading skills, you can break away from the masses, and trade consistently and profitably.
The human body and mind operate much like a machine in that they need preventative maintenance. Just as you wouldn't drive a car without routinely changing the oil or checking the tire pressure, you shouldn't over-stress your mind or body without taking a rest so as to allow yourself to rejuvenate. Trading is a stressful business. Traders continually must cope with uncertainty and endless setbacks, and these factors tax the mind and body to the point that they can no longer function efficiently. Make sure you do preventive psychological maintenance so that you can always trade in a peak performance state.
Trading is intrinsically motivating. It's fun and exciting, but any activity can become boring and tedious if you have to do it over and over again, and do it quickly and under pressure. Trading is fun when you first start, and if you trade as a hobby, but the professional winning trader must persist under less than ideal conditions. Many times a trader must make trade after trade to allow the law of averages to work in his or her favor. The search for winning trading strategies is endless and a challenge. Even the most passionate trader eventually finds trading stressful and tedious. The long-term ramifications of a tedious and anxiety provoking profession can be severe. The mind and body have limited resources, and when these resources are depleted, one cannot continue to function efficiently. Eventually, one needs to take a rest and allow mental and physical abilities to recuperate.
In the long term, it is vital that you take vacations from trading. If you trade month after month without a break, you'll get burned out, and the activity you are passionate about will turn into something that you hate. By taking a vacation, you'll not only get some important rest and relaxation, but you will get a new perspective. You'll see trading in a new light and remember why you like trading so much. When you return, you'll trade with renewed vigor and that will help you trade efficiently over the long haul.
Winning traders execute and monitor their trades while in a peak performance mindset, a mindset where one is calm, logical, and determined. When you are stressed out and worn out, however, you can't cultivate this mindset. It is vital to take rests so that your mind and body can rejuvenate. By doing preventative maintenance, you can trade with a mindset that ensures consistent profitability.
Proletarian can feel high with the trading or investing excitement. At the short interval of time nobody can get high and make money. Voracity and panic are bound to destroy any trader or investor. Instead of trading on gut feeling, one needs to use their intelligence. Road to untold riches can be open by conquering our emotions of fear and greed.
It’s a human’s natural inclination to follow the crowd. But when it comes of trading, following the crowd can often be make extreme effects. The shrewd trader knows how to look forward to the trend and they also makes sure that he or she sells before the style reverses, and the masses start selling
To become victorious, it was vital to protect one's self interests yet also stay within the bounds of acceptable behavior. In the markets, it is sometimes useful to be conventional. For example, for long term investing, it is wise to put your money in stocks that don't have a great deal of instability and by all indications, have solid fundamentals that will push the stock up consistently for several years. If a large enough crowds believes strongly that the company will produce profits for decades, it would be to your advantage to follow them, if you want a safe investment.
Even though following the crowd isn't bad all the time, there are times when a trader should not follow the crowd. Traders are looking for instability and a good chance for making a big profit. Most of the time that means going your own way. It requires that one think like contrarians, where you are trying to guess what the crowd will do next and trying to capitalize on it. The key is to know when to follow the crowd and when to go against it. The crowd is usually right, until a turning point occurs. When virtually everyone has taken the position that the market is headed in a particular direction, there are almost no traders left to push the trend further. At that point, a countertrend initiates and moves the market in the opposite direction.
The challenge is predicting when that turning point will occur, anticipating it, and developing a trading plan to capitalize on it. Now, this all sounds easy in theory, but in practice, it is difficult to implement a trading strategy to capitalize on this cycle. How can one predict the turning point? Some say it is almost impossible. All you can do is develop a sound method that works most of the time but also admit that it may fail. Whether you use technical indicators or you are lucky enough to use the media news to your advantage, you must temporarily believe in your method, put money on the line, and work under the assumption that overall, luck will be in your favor should you make enough trades.
Going against the crowd takes a special kind of person, a person who isn't afraid of risk but doesn't seek it out, a person who looks inward only, and doesn't need reassurance from others. One must creatively study the markets and try to devise an innovative trading plan. It takes a great deal of experience and thought, but by using the proper perspective, gaining extensive experience, and honing your trading skills, you can break away from the masses, and trade consistently and profitably.
The human body and mind operate much like a machine in that they need preventative maintenance. Just as you wouldn't drive a car without routinely changing the oil or checking the tire pressure, you shouldn't over-stress your mind or body without taking a rest so as to allow yourself to rejuvenate. Trading is a stressful business. Traders continually must cope with uncertainty and endless setbacks, and these factors tax the mind and body to the point that they can no longer function efficiently. Make sure you do preventive psychological maintenance so that you can always trade in a peak performance state.
Trading is intrinsically motivating. It's fun and exciting, but any activity can become boring and tedious if you have to do it over and over again, and do it quickly and under pressure. Trading is fun when you first start, and if you trade as a hobby, but the professional winning trader must persist under less than ideal conditions. Many times a trader must make trade after trade to allow the law of averages to work in his or her favor. The search for winning trading strategies is endless and a challenge. Even the most passionate trader eventually finds trading stressful and tedious. The long-term ramifications of a tedious and anxiety provoking profession can be severe. The mind and body have limited resources, and when these resources are depleted, one cannot continue to function efficiently. Eventually, one needs to take a rest and allow mental and physical abilities to recuperate.
In the long term, it is vital that you take vacations from trading. If you trade month after month without a break, you'll get burned out, and the activity you are passionate about will turn into something that you hate. By taking a vacation, you'll not only get some important rest and relaxation, but you will get a new perspective. You'll see trading in a new light and remember why you like trading so much. When you return, you'll trade with renewed vigor and that will help you trade efficiently over the long haul.
Winning traders execute and monitor their trades while in a peak performance mindset, a mindset where one is calm, logical, and determined. When you are stressed out and worn out, however, you can't cultivate this mindset. It is vital to take rests so that your mind and body can rejuvenate. By doing preventative maintenance, you can trade with a mindset that ensures consistent profitability.
Short-term Trading Papularity, Principles, Capital Allocation, Profit booking
There are primarily three types of traders/investors in the stock market:
Investors: Those who expect minimum 30-40% appreciation and are willing to hold between two months to a few years. They enter only long positions and usually select a scrip based on fundamental analysis. Medium-long term investors can utilise technical analysis to time their entry and profit booking better.
Day traders: Day traders enter long/short trades to square up the same day. They usually base decisions on technicals, information or at times, gut feel.
Short-term traders: Short-term traders expect 5-20% returns within 2 days to 3 weeks. They enter long as well as short positions. These include:
1. Position trading, where one either buys a stock and holds for the required appreciation, or sells from an existing long (or borrowed) position to cover at a lower level.
2. Futures & options trading
The popularity of Short-term trading, is on the rise due to the following reasons:
It provides an opportunity to make substantial profits in a short period and ensures continuous rotation of capital.
As against long-term investment, short-term trading has limited downside because of strict stoplosses.
Short-term trading has less demand on the traders time, while day trading requires full-time attention at the terminal. Hence, even those who pursue other professions can do short-term trading.
One can leverage on margin in case of short-term trading in futures.
Short-term trading in options requires smaller investment and has limited risk.
Like every discipline, short-term trading also has its Dos and Donts. These are not well understood by all. This article outlines these rules, which would make short-term trading a relatively safe and satisfying experience.
Basic Principles of Short-term Trading: The first principle is to do few trades. At any point, one should not have more than 6 trades outstanding. A good number is 3-5.
Equal capital allocation: Divide your short term trading capital equally into each trade. Ideally if one has Rs 1 lac of capital, one should put around Rs 20,000 in each trade.
Clear Targets and profit booking: While entering a trade, one should be clear about the target price he expects to achieve. Once the target is reached, profits should be booked promptly. Here, some traders often fall to the greed-syndrome and hold on for more profits. This, more often than not, leads to losses in the long run.
Strict stoplosses: No strategy, however good, can ensure 100% success. A strategy that yields above 65% success rate is reasonably good.
But there is a catch here! 65% success means you achieve your targets in 2 out of every 3 trades. But how much do you lose in the third? This is what determines your overall profitability.
The following example illustrates this: Suppose one invests Rs 10,000 in each of the 3 trades. The 2 successful trades fetch a profit of RS 1000 (RS 500 each) at 5%. Now, if the stoploss on the third unprofitable trade were also around 5% (including brokerage), he would lose RS 500 on it. Thus, his net profit across the 3 trades is RS 1000 RS 500 = RS 500. This is around 1.67% net return on the total capital of RS 30000. And considering that this is short term trading, the average holding period may be a fortnight. Therefore, the annualised return would still amount to 1.67% x 26 (26 fortnights in a year) = 43% per annum. Not a mean achievement by any standards.
But in the same example, if the trader does not have a stoploss, he continues to hold the loss-making trade. Finally, when he realises that he is in an irretrievable situation, he squares up the trade at say 15% loss. (In my experience, this is what happens to many traders when market suddenly turns bearish). In this case, he makes RS 1500 loss on this trade, which eats the RS 1000 profit he has made in the other two. Thus, he ends up with a net loss of RS 500 (-1.67%) on his 3 trades. At this rate, he would wipe out his entire capital in 2.5 years.
That should forever, put to rest the doubt whether stoplosses are needed in short-term (or for that matter in any type of) trading! Trading is like a war, you need to lose small battles to see another day and eventually win the war!
Dont "buy time": Often traders mix up various types of trading. For example, a trader entering a day trade carries his position overnight if the trade turns against him. Or, a short-term trader does not exit at a stoploss and converts it to a long-term investment. He hopes some day it will fetch him profit. These traders are just "buying time". Unfortunately, this works as rarely as you would find refrigerator in an igloo. Stick to your trading style and importantly; dont convert trades from one type to another.
Track your performance: A trader should monitor performance on every trade, as well as, across all trades. Remember, if trading is your business, run it like a business. Rigorously perform the forecasting, planning and monitoring that goes into it.
In a nutshell
Short-term trading has its advantages when compared with day-trading and long-term investment. It is suited for both full-time and part-time traders. When performed in accordance with the basic principles, it can be an engrossing and potentially lucrative activity/profession
Investors: Those who expect minimum 30-40% appreciation and are willing to hold between two months to a few years. They enter only long positions and usually select a scrip based on fundamental analysis. Medium-long term investors can utilise technical analysis to time their entry and profit booking better.
Day traders: Day traders enter long/short trades to square up the same day. They usually base decisions on technicals, information or at times, gut feel.
Short-term traders: Short-term traders expect 5-20% returns within 2 days to 3 weeks. They enter long as well as short positions. These include:
1. Position trading, where one either buys a stock and holds for the required appreciation, or sells from an existing long (or borrowed) position to cover at a lower level.
2. Futures & options trading
The popularity of Short-term trading, is on the rise due to the following reasons:
It provides an opportunity to make substantial profits in a short period and ensures continuous rotation of capital.
As against long-term investment, short-term trading has limited downside because of strict stoplosses.
Short-term trading has less demand on the traders time, while day trading requires full-time attention at the terminal. Hence, even those who pursue other professions can do short-term trading.
One can leverage on margin in case of short-term trading in futures.
Short-term trading in options requires smaller investment and has limited risk.
Like every discipline, short-term trading also has its Dos and Donts. These are not well understood by all. This article outlines these rules, which would make short-term trading a relatively safe and satisfying experience.
Basic Principles of Short-term Trading: The first principle is to do few trades. At any point, one should not have more than 6 trades outstanding. A good number is 3-5.
Equal capital allocation: Divide your short term trading capital equally into each trade. Ideally if one has Rs 1 lac of capital, one should put around Rs 20,000 in each trade.
Clear Targets and profit booking: While entering a trade, one should be clear about the target price he expects to achieve. Once the target is reached, profits should be booked promptly. Here, some traders often fall to the greed-syndrome and hold on for more profits. This, more often than not, leads to losses in the long run.
Strict stoplosses: No strategy, however good, can ensure 100% success. A strategy that yields above 65% success rate is reasonably good.
But there is a catch here! 65% success means you achieve your targets in 2 out of every 3 trades. But how much do you lose in the third? This is what determines your overall profitability.
The following example illustrates this: Suppose one invests Rs 10,000 in each of the 3 trades. The 2 successful trades fetch a profit of RS 1000 (RS 500 each) at 5%. Now, if the stoploss on the third unprofitable trade were also around 5% (including brokerage), he would lose RS 500 on it. Thus, his net profit across the 3 trades is RS 1000 RS 500 = RS 500. This is around 1.67% net return on the total capital of RS 30000. And considering that this is short term trading, the average holding period may be a fortnight. Therefore, the annualised return would still amount to 1.67% x 26 (26 fortnights in a year) = 43% per annum. Not a mean achievement by any standards.
But in the same example, if the trader does not have a stoploss, he continues to hold the loss-making trade. Finally, when he realises that he is in an irretrievable situation, he squares up the trade at say 15% loss. (In my experience, this is what happens to many traders when market suddenly turns bearish). In this case, he makes RS 1500 loss on this trade, which eats the RS 1000 profit he has made in the other two. Thus, he ends up with a net loss of RS 500 (-1.67%) on his 3 trades. At this rate, he would wipe out his entire capital in 2.5 years.
That should forever, put to rest the doubt whether stoplosses are needed in short-term (or for that matter in any type of) trading! Trading is like a war, you need to lose small battles to see another day and eventually win the war!
Dont "buy time": Often traders mix up various types of trading. For example, a trader entering a day trade carries his position overnight if the trade turns against him. Or, a short-term trader does not exit at a stoploss and converts it to a long-term investment. He hopes some day it will fetch him profit. These traders are just "buying time". Unfortunately, this works as rarely as you would find refrigerator in an igloo. Stick to your trading style and importantly; dont convert trades from one type to another.
Track your performance: A trader should monitor performance on every trade, as well as, across all trades. Remember, if trading is your business, run it like a business. Rigorously perform the forecasting, planning and monitoring that goes into it.
In a nutshell
Short-term trading has its advantages when compared with day-trading and long-term investment. It is suited for both full-time and part-time traders. When performed in accordance with the basic principles, it can be an engrossing and potentially lucrative activity/profession
Thursday, January 17, 2008
Sub-Prime Effect and Emerging Markets
What is Sub-prime?
Some borrowers may have issues like poor credit history or hard to prove income, which makesThem ineligible to borrow money at prevailing market rates or prime rates. Sub Prime Lending is thePractice of financing such borrowers at a higher than prime rate. Such loans are considered riskyBecause of high interest rates, bad credit history and lack of resources to pay off the loans. Sub primeMortgage lending refers to such loans extended in the housing market.Sub-prime mortgage issues began to crop up when the housing prices in the US began to softenAnd the borrowers started to default on loan repayments. Loan defaults led to rising rate of sub primeMortgage foreclosures, which further led to a few sub prime mortgage lenders to fileBankruptcy. As a result, participants in the market with exposure to sub-prime mortgage backedSecurities began to witness mark-to-market losses. They also faced liquidity crunch, as no buyersWere willing to buy such paper.
The Contagion Effect
Market participants who had exposure to sub-prime mortgage securities as well as risky assets,covered up for sub prime mortgage losses by reprising the risky assets. Due to this, other leveragedequity market participants found it difficult to service their cost of leverage. This led them to deleveragetheir exposure in the form of further re-pricing of risky assets in US. Due to integration ofglobal financial markets, risky assets in other emerging markets also got re-priced as a spill overeffect. Several central bankers pumped funds into the economy to ease the liquidity tighteningcaused by sub-prime mortgage issue.
Impact on emerging markets
The impact of the sub-prime effect on emerging markets is hard to gauge. There are two parts to it. One is the impact on the real economies and another is the impact on the stock markets. Due toMacro policies, structural policies and domestic consumption, the fundamentals of emergingEconomies including India continue to remain strong. This might act as a cushion against any majorFinancial setback in the US. However it’s early to gauge whether the sub-prime issue has thePotential to disrupt the US imports and to that extent affect economic growth of emerging markets.As far as the stock markets are concerned, they may take some hit because of de-leveraging doneBy market participants. Time and again these kinds of events affect market sentiment leading toBouts of corrections. We believe that such corrective dips present an opportunity for investors to Invest in emerging markets at relatively attractive valuations.
Some borrowers may have issues like poor credit history or hard to prove income, which makesThem ineligible to borrow money at prevailing market rates or prime rates. Sub Prime Lending is thePractice of financing such borrowers at a higher than prime rate. Such loans are considered riskyBecause of high interest rates, bad credit history and lack of resources to pay off the loans. Sub primeMortgage lending refers to such loans extended in the housing market.Sub-prime mortgage issues began to crop up when the housing prices in the US began to softenAnd the borrowers started to default on loan repayments. Loan defaults led to rising rate of sub primeMortgage foreclosures, which further led to a few sub prime mortgage lenders to fileBankruptcy. As a result, participants in the market with exposure to sub-prime mortgage backedSecurities began to witness mark-to-market losses. They also faced liquidity crunch, as no buyersWere willing to buy such paper.
The Contagion Effect
Market participants who had exposure to sub-prime mortgage securities as well as risky assets,covered up for sub prime mortgage losses by reprising the risky assets. Due to this, other leveragedequity market participants found it difficult to service their cost of leverage. This led them to deleveragetheir exposure in the form of further re-pricing of risky assets in US. Due to integration ofglobal financial markets, risky assets in other emerging markets also got re-priced as a spill overeffect. Several central bankers pumped funds into the economy to ease the liquidity tighteningcaused by sub-prime mortgage issue.
Impact on emerging markets
The impact of the sub-prime effect on emerging markets is hard to gauge. There are two parts to it. One is the impact on the real economies and another is the impact on the stock markets. Due toMacro policies, structural policies and domestic consumption, the fundamentals of emergingEconomies including India continue to remain strong. This might act as a cushion against any majorFinancial setback in the US. However it’s early to gauge whether the sub-prime issue has thePotential to disrupt the US imports and to that extent affect economic growth of emerging markets.As far as the stock markets are concerned, they may take some hit because of de-leveraging doneBy market participants. Time and again these kinds of events affect market sentiment leading toBouts of corrections. We believe that such corrective dips present an opportunity for investors to Invest in emerging markets at relatively attractive valuations.
Wednesday, January 16, 2008
Larsen & Toubro expecting strong growth by earnings and orderbook
I put overweight rating and a 12-month price target of Rs 5,010 citing expectation of strong earnings and order book growth. “Expecting an earnings CAGR (compounded annual growth rate) of 45% over FY07-10 and ROE (return on equity) of 31% in FY08E (adjusted for investments in subsidiaries),” the investment bank said. Expects the company’s order book to grow 40%, on a compounded basis, toll 2009-10. “Expect L&T Infotech, L&T Finance and certain manufacturing subsidiaries to record growth in excess of 30% over the next three years. Value discovery in some of the subsidiaries is a strong possibility over the next three years, in a view.”
Tuesday, January 15, 2008
Jaiprakash Associates expansions more promissive in long term
Jaiprakash is expanding its capacity by 15MMT over the next 3 years at the end of which it will emerge as one of the largest cement players in north india with a capacity of 22MMT. The company is the largest private sector hydropower player and is currently sitting on a huge construction order book of Rs.7,200 crore. Taking cognisance of the government's target of achieving 50,000 MW in hydropower electricity by 2012, expecting order book to maintain its current momentum. The taj express way project coupled with the company's real estate business (taj green) will add value to the company's shareholders. This makes clear picture about companies future. Buy this stock in every dip to make higher returns in medium to long term.
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