The Road Map
The cat’s out of the bag. You’re fully aware that it might take some time to become a great trader. Does that mean you just sit back and wait for time to elapse? Of course not! Your job now is to set up your trading plan by implementing a strategy that will suit your needs and serve as your road map, so let’s get to it.
The two most basic active trading strategies are day trading and swing trading. Each one has its own benefits and drawbacks, so we’ll look at them both. When it comes to your own trading plan, consider your own situation and which strategy will cater to your needs best.
A day trading strategy has a number of benefits over other trading styles during certain market conditions. Day trading offers up to 4-to-1 intraday buying power ($25,000 account minimum), which allows the aggressive trader higher leverage in order to generate big profits in short-term price moves. Day trading also requires less homework outside of market hours than other strategies, because a good real time streaming alerts program can generate trading signals for you based on your criteria intraday.
Investing and Economic Indicators
As an investor it is important to understand how economic indicators can impact financial markets, investing and ultimately the value of your investments.
The key to your success will be looking at these economic indicators, extracting what you need to make the right investment decisions.
Economic Indicators are key statistics that show where the economy is headed by monitoring inflation.
The reason why inflation is of paramount importance is based on the fact that it highly influences the level of interest rates.
Stability within the economy is maintained as long as inflation is kept under control. Rising inflation reflects rising prices caused by demand and exceeding supply.
In other words, the increase in prices of goods and services would erode the purchasing power of the money you make, on the assumption that the money you earn does not increase in line with inflation.
To put it simply, Governments use economic indicators as tools to ensure stability within the economy.
Consequently the individual indicators of inflation like the consumer price index; unemployment and gross domestic product cannot be directly manipulated; therefore to slow down (or speed up) the rate of growth in prices (inflation), interest rates are used.
Interest rates determine the willingness and ability of individuals and businesses to borrow money and make investments. Changes in economic activity, when triggered by changes in interest rates, can fuel an expansion or cause a downturn in the economy.
For companies, higher interest rates often mean lower profits. If interest rates rise, companies have to pay more, to borrow the money they require to fund growth of their company.
Eventually, this translates into higher prices for their goods and, often, lower sales. Especially if customers are buying on credit and have to pay higher interest rates for them to borrow. Potential customers may decide they cannot afford to buy products as the cost of credit is high.
The eventual decline in company sales and earnings is something investors anticipate as soon as rates go up. The result is that stock prices go down before the effects of the increased interest rates are actually felt on the company’s bottom line.
Conversely, when interest rates fall, company borrowing costs are lower, so their profits on the same level of sales will be higher. Therefore, customers who buy on credit are more comfortable buying if they are paying lower rates, so they buy more. This creates higher sales, which will lead to increased company profits. Eventually higher profits will lead to an increase in stock prices. More often than not, the above situation creates an environment where investors are typically ready to pay higher prices as soon as the Central Bank intervene to cut interest rates in the anticipation of the cycle of increased profits. As an investor it is important to remember that the price of your stock will change throughout its lifetime because the price you actually obtain will be determined by current market conditions (supply and demand) and more importantly interest rate fluctuations. This will also determine the capital you will gain or lose. So when next time you hear about economic indicators, always remember how they will affect the value of your stocks and whether you would need to re-evaluate your positions.
Advice for New Investors
Investing is just one aspect of personal finance. People often seem to have the itch to try their hand at investing before they get the rest of their act together.
This Is a Big Mistake!
For this reason, it’s a good idea for “new investors” to hit the library and read maybe three different overall guides to personal finance — three for different perspectives, and because common themes will emerge sice repetition implies authority!
Personal finance issues include making a budget, sticking to a budget, saving money towards major purchases or retirement, managing debt appropriately, insuring your property, etc.
Many “beginning investors” have no business investing in stocks!
Only after learning about personal finance they should explore particular investments. If someone needs to unload some cash in the meantime, they should put it in a money market fund, or yes, even a bank account, until they complete their basic training.
What Should Young People Invest In?
Invest Your Time Before You Invest Your Money …
Test Your Strategy Before You Risk Your Money!
Investment Decisions
There are only three ways to make investment decisions:
A. Market timing,
B. Security selection, and
C. Asset allocation.
Market timing, including all forms of charting and “technical analysis,” doesn’t work because nobody can predict the future …
Period!
Markets move in response to millions of people acting on random daily news, which can’t be predicted.
If someone could market time with as little as 51% accuracy, they’d be on the front page of every newspaper every day!
Everyone you see predicting the future is just guessing or are just trying to convince you to buy the stocks they just bought so they’ll go up, and they can sell at a profit.
It’s their job to convince you that they can predict the future so they can move their products and sell their services.
Over time, their “mistakes” will lose you way more money than their lucky calls will make you money.
The only people who have the actual data needed to forecast a stock’s price are the people who work for the company – and they can’t tell anyone because they’d go to jail by breaking insider-trading laws!
There’s just too many stocks, too much news, and it all happens way too fast to cope with. Company news comes out of nowhere and could bring a stock down before anything can be done about it.
That’s way too risky, so individuals, and pros that manage money for clients, should not waste time trying to pick stocks. But they love to do it because it’s just so much fun to be a “player on the market.”
Some do it because it’s the only sales pitch they know how to tell!
It’s humanly impossible to find the time to both manage clients’ assets in a way to get the results clients need and expect, and keep up with thousands of stocks on a daily basis.
Some may get lucky here and there, but over time the losses of their “mistakes” will greatly outweigh their lucky picks.
Investments, Growth, Yield and Income
You’ve probably been listening all over about the fortunes being made in the stock market. With enough patience and a lot of discipline, you are almost guaranteed to make a considerable amount of money in the markets!
You merely need a willingness to put your savings to work in a balanced portfolio of securities tailored to your age and circumstances.
But you do have to understand how investing works. Investing is not about throwing all your money into the XYZ stock hoping to make a killing. Investing has nothing to do with getting a stock tip from your brother-in-law! Investing isn’t gambling or speculation.
Investing is taking reasonable risks to earn steady rewards.
Investing works because it allows you to participate in the relentless growth of the world’s economy, which hardly follows a straight line, but does trend upward over time. It’s also true that the longer you stay invested, the faster your money will grow!
When you are determining your investment strategy you will always have to consider the following three elements:
1. Growth: Growth is the rate at which your money appreciates during the time it is invested.
If you think you will need access to your funds sooner rather than later, look for an investment that provides a fairly safe and steady growth rate.
Long-term investments that are influenced by factors such as the inflation rate may lose money in the short term, but they can still grow over long-term.
What will matter is not a slow growth rate (or even a loss) during a particular period, but a higher growth rate over time.
2. Yield: Yield is the interest or dividends paid on your investment. Like growth, it can vary in importance depending on your needs.
If you are retired and your investment is funding your retirement, your investments should generate enough yield to let you live on the interest.
Savings accounts tend to yield small percentages. Stocks can yield the highest percentages but also have the greatest risk.
3. Income: Income is closely related to yield. Does your investment, or the yield from your investment, make up a significant portion of your income?
If so, you may want to be more conservative with your investment choices to ensure that the amount of yield it produces remains consistent and reliable.
You should give careful consideration to where and how often you want to reinvest your money, as it could effect your financial security.