Best Stock Investment Strategy for 2014

In putting together the best stock investment strategy for 2014 you can concentrate on finding the best stock investment or you can try to come up with the best strategy to deal with a market hitting all-time highs. Unless you have a real flare for stock picking, I suggest you focus on investment strategy.

There are two traditional ways to view the stock market: the fundamental approach and the technical school. The first approach tries to come up with the best stock investment or strategy by analyzing all kinds of economic and financial data like economic growth, unemployment and trends in corporate sales and profits. The technical school focuses only on the action in the stock market itself, like volume of shares traded and price trends.

I've followed this stuff for 40 years, sometimes in search of the best stock investment and sometimes (in my later years) paying more attention to investment strategy. Here's what I see in 2014 and beyond, combining both schools of thought.

The fundamental data is luke-warm at best. We've recovered from an economic crisis and a deep recession, they say. But economic growth is weak and unemployment is still in the 7% range. Corporate profits have grown, while sales growth has been lackluster. The stock market has been hitting all-time highs, as our government has gone deeper in debt while keeping interest rates artificially low to stimulate the economy. This looks nothing like the best stock investment environment compared to past recoveries. Things just don't look right from a fundamental viewpoint.

Technically, the stock market has been in an upward trend for about 5 years, showing gains of over 150%. This has happened before. But there's something to consider when trying to put together the best stock investment strategy for 2014 and beyond. If the fundamental data does not really improve to support these gains by 2015, stock investors who jump in now might be showing up at the party late. The upside action could be coming to an end.

Here's what else has happened before. Many investors missed this market and have just recently jumped on the band wagon in search of the best stock investment to make up for lost time. This is not new, nor has it normally worked out well for the average investor. If you missed out, I have a suggestion for you.

Don't play "catch up". Sometimes it's best to stay safe and liquid - waiting for a future opportunity. In other word, your best stock investment strategy for 2014 and beyond could be a passive strategy. As I once heard Warren Buffet say, "every 5 years or so the stock market runs into trouble". This could be one of those times.

By: Samory Borry On 11:12 AM

Continue Reading

Trading and Investing As a Process

All too often traders and investors get caught up in popular strategies such as "red light/green light," "buy on the dip," or "stop and reverse SAR." They start trading and investing as soon as they have learned the new strategy taught at a seminar, trade show, or webinar. If they are lucky they may make modest profit during the first few trades, then suddenly they have a series of losses. They struggle and work harder, trying to force the strategy they learned to work. They become frustrated or angry at the market, market makers, Wall Street and anyone else they bump into.

Their losses go from a string of losses to chronic loss syndrome. This syndrome is a series of losses with an occasional profitable trade which continues to encourage them to keep trying. They go to more free weekend seminars, watch more free webinars, and wander around more trade show searching for answers. They are sure that it is some magical trick, or something they are missing that is causing the losses.

However the problem is much deeper than that, and it starts with the notion that a strategy is all that is needed to trade and invest successfully. Strategies are taught first because they are all in public domain, meaning they are free for anyone to learn. Also they are an easy subject to present at a free seminar. They are short, to the point, and make it seem as if the retail vendor, broker, or speaker is has the answer to their trading and investing problems.

The real culprit is the lack of a trading and investing process. A trading and investing process is not difficult to learn and in fact, makes trading much easier and simpler than struggling to use several strategies and guessing all the time, or waiting for some news event to try and jump into a stock to scrape perhaps a dime of profit from all that work.

What is a trading and investing process?

It is a set of rules with parameters and a complete process that you follow every time you trade and invest. This begins with how you find stocks, analyze stocks, select the best stock to trade, risk analysis, point gain potential, and risk to reward ratio. It includes using the proper order, the proper stop loss, the proper trailing profit stop, to exiting the trade with the most profit possible. It is about having a trading style first with a complete process, and an understanding of the 6 market conditions. Then it is applying the appropriate strategy for the particular market condition that is currently underway, and the strategy most suitable for the stock selected.

A trading and investing process is not just watching the major indexes, but also determining market conditions. The indexes only include a small number of the thousands of listed stocks. What happens beyond the index component stocks is far more important because index stocks are bought for charters, mutual funds, and by smaller investors, whereas the underlying stocks that are best for short term retail trading tend to lead the big blue chip stocks.

Indexes are a part of the overall analysis but they do not provide a complete analysis of what is going on in the markets. Using news, indexes, and guru opinions is what causes most of the losses for retail traders. Using a trading and investing process eliminates the problems that result from insufficient trading preparation and inadequate analysis.

By: Samory Borry On 11:03 AM

Continue Reading

The Most Important Stock Indicator

Overall the most important stock indicator is Volume. Candlesticks are an important price indicator, however candlesticks do not complete the chart analysis which is a crucial aspect of successful trading. There are three data that come from the market which are Price, Time, and Quantity. Price is represented on the chart by the candlesticks, Time is represented by the chart timeframe, and Quantity is represented by volume bars.

Quantity the data stream, has two primary types. The total number of shares traded at that time whether it is a millisecond or a year, and this is the total number of shares represented by volume bars. Quantity can also refer to the number of shares per transaction, but that is not discussed in this article.

Volume bars should be represented on your charting software with green bars for up days and red bars for down days, because this provides exceptional analysis easily and quickly. If you use a solid color such as blue and do not differentiate up or down days, your analysis will be impaired and will take much longer. Each volume bar on a daily chart represents the total number of shares that traded hands that day, therefore one side of the trade and not both are represented in the volume bar.

Use daily charts and analyze end of day volume, because then you are analyzing the "consolidated" tape volume. This volume differs from intraday because it includes all volume from every trading platform and venue, not just the exchange volumes. ATS Dark Pools, Electronic Communication Networks for Electronic Trading aka Day Trading, and Regional exchanges all must report their data. All of this data is called the consolidated tape, which includes the total volume from all sources.

The total consolidated volume is an important part of making sure your stock chart analysis for selecting stocks is correct. With the consolidated volume provided at the end of the day from your charting software, you can quickly go through stocks using the basic criteria of at least 100,000 shares traded per day average. Always make sure that you check the volume for any stock you trade.

Avoid trading stocks that are illiquid. This means is there are so few shares traded per day that buying the stock can be very risky. Without sufficient volume, there is a lack of interest by the market participants and this can lead to weak picks, poor trading profits, or even losses. Illiquidity also skews any indicator you might apply to the stock, and lack of volume makes price action extremely volatile and unreliable. To determine if the stock has sufficient liquidity always study volume bars first before checking any other indicators.

By: Samory Borry On 10:54 AM

Continue Reading

How To Trade A Penny Stock

Do you know how to buy and sell a penny stock? Chances are, you do. If you know how to buy MSFT or GOOG then you're set - because the actual process is the same. You fire up your broker's website, like E*Trade or Scottrade, look up the symbol and execute the trade. Selling is the same too. Open the broker's site, find the stock in your portfolio and execute a trade to sell the stock.

So, if it really is that easy, what's this article all about?

There are a few differences between buying and selling a penny stock compared to a traditional stock.

First, not all penny stocks are listed, or supported, by your online broker. Because there is significantly more risk carrying penny stocks, some online brokers do not list them all. You might find a good penny stock you want to invest in, only to find it isn't listed by your broker.

To compensate for the risk, some online brokers charge more fees on top of the trading fee. This is typically a percentage of the trade's worth, or fixed amount per share. For example, to trade the micro stock ABCD, which is valued at $0.01, a broker may charge you 0.5% of the total trade value in addition to the $9.99 trading fee. If you bought 10,000 shares, it would cost you $110.49 ($100 for the stock, $9.99 for the trading fee, and $0.50 as a surcharge). These costs can add up as you add to your portfolio - especially if you trade in larger volumes.

Each broker has their own rules, but many surcharge on stocks valued at less than a dollar.

Also, you have to understand that sometimes selling (and even buying) a position in a penny stock can be much more difficult than a traditional stock. To buy a stock, there must be outstanding shares available. To sell the stock, someone must be willing to buy. Sometimes, depending on the stock, it may be hard for either condition to be true.

To protect themselves (and presumably you) most online brokers require you to put penny stock orders in as limit orders instead of a traditional market order. In a limit order, you specify a price (a cap) you want the stock to be at before the order executes. Because prices can fluctuate rapidly, chances are the price you see isn't necessarily the price the stock is at currently. For example, let's say ABCD is at $0.01 and you want to buy it but spend no more than $0.03 per share. You would enter a limit order of $0.03 and the trade would execute as long as the price was equal to or less than three cents.

A limit order to sell works the same way. When the price reaches let's say $.10, if you enter a limit order to sell at $.10, the trade would execute. Some brokers also allow you to specify the "low" point to sell at (limit loss or stop loss). For example, if ABCD falls below $0.02, sell the stock to cut your losses.

These are different from market orders which execute at the current market price. Again since prices rise and fall rather dramatically, these measures are in place to protect you.

I hope you have learned more about trading penny stocks - happy investing and good luck.

DISCLAIMER: I am not a licensed financial advisor, investment broker or analyst. I am just an amateur trader giving his amateur unbiased opinion and sharing with the community what works for me. Always use prudent investing, and never invest more than you can afford to lose - in other words, be prepared to potentially lose whatever you invest.

By: Samory Borry On 10:49 AM

Continue Reading