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One of the most important things about trading is the management of the risk on your trade positions. Let’s face it, if the market just doesn’t go anywhere while you are in a position, you just cannot gain from it. So, depending on market volatility, you really cannot control to any degree what your gains will be. You can, however manage what your losses can be to some degree with good risk management techniques.

The principle is simple but it is really hard to do (all these examples will be based on a long trade, use the opposite for shorts). When entering a trade, I simply do the opposite of what I feel. That’s right, buy when the market is falling and sell, when it is rising. If trading on a daily time frame, to buy for example, I might like to see the market at a 3-5 day low, or below a moving average of some reasonable length. Then, I like the particular interval I am in to also be down. For example, I will buy on a down day.

I have attended money manager conferences and listened to industry professionals talk about how they will buy into strength. This is great in a bull market, but in today’s uncertain markets, in my opinion, it is a recipe for disaster.

Let’s look at the logic of it. That stock market spends a good portion of its time alternating up and down without making any ground. This is true on just about any time frame. Research suggests this is true around 66% of the time. That means you have a significant edge over random entry using this concept for trade entry alone. Further, it tells us that as the market moves higher (on a buy) there is that much less to go before it turns around and continues back down again. As a result, it can be much lower risk to actually enter a buy when the market is declining (to some measure of its alternating range) because the amount I stand to lose is lessened.

So, even though it is very uncomfortable to buy while the market is declining, I know it is reducing the amount of risk I will take on the trade at the same time.

Let’s consider the psychological factors as well. If I am feeling really scared that the market is falling when I am putting on a long trade, I know most other market participants are feeling the same thing. This assures me that my fear to buy is really an indicator that measures current market sentiment. If sentiment is really that low, then I reason we must be running out of sellers to drive the market lower.

Let’s look at it from a numerical standpoint on where I might place a stop loss order. If the recent previous low on the S&P is at 1280 and the market is declining into that area, I am thinking the market will likely react and go back up at that level. If I buy near that level, I can place a stop beneath it by a reasonable margin, say 1275 and have that be a reasonable measure, if it gets hit, as to whether I was really wrong or not. So as the market declines to that level, my mind is oscillating between the greed of buying the absolute low and the fear of it continuing to fall. But, for every point it falls, it is one more point reduced from my risk. At some point in this equation and mental oscillation, I pull the trigger and buy (preferably at 1280 or so, if I can get it).

Using this mental exercise to enter a trade has taught me much. I have done this for years and have been very successful with it. Now, having trained myself in this way, I experience fear if these conditions are not true. This is true because I want to get a good deal, and this translates into small stop sizes and smaller losses when I have them.

What does this mean in the big picture? By keeping my losses reasonably small and going against the majority, I do not get demoralized by trading. That keeps me in good spirits while the market is beating people up (which is just about the time it will take off for a really good move). So the famous wisdom of Rudyard Kipling stands: it is important to keep your head about you when all about you are losing theirs.

You can’t win if you don’t play the game. The market has a way of demoralizing its participants just before the very best moves. By keeping your risk managed, and your spirits high while trading, you will always be there when the market decides to deliver you a really big trade (the one thing you cannot control). Make sure you are there to benefit from the spoils of the trading battle.

Rob Mitchell is co-owner, researcher and head trader at EminiForecaster.com , an internet website specializing in cyclical stock index swing trading. For more articles like this visit my blog

Only a few of us are born with investing qualities. Even the greatest investor of all times, Warren Buffet, made a number of mistakes before getting on the right track. The difference between a successful investor and an unsuccessful one is the ability to learn and avoid the mistakes other people have made.

It’s no secret that many investors focus obsessively on one investment that’s losing money, even if the rest of their portfolio is in the black. This is one of the most famous mistakes, called loss aversion. Like this mistake, many investing mistakes are related to our physiological nature as human beings. Here are two more main behavioral mistakes that you should avoid.

Overconfidence - Overconfidence refers to our boundless ability to think that we’re smarter or more capable than we really are. Optimism isn’t a bad thing; however, overconfidence can harm you as an investor when you believe that you are more capable of spotting the next Microsoft than another investor. You have to recognize that you are probably not (nothing personal…).

Overconfident investors tend to trade more frequently because they think they know more than the person on the other side of the trade. The commission and tax drawbacks of trading too frequently are the number one factor for shrinking the portfolio of these traders.

To avoid overconfidence in your investing, document and review your investment record over time. It’s easy to remember your one stock that gained 50% in a short period, but records may reveal that most of your investments have overall negative returns for the year. Also, even if you’re an expert, remember that the investor on the other side of the trade is no less smart than you; always consider the odds that he can be right and you can be wrong.

Anchoring - Ask an American to estimate the population of Spain and they will anchor on the number they know, the population of the U.S., and adjust it down, but not enough. The opposite will also happen if you ask a Spaniard about the population of the U.S. This anchoring will happen to any one of us when trying to estimate things that are unknown.

The same thing happens to many investors. They buy a stock and anchor on the price they paid for it or on the financials of the company when they bought it. As a result, if the stock price went down, even if the company is not attractive any more, they continue holding on to the stock. They anchor on last year’s earnings and on the buy price, hoping that the stock will return at least to the point where they bought it. For the most part, it won’t happen and the deterioration of the business was translated into price reduction; thus, years could elapse before the stock returns to that point, if at all.

In order to avoid that, ask yourself a simple question: “Based on the current valuation of the company, would I buy this stock now?”. If the answer is yes, it is rational to keep it; otherwise, realize that you have lost some money, then sell it and move to other stock. Remember that the loss from this investment can be used to reduce tax payments on other investing gains.

It’s easy to recognize these mistakes but harder to avoid them in your investments. The best way to overcome these mistakes is simply by practicing in similar situations. Obviously, it isn’t wise to practice in your real investment account so you are encouraged to practice it in stock trading competitions. At the beginning, it is possible that you’ll make mistakes in many of the games that you’ll participate in. In time, you’ll become much more experienced and aware of these behavioral mistakes, and eventually learn to avoid them.

Yinon Arieli is a value investing researcher who writes for several leading sites and newspapers. He is also the head of content at Yalicoo, a virtual stock market game website, where users can win real cash money prizes.
For more info on our stock trading game visit http://www.yalicoo.com/

The first thing every investor learns is not to put all his eggs in one basket, which means diversify your portfolio with a blend of securities or, in the case of a stock portfolio, a larger number of stocks. Diversification makes sense as long as you understand that over-diversification is as bad as under-diversification.

The main purpose of diversification is to protect you from losing money due to the risk involved in the stock market. This stock market risk is composed of two kinds of risks: the overall market risk and the individual business risk (let’s ignore inflation and currency risks in this post for simplicity). The market risk is the risk caused by the fluctuations in stock prices. Many factors can cause these fluctuations, starting from changes in individual companies, to revisions in sectors and changes in the overall economy. The fact that there is no definitive way to predict the direction of these fluctuations in advance, combined with market globalization, makes it almost impossible to reduce the market risk. In other words, unless you have a fortune teller’s skills, no matter which or how many stocks you hold, your portfolio will fluctuate in a manner similar to the market (on average). As a result, in a bearish (declining) market such as the market we are currently in, your picks will probably go down (again, on average),and vice versa - if the market trend is up, your portfolio will benefit from it.

Observe the portfolios of great market gurus; almost all their portfolios lost value due to the market drop in the past year. For example, Bill Miller and his Legg Mason Value Trust beat the S&P 500 from 1990 to 2005, but he’s down 30% a year to date. Investment expert Marty Whitman’s Third Avenue Value Fund, which returned more than 14% a year since 1990, is down about 17% so far this year. Even the all-time greatest value investor Warren Buffet’s company recently suffered major losses.

However, a wise diversification can definitely decrease the individual company risk while not reducing your chances to beat the market. Obviously, holding only a few stocks in your portfolio is much riskier than holding 500 stocks. However, the additional risk rapidly decreases as the number of stocks increases; the market statistics show that if you hold 15-20 stocks in your portfolio, even if they are randomly chosen, the risk will be only slightly higher than the market risk.

There’s no absolute best number of stocks to own. Too few and you’ve taken on too much risk. Too many and you’ve diluted the power of your holdings more than you needed to. Different numbers work for different people; it all depends on the level of confidence you have in the companies you chose. The level of confidence in your investing strategy can be dramatically improved simply by practicing your skills on virtual stock trading services such as Yalicoo. By using these services you’ll experience real time occurrences thus learning to adapt your strategy to the real market behavior.

As a rule of thumb, it is usually wise for novice investors to hold around two dozen stocks in their portfolio (but not more than that). As your level of research and margin of safety on each company rises, experienced investors can safely concentrate their portfolio on much fewer ideas, setting it to grow more quickly. In any case, remember that diversification by itself is not a magic word; it won’t do you any good if you don’t know what you’re doing. Therefore, do your homework and practice virtual stock market investing before putting your real money in the market.

Yinon Arieli is a value investing researcher who writes for several leading sites and newspapers. He is also the head of content at Yalicoo, a virtual stock market game website, where users can win real cash money prizes.
For more info on virtual stock trading visit http://www.yalicoo.com/

To get started investing on the stock market, you first have to learn the ins and outs of stock investment. When you want to make money, there is no better way than by investing in stocks because of the high rate of returns that they offer. You can make more money with stocks than you can with bonds or by investing in real estate. In an average year, you could expect to receive a 10% return on your investment with stocks. When you hold a stock for more than a year and then decide to sell, you won`t have the pay the standard tax rate on investments. Instead you are taxed at the rate of 15%, which is the rate for long term investments. You can easily diversify your stock and have investments in many different areas of the economy. You do have to be careful of which companies you do invest in because if they go bankrupt or go out of business, your stocks will be worthless.

Investors that are new to the stock market often make the mistake of making too many trades or trading their stocks too often. You will end up losing more money in this manner because of the broker fees you pay and you will be charged the standard rate of tax on any profits that you make. It is best to hang in with a stock for a while to chart its performance on the market. Just because a stock does poorly in one day or one week does not mean you should trade as soon as possible. You have to look at the company`s performance in similar conditions and see if the stock does start to rise. Don`t panic when you see the market prices going down.

You need to work through a stock broker when you want to invest in stocks. One thing that you need to look for when searching for a broker is the ability to make trades and buy stock online. Without this you will have to wait until office hours to place a phone call to your broker to put in your order. There are many brokers that can handle all the online requests no matter what time of the day or night you want to place them. You will not get to speal to anyone in this way, but you have the option of being able to take advantage of good deals when most people are still asleep. There are also brokers that specialize in working with beginning investors and will help you understand all facets of the investing process.

One of the best strategies you can use when looking for stocks os to look for those that are undervalues. These stocks will earn more than tha analysts think they will and will therefore earn you the most profit. Focus on stocks that have projected growth over the long term. The growth does not have to be rapid, but slow steady growth will help you earn money on your investments.

If you have been asking yourself what is stock investment or you just want more information on stock investment and stock investment for beginners visit http://www.StockInvestment123.com

You may have heard of margin accounts several times and wondered what they were and if you needed one. Basically, margin accounts give you greater flexibility for trading with your brokerage. However, the added benefits come with greater risks, so please read your broker’s agreements carefully.

Benefit #1 - Borrowing Money
There are three main benefits of having a margin account over a standard cash account. The first one is the ability to instantly borrow money from your brokerage in order to buy more shares than you could afford with just your cash. This is called leverage because it allows you to do more with less. Of course with the ability to gain much more, there is also the ability to lose that much more! Given that fact, it is generally not recommended to borrow very much money for trading. However, the borrowed money may also be used for a personal loan rather than trading. This is an easy way to get cash fast without a complicated loan application.

Brokerages usually offer very competitive interest rates because your cash and stocks are used as collateral. Interest will usually be charged for every day that the loan is outstanding, so you probably do not want to use margin for a long-term investment.

Benefit #2 - Day Trading
The second benefit is it makes day trading much easier by avoiding the settling period. With a normal cash account you must wait three trading days after you sell your shares in order to use the money from the sale. With a margin account, the brokerage effectively lends you that money during the settling period so you can continue trading right away.

However, you cannot do unlimited day trading without meeting some more requirements. If you perform more than three trades within a five-day trading window, the government will consider you to be a “pattern day trader”. That really just means that you will be required to keep at least $25,000 in your margin account at all times to continue day trading. So be mindful of how many day trades you perform. Many beginners get caught in this trap without realizing it.

Benefit #3 - Short Selling
The third benefit is the ability to short-sell. Short selling allows you to make a profit by selling high and then buying low on a company that is falling in price. The short sale involves you borrowing shares from your brokerage and immediately selling them on the open market. You will then owe the brokerage that many shares in the future. When you finally do buy back the shares and return them to the brokerage, hopefully you will have made a profit. Keep in mind that short selling involves extra risks and restrictions by your brokerage and the government bodies.

Maintaining Margin Requirements
If you borrow money within your margin account, your current cash level and stocks are used as collateral. Therefore, if your account drops in value, so does your collateral. If that value drops too far, your brokerage may request that you send them more cash. This is called a “margin call”. If you fail to meet their requirements, they have the right to automatically sell some of your shares in order to get back some of the cash you borrowed from them.

Nicholas Swezey is the creator of the Portfolio Challenge at HowTheMarketWorks.com.

The Secular Bull Market in Gold Investments corresponds directly to the Secular Bear Market in Financials. We explain why this trend will continue and why a short-term buying opportunity in Gold presents itself.

Central Banks are in all sorts of a pickle.

With overwhelming evidence that the global economy is slumping badly:
* UK Retail Sales see Worst Slump in 20 Years
* Business confidence in Germany is at lowest level in 2 years
* New Zealand’s central bank cutting interest rates saying slowing economic growth will curb inflation.
* Japanese exports decreasing YoY, and imports climbing on record Oil prices.
* US unemployment at 4-year highs

The knee jerk reaction by central banks is to man the printing presses and hit the accelerator. And whilst this medicine has worked well over the last 25 years, Central Banks are now hitting a brick wall that they havent encountered since pre-Keynesian 1930s.
Freshly minted fiat currency is falling into the hands of a crippled banking sector with little capital, ability or desire to carry out the multiplier effect and make loans to real people in the real economy. In a debt laden global economy with no reverse gear this headwind is possibly the biggest threat the Federal Reserve and its ilk aka the establishment have ever faced in carrying out monetary policy

Point #1 Gold investors are well aware of the risks inherent in the current financial system.

The beauty of capitalism and the associated free movement of capital is that smaller more focused entities aka Hedge & Private Equity funds can and are rapidly moving into long held banking preserves.
* Direct lending to mid and small cap entities is now a well worn hedge fund territory.
* Extracting value through Shareholder activism.
* A much larger pool of capital available for short selling.
* Private Equity funds increase investment time horizons.
Highly secretive and operating out of non-transparent domiciles these entities are by and large out of the reach of the central banking system.

Point #2 Hedge Funds and Private Equity Funds do not benefit from Fed handouts and would be better served by a currency that acts as a stable store of wealth: Gold!

The transfer of the financial system is akin to the explosion of information on the internet. The players that used to have a monopoly on information become less effective. There will be winners and there will be losers. But right now a bet on Gold Investments like Gold Stocks and Gold ETFs is a bet against the Establishment and the out-dated mega-banking system.
Slower growth will continue to cause problems for financials as bad debts soar, and as a result Gold investments will continue to propel higher in its multi-year Secular trend.

Short-Term Opportunity

The above trend stretched too far technically over the last 3-months and there has had a rapid reversal over the last 2 weeks. This is a technical pullback only and the above fundamentals have not changed. Theres more to come in this fundamental story and Gold investments (we use GLD gold Exchange Traded Fund) and we could be getting close to another buying point for gold soon

Gold Investment GLD Fund Prices - $85 is strong support as a confluence of lateral support and the 50-week Moving Average converge. Its just a matter of time before we have another entry point to add to our positions and or make another profitable gold investment.

Chris Vermeulen is a trader and newsletter writer specializing in the price of gold stocks, gold ETF, oil stocks, oil etf, silver stocks, Junior Mining and Energy Stocks listed in the US, Canada and Australia. Please visit my website for more information. www.TheGoldAndOilGuy.com