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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Data service providers can furnish you with current prices on shares, futures, and optionsLook Around Where You Work Opportunities can also be spotted directly from where you work, your spouse works, or a friend works. For example, a friend of mine who was working at a pharmacy told me that one of her favorite customers sadly has AIDS. One day, he came into the pharmacy looking much better. He credited a new experimental drug from a company called Nexstar Pharmaceutical with helping him feel better than he had in years. My friend had an article from the local newspaper that her customer had shown her (he was mentioned in the article). I called my broker to ask about the stock. It was trading around $9 a share. I bought some shares in the company and within a few months it was well over $20 per share. (Ill give my friend credit for this one.) I sold the shares for a large return, and now I keep asking pharmacists what they consider to be exciting products. By going directly to the people who know a lot about a particular industry, I can leverage their years of education and experience into another profitmaking opportunity. Subscribe to a Data Service Provider Data service providers can furnish you with current prices on shares, futures, and options. In addition, you can receive up-to-the-minute news and market analyses. This information comes in a variety of ways, including the Internet, cable, FM radio, satellite, and wireless networks, and can receive price quotes that are real-time (as the prices change on the exchanges they are transmitted to you), delayed (typically 15 to 20 minutes after the prices change), or end-of-day (after the markets close). Your service fees are based on the kind of service you choose to receive. The faster you get your data, the more costly it will be to obtain; however, it will also be more accurate for making your investment decisions. If you are not going to sit in front of a computer all day long, then you dont really need real-time feeds; you can easily get away with delayed or end-of-day quotes. Subscribing to only what you need keeps your cost as low as possibleyou can upgrade later as your trading progresses. Depending on the data you want and the exchanges you sign up to, data feeds can cost you from $20 to $400 per month. There are even feeds used by the large institutional firms (big trading firms) that can run thousands of dollars per month. If you want to place longer-term trades, delayed or end-of-day quotes should be sufficient for your needs. In many cases, if you sign up to trade with an online brokerage firm, they will provide real-time quotes for you at no cost or for a very small fee. Some other web sites, like www.cboe.com, have real-time quotes available for a relatively small monthly fee. Remember, if you are just starting out, keep your overhead as low as possible. Request information on only the markets you initially want to trade. Too much information can be overwhelming if you dont know how to use it. It is essential to start small and build your profits systematically. A detailed account of data providers can be found in Appendix A. Watch Television with an Investors Eye Television is one of the best sources of beneficial investment ideas. Commercials can give you a greater awareness as to who is doing what, and who is competing with whom. Television is not just a source of daily entertainment; it is an exceptional medium for distributing information to the masses, much of which is useful for spotting investment opportunities. Specifically, you should watch commercials to discover which products you see over and over again and which products have been newly introduced. However, you can also use this powerful medium in other ways. CNBC and CNN Business are shown in many areas on cable. These are the primary channels watched by traders and investors throughout the trading day. CNBC was born from the Financial News Network (FNN), which was watched widely by the investment community. Before, during, and after trading hours, CNBC broadcasts market information on many issues, including stocks and futures. Expert commentators and guests give market summaries and opinions throughout the day. As a professional trader, I leave CNBC on with just enough volume to overhear any piece of information that might have a bearing on an investment decision. I typically do not watch any particular show unless something strikes me as intriguing, but I do listen to the commentary all day long. As with any news organization, they report on stories they believe to be interesting to their target audiencethe investment community. They talk about what is hot and what is not. They focus on the most marketmoving information they can find, because thats the business they are in. What kind of information do I listen for? Extremely good news and extremely bad news. This is where you can make explosive profits. For example, one day CNBC reported about a company that had a drug use test using a strand of hair. My broker informed me the stock was trading around $6 per share. I bought some shares knowing the news would get out overnight and create buying interest in the stock. As I predicted, the shares opened the next day at around $9.50. I sold my shares immediately, because stocks with this kind of run-up often come down quickly. The shares closed that day at around the same level I bought in at, leaving me with a 50 percent profit on an overnight investment. To give you another example, CNBC reported about a stock that had dropped from around $12 per share to about $3.50 overnight due to accounting irregularities. I called my broker and found that there were options available on the stock to trade. Seeing less risk in the options than the shares, I bought out-of-the-money (OTM) call options at $50 each. These I sold 27 days later at $150 apiece for a 200 percent profit in less than a month. My mother used to complain that I watched too much television. Well, watching TV for me now has become a profitable experience. Looking at CNBC or CNN Business, one can have a 15-minute delay of price quotes all at the touch of a remote (some prices are actually real-time). But what does this TV ticker tape tell me? Lets forget for the moment about the men and women at the anchor desks in the flashy studio, and concentrate on the bottom of the screen. This is referred to as a ticker tape. Before the market opens, you will see a recap of stocks using the closing prices of the previous trading day. Also, futures prices are mixed in every few minutes. At 8:30 A.M., after a government or economic re port, bond prices are shown in the lower right-hand corner for 10 minutes or so. Beginning at 9:30 A.M. and until 9:45 A.M. Eastern standard time (EST), the market averages run real-time across your screen. The top line usually represents the NYSE stocks, and from time to time futures will appear. The bottom line represents the AMEX and OTC stocks as well as real-time market averages that appear about every minute. Throughout the day, from 9:45 A.M. until 4:15 P.M., stock prices are quoted on the screen. These are displayed as the ticker symbol, followed by shares traded, followed by the last trade and the change in price since yesterdays close (on some stations)for example: IBM 10000.00 88 + .50 The stock symbol is IBM, which last traded 10,000 shares at $88 each, up $.50 from yesterday. If you see only the symbol and the price, then that was the last quoted price of the shares and no shares having been traded. Averages that are quoted include the Dow Jones Industrial Average (DJIA) and the Standard & Poors 500 Cash Index (SPX), followed by the daily change of the index. This information is useful to anyone who has the time to watch the markets on a daily basis. There are many more examples of how Ive been able to use television, especially CNBC, to make money. You can do the same. In some cases, I have been able to apply the contrarian approach to accelerate my profits even further. Local television programming is certainly not as concise as CNBC; however, you can pick up information on local companies and futures markets that are pertinent to the local community. There are also several national television shows that have segments on investing and trading, such as CNN and the Nightly Business Report. Unfortunately, most of them lack a great deal of specialized information; either they do not focus on the investment community or they intersperse business news with general news stories. Read Newspapers Attentively The first task is to learn how to read a newspaper efficiently and intelligently. A successful investor can scan a newspaper in about five minutes and spot potential opportunities. You must be able to pass by all the fluff and get to the meat of the information. You can start by picking up copies of newspapers that specialize in financial news, such as Investors Business Daily and The Wall Street Journal. (See Appendix A for a breakdown of investment terms found in these two papers.) Its also important to keep tabs on what is happening locally by scanning the local papers that highlight regional companies. This gives you an opportunity to get a better understanding of these potential investments. For example, if you live in the San Francisco Bay Area, you will find a great deal of news about the Silicon Valley companies (e.g., Intel, Oracle, Hewlett-Packard, Yahoo!, etc.). These companies employ a great many individuals in the region, so both good and bad news often leaks out. If you dont live in the Bay Area, you can locate information about Silicon Valleys high-tech companies by using the various resources found on the Internet, including our web site (www.optionetics.com). Since local newspapers are in the business of finding and reporting news that has an impact on the people in the area, they look for any chance to report on developments both positive and negative on major companies. Therefore, you can usually find a much wider variety of pertinent information in local papers than in a national newspaper. It is a wise practice to research the major employers in your area and then look for news that can directly affect the performance of these companies stocks. A number of periodicals and magazines are also available to help you spot good investment opportunities and educate yourself further regarding shares, options, and futures including Futures magazine, Technical Analysis of Stocks and Commodities, and Commodity Price Charts. However, make no mistake, both The Wall Street Journal and Investors Business Daily are essential weapons in the battle to locate investment opportunities. When looking at the first page of the Journals Money & Investing section, you can scan the left-hand side of the page to gauge what the markets look like. Focus on the interest and stock charts. See if they are moving in the same direction, or if interest rates are stable and stock prices are moving up, down, or sideways. See if the interrelationship follows what is expected. In addition to reviewing the tables in The Wall Street Journal and Investors Business Daily, I like to look at the chartsgraphical representations of price movementfound in the IBD. These charts are almost like looking at an electrocardiogram (EKG) of your heart. This EKG-like analysis does not require you to overstudy the chart. With a quick glance, a knowledgeable investor or trader can visualize the health or weakness of a stock or a commodity. New investors can look at a chart and easily ascertain one of three scenarios: 1. Is the price of the security (shares or futures) going up? 2. Is the price of the security going down? 3. Is the price of the security going sideways? The best investments will have momentum. This momentum should be monitored over both a short and long period of time. You want to make short-term investments by looking at short-term price momentum (daily or weekly) and long-term investments by looking at the investment from a long-term perspective (each quarter or yearly). If a stocks volume is low, it isnt likely to go anywhere. Look for increasing volume in a stock to signal movement. The best investments will have a reasonable price-earnings (P/E) ratio compared to the industry average. All of this information can be obtained by studying the investment sections in The Wall Street Journal or Investors Business Daily, or by consulting your broker or the Optionetics.com web site. To locate the best potential investment opportunities in a newspaper, you should focus on the following information for stocks: Stocks with the greatest percentage rise in volume. Stocks with an increase in price greater than 30 percent. Stocks with a decrease in price greater than 30 percent. Stocks with strong (buying) or weak (selling) earnings per share (EPS) growth. Stocks with strong (buying) or weak (selling) relative strength. Stocks making a new 52-week high or new 52-week low. Many people think that it takes years of practice to become a good chart reader. Some experts on technical analysisthe study of price movement through numerical analysistend to make the process look more difficult than it really is, so that many individuals give up in their quest to be good investors or traders before they have given themselves a chance to succeed. Many times, information from traders and analysts with accurate knowledge often gets lost in the abundance of useless investing debris. I have often mentioned that sometimes the best investment approach is to become a contrarian and do the opposite of what the crowd does. You may find local newspapers (depending on where you live) reporting on a number of issues that can affect commodity prices. For example, if you live in the farm belt of the United States, you will read many articles on the weather, crop expectations, and livestock outlooks. These tidbits of information get filtered to the investment community. Investors and traders then make investment decisions based on their perceptions of the impact of these tidbits of information on the prices of the various commodities. For example, on a trip to the farm belt, I noticed that everyone was talking about the skyrocketing prices of wheat and soybeans. I heard this in stores and restaurants, and it was front-page news in the local papers. I could telleven though I wasnt from the areathat there was a feeling of frenzy. No one thought prices could fall. When people who probably dont monitor investment prices make them a topic of conversation, I sense a frenzy. Thats when I know the end is near for that movement. I sold both contracts, knowing that on a very fast move up in prices, on any sign of weakness all those who thought the markets were shooting up to the moon will realize the party is over and have to sell in a panic. The same holds true for markets that move quickly to the downside. Sellers will become panic buyers. One of the most successful trading techniques is to look for markets that have made very fast moves to the upside or downside and watch for the momentum to change. You can then place a trade that benefits from a reversal. This accelerates profits, as a frenzied movement in one direction will move even faster (in many cases) in the opposite direction when the move is over. |
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