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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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I prefer to use options to protect my investments, because I find them to be more profitable and safer in the long runTrading Resources TRADING MEDIA SOURCES Futures Magazine This top-notch monthly magazine as well as its online counterpart is a must-read for finding great futures investment opportunities, understanding the markets, and learning all aspects of successful futures trading. It has an excellent editorial staff and offers in-depth analysis of futures markets, trends, seasonal forecasting, and individual commodities. www.futuresmag.com Technical Analysis of Stocks & Commodities This insightful monthly offers a good cross section of stock and commodity information. In some ways, it is more technical than other periodicals, but its a very good source of interesting trading ideas. www.traders.com The Wall Street Journal It is a rare event to find anyone who has not heard of The Wall Street Journal (the Journal). This publication seems to have been around for ever and will undoubtedly be around for many years to come. With worldwide distribution and a wide readership in the United States, it has the ability to influence the markets. If a company is mentioned in The Wall Street Journal, it is news. The Journal is packed with informa tionsome useful to the investor, some not. The following areas are the most useful for spotting investment opportunities, as well as providing a perspective of what is happening in the markets. www.wsj.com Whats NewsBusiness and Finance (Front Page) This section is the first read of the day. In just a few minutes, you can scan summaries of the most important information you need. You can then turn to the detailed article if you find something that interests you. Money & Investing (Main Investment Section) On the first page of this section, you will find the Markets Diary containing the following series of graphs: stocks, international stocks, bonds and interest, U.S. dollar and currencies. These charts are placed here purposely. A knowledgeable investor can look at these charts individually and collectively to get a very good idea as to the outlook for the U.S. economy, the stock markets strengths or weaknesses, and even what the world may think of U.S. economic prospects. The second page of this section provides some valuable information that many investors tend to overlook. This includes the following: Most Active Issues (Various Exchanges). Many stocks show up here day after day. To spot profitable trade opportunities, you want to locate those that are new to the list. For example, while you may see Wal-Mart and Intel on the list each day, its important to concentrate on finding the new stocks. These new stocks have increased in volume for a reason. You may also ask your broker if any new stocks came out. If there isnt anything new, then this may be a good momentum investment time since there may be news that hasnt leaked out yet. Does this happen? Yes. It happens all the time, even though its not supposed to happen. Price Percentage Gainers . . . and Losers. This is my favorite listing. If there were only two pieces of information I could look at to make a smart investment, I would pick these two because they reveal the stocks with the greatest momentum (up or down). The best investments are based on momentum, at least in the short term. I watch these stocks like a hawk to see if they have momentum that is continuing (good or bad) or momentum that is slowing and reversing. I look for a chance to do the opposite on fast movers down (price percentage losers) by looking for buying opportunities. I also like to buy on a fast mover up (price percentage gainers). If a move up is missed, I look to sell as soon as the momentum starts slowing or reversing. Bottom line: Focus on the information in the Price Percentage Gainers and Losers columns and learn how to use it intelligently (as described in this course) to make money. Marketplace (Review Front Page) This column can be used effectively if you scan for news that is dramatically bullish (good news that should help a stock price go up) or excessively bearish (bad news that should make a stock price go down). One of the best ways to use much of this information is to do the opposite of the crowd by employing the contrarian approach to investing. The theory behind this approach is that the majority of the investors will be wrong a majority of the time (i.e., most people lose money when they invest). Look for information that sounds very optimistic or very pessimistic then watch these stocks to see how they react once the information is in the marketplace. Stock Page Headings Many people look at these tiny numbers and become overwhelmed. This section of the paper is easier to read once you know which information is important to focus on. 52 Weeks Hi/Lo: High and Low Prices for the Past 52 Weeks. Impor tant: This figure tells you the price change of a stock over the past year. The difference between the high and low is called the range. If a stock has moved only $1 in the past year, it is likely to stay in this range. Also, if a stock is at its 52-week high, it may be ready to make new highs. This is one you want to look at as a potential buy. If a stock is at a 52-week low, it could break down and go lower, which may be a selling opportunity (going short). It is generally stated on Wall Street that strength leads to strength and weakness leads to weakness. Since many investors use this information to make investment decisions, it can have great influence on the directions of many stocks. Stock: Name of the Company. Important: Obviously, you need to know the name of the company and its abbreviation to trade it. Yld Div/%: Dividend Yield. Not Too Important: Unless you are buying stocks based on dividend yield (the return you make on a dividend payout) and earnings, this is not a critical number. If you are building a long-term portfolio based on yields, then you will want to compare one stock versus another using this information. Many stocksespecially high-tech stockswill have a low dividend yield yet are still good investments. PE: Price-to-Earnings Ratio. Important: The price-to-earnings ratio tells you how many times the earnings a stock is trading at. For example, a stock with earnings of $1 per share and a price of $20 has a P/E of 20. If the industry average is a P/E of 40, then this stock may be undervalued. If the stock is trading at a P/E of 100 ($100 per share) with the industry average being a P/E of 40, then the stock is likely overvalued; on any sign of weakness, the stock will come tumbling down. Brokerage firm analysts establish guidelines for each industry. For example, a slow-growth industry, such as the steel industry, may have a P/E of only 10, while a high-growth industry, such as the Internet businesses, may have a P/E of 40 or higher. These range significantly. There are a number of publications that list this information, including Value Line. Vol: Number of Shares of Stock Traded per Day. Important: This num ber is important when the volume is increasing significantly. For example, when a stock has an average share volume of 100,000 shares and the stock trades five times that high (500,000), this information is useful. If the stock has a high trading volume and is found on the Price Percentage Gainers . . . and Losers list, then you have a confirmation signal that the stock is making a move. When volume is decreasing or stable, the stock will likely go nowhere as interest in the stock is dwindling. It is important to watch the volume of the stocks you own or are trading to see whether there is a momentum increase or decrease. Hi/Lo: High and Low Prices Yesterday. Not Critical: Unless you are day trading (going in and out during one trading session), this information is not critical. Investors and traders look at this information to signal if stock traders will be running stops. This technique can also be used to look for orders from public traders. For example, if a trader sold a stock yesterday, he or she may place a buy stop (to cover losses) above yesterdays high. This is referred to as a resistance point. If the trader bought a stock, he or she may place a sell stop (to sell the stock purchased) below yesterdays low. This is referred to as a support point. These techniques are used frequently for protection if the market moves against the original position. Note: The technique of running stops is used by many investors and traders; however, it is not what I recommend. I prefer to use options to protect my investments, because I find them to be more profitable and safer in the long run. Close: Closing Price Yesterday; Net Chg: Change in Price Yester day. Important: These two points are important as they represent the dollar value a stock has changed. The net change value is based on where the price of the stock is today relative to yesterdays close. If a stock is trading at $10 today, and it closed yesterday at $8, then the stock has a net change of +$2. This 20 percent increase is significant (30 percent is even better). If a stock is trading today at $10 and closed yesterday at $20, this $10 drop in value (50 percent) is very significant. Note: The Wall Street Journal contains a great deal of information. Each day, I scan the newspaper and look for clues to make intelligent investment decisions. If you make an effort to learn to use The Wall Street Journal to its fullest, you will have made a significant investment in your own trading education. Investors Business Daily Investors Business Daily (IBD) was started with the intent to add a new dimension of information to the investment community. IBD focuses on concise investment news informationincluding sophisticated charts, tables, and analytical toolswith the hope of adding valuable information that The Wall Street Journal may not provide. As the name implies, Investors Business Daily is published for the investor. IBD is an excep tional daily newspaper for an investor to learn about the markets and locate profitable investment opportunities. It is an excellent publication for spotting stock patterns that can produce excellent trading profits. Its well worth the investment. www.investors.com Note: Since some of the information included in IBD has already been explained in the previous Wall Street Journal description, I will refer to this information when applicable. Executive News Summary Located on the very first page, this section is a brief, yet useful summary of the important news of the day. Once again, you want to focus on news events that are either extremely bullish (positive for the market or an individual stock) or very bearish (negative for the market or an individual stock). If you find an article worth exploring, you can go to the details within the article. Stock Tables: Intelligent Tables One of the most interesting features in IBD is its intelligent tables developed for the major stock markets. These contain some of the most important information on stocks based on a number of technical indicators. IBD uses a number of standard technical indicators that will be reviewed in detail. Note: Once again, you need to focus on the movers and shakers in the market. If you focus on ordinary stocks you will produce ordinary financial returns. As discussed in The Wall Street Journal section, you need to focus on the stocks that have a reason to move. Stocks move on momentum either due to technical factors or because they are being watched by a large number of investors. You will find Intelligent Tables that list selected stocks with the following indicators: Greatest % Rise in Volume. Most Active. Most % Up in Price. Most % Down in Price. You will also find Intelligent Tables for the three major exchanges: New York Stock Exchange (NYSE). Nasdaq over-the-counter issues. American Stock Exchange (AMEX). Table Column Headings EPS Rnk.: Earnings per Share Growth Rank. Important: This num ber is calculated as an average of five-year earnings per share growth and stability and the EPS growth the last two quarters. The resulting number is compared to other companies in the table and given a rank of 1 (lowest) to 99 (highest). Focus on companies with an EPS ranking of 95 or better when buying and 20 or lower when selling (i.e., buy stocks with the greatest strength and sell the weakest). It is a good idea to track the EPS rank of your stocks on at least a weekly basis so you have a chance to make changes to your portfolio if there is a dramatic change in the character of your investments. Rel. Str.: Relative Price Strength. Important: A relative strength weighting is used to compare one company to another, or one industry to another. This IBD table is an analysis of a stocks price change relative to other stocks in the table over a 12-month period. When buying options, I focus on stocks with a relative strength weighting of 80 or better, and 40 or lower when selling stock short. Acc. Dis.: Accumulation Distribution Rating. Important: This indica tor reflects the percentage change of a stocks price and its volume, two of the most important indicators of strength or weakness in a stock. IBD uses the rating A (strongest) to E (weakest). I like to focus on As only for buying and Es only for selling stock short or taking a bearish perspective on the stock. Vol. % Chg.: Percent Change in Volume. Important: This is an interesting addition to the table of information. IBD highlights stocks that have prices greater than $10 when the volume increases by 50 percent or greater than the average volume over the last 50 trading days. Why is this important? Volatility. Always look for large increases in volume. I look for increases that are at least double (200 percent) in average volume because the larger the increase in volume, the more likely some thing important may be happening. This is a typical signal of momentum change, which indicates strong impending moves either up or down in the price of a stock. Note: Look for stocks that are lower than $10 in price that have volume percentage changes of 200 percent or greater. These could signal the beginning of explosive growth in the price of a stock. Other table column headings include: 52-Week High. 52-Week Low. Closing Price. Price Change. PE Ratio: price-to-earnings ratio. Float (mil): number of shares outstanding. Vol. (100s): number of hundreds of shares traded on the session. Investors Business Daily Option Guide from Daily Graphs This exceptional publication can help you spot stocks and futures with options ready to make a big move. This periodical reviews every stock that has options, complete with the related charts and graphs. This publication and its online counterpart is worth its weight in gold many times over once you understand the risks and rewards associated with options strategies. www.dailygraphs.com |
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