Does Your Trading System Have an Exit Strategy?

By Maclin Vestor

Many good trading systems use multiple exit strategies. In normal trading system, you need to know when to exit from a gain, and when to exit from a loss. Generally you want to be cutting your profits short, and letting your profits run. At a minimum, you generally want nearly a 3:1 gain to loss. This means you should take profits at 3 times the percentage amount as you cut your losses short. We will use this system and do the following

1) Exit stop at a 7% loss. This stop-loss should sell ALL of your shares. The simple method is to just set the stop and leave it. There are dangers of this because people may be able to see someone make the stop order on the floor, and if they have enough money, they can take advantage of that, selling lots of shares of the stock, pushing the stock price down below the stop, then forcing you and others who may have stops out, and then buying the stock below your price, so the stock will stop out, and then quickly rebound. The more advanced mode is to just watch it, and if it is going to CLOSE below your stop, only then will you exit 10 minutes or so before the markets close. The sophisticated way is to just not use stops, and instead buy puts. this increases the cost of the investment and thus limits your win, but you give up a fixed amount for protection against large losses.. This would insure that the stock doesn't drop overnight. A failed breakout is signaled if a stock drops 7% below breakout point. If you are buying stocks on the pullbacks, a 7% drop should signify a breaking of support.

2) Set a profit target at 20%. You can use a limit sell order to sell here if you would like, particularly for those who don't have the time to watch the stock. You should be willing to wait a full 4 months for it to hit it's target. If it hits the target, you should sell 1/2 to 2/3rds of your shares, and let the rest ride. Also, if your stock hits the price target within 8 weeks (2 months), this signals that your stock is a good one, and you want to hold onto your winners. There is a simple strategy and a sophisticated strategy. The simple strategy is to hold onto your stock until the entire 8 weeks is up. The sophisticated strategy is to sell most or all of your shares, and convert them to an option that you should own at strike price, or very close to it. You should ensure that this transaction is such that in a worst case scenario, you still will have a 5% gain. Generally, you will own say 100shares, sell 100, and buy 1 call contract at the same strike price the stock is at, and secure a profit, while still maintaining the same upside leverage minus the cost of the option and the transaction.

3) Set a trailing stop of 25%. This should serve as a function primarily to exit the remaining 1/3rd to 1/2 of shares that you let ride after you hit your price target of 20%. It is possible that the stock goes up near your target, which will raise this stop to 5% below where you bought it, or if you aren't using a limit sell, it could spike way up to up 35% from where you buy it, and then quickly come down, and sell out a small portion of your shares for a small gain. This is fine. In this case, either the stock will then proceed to drop below your buy point and go and hit the 7% stop-loss, or it will then bounce and gain until it hits your 20% target. In either case, you will sell the rest of your shares. Of course, if this all happens in a short amount of time, you may attempt a swap as a sophisticated strategy, but generally you should be done with it.

4) You should always keep records. Record how many you bought at what price and which exit(s) were triggered. You want to check all these stocks in a year, or so, and see if you could have made more by adjusting your stops, or adjusting the size of which you sell.

5) Enjoy the profits.

If you are a good system trader, you will make sure that they trading system you use has an excellent exit strategy. At System Trading|Stocks Trading Systems you will learn that an exit strategy will allow you make sure that you have a trading system with greater returns on your average gains than you have losses on your average losses. This is only one small aspect of a trading system but it is a very important one. In fact, your exit strategy will be vital in determining how much capital you allocate when managing your money in a trading system.

In addition, if you can find a stock selection vehicle in combination with a good exit strategy, it will insure that any given investment has a positive expected value. In other words, with a good exit strategy and stock selection that picks winners often enough, you will win more than you lose, provided you manage your money right. Learn these tips as a system trader, and you stand a much better chance at being a profitable trader than someone who does not understand the importance of a good exit strategy within a trading system. - 23167

About the Author:

Maclin Vestor teaches about How To Buy Stock Online. You can even learn about virtual stock markets and advice on the Stock Market For Beginners at his blog.

Have You Got the Right Attitude for Investing?

By Damian Papworth

When it comes to making investments wisely, few things count as much as having the right attitude. What does attitude have to do with it? Well, it's simple: investments need to be based solely on information and particular reasons that relate strictly to the investment itself and not anything else. The worst thing an investor can do is end up making decisions based on extraneous affairs that are irrelevant to the investment. That's where the saying "Plan the trade, and trade the plan" comes from. This article details some points which may assist with this.

1. Only invest with money that is not and will not be destined for basic living expenses. Even if the money is needed only several months down the line do not even think of using it for an investment. The reason for this is that if you do invest that money, subsequent decisions on the investment will be shaped by basic living expense needs, which strictly speaking is not a factor pertinent to the investment.

For example, Lets say you need that money in 3 months to pay a mortgage repayment. Your investment may temporarily drop on the very week you need the money. In this situation, the correct decision, based on your strategy, could be to hold for another week. But because you have the mortgage, you make the decision to close the investment. This decision was made on information which was irrelevant to the investment and ended up ruining the trade and causing a loss. This issue would never exist if you only invested money you didn't need.

2. When you invest your money, it may help you to imagine that that money is completely lost as soon as you invest it. Quite often investments look like they are going bad before they turn around. It just happens as part of the typical fluctuations of the investment market. Many a good investment has been turned into a bad one by people (me included) who get scared and close a trade, instead of giving it the time to complete successfully.

Thus, by convincing yourself the money is lost once you invest it, you effectively spare yourself the nervousness many investors suffer doing this lapse of time. Take it from someone who knows: nothing is more frustrating than closing an investment early at a loss, only to watch the same investment for others pull a 180 and make them loads of money...if only!

3. Any and every investor needs to accept that failed trades are a basic fact of life. Everybody will make a certain amount of trades that run into losses. The important part here is the attitude that you adopt in the face of such losses: being a poor, vision-less loser in such events will prevent you from ever becoming a successful investor over the long haul. Following are two exemplary ways to contemplate an unsuccessful trade.

3a). Instead of looking at your portfolio as a series of individual investments, think of them as a group or a totality. Imagine that based on a certain investment strategy you are running, four out of every five investments runs a profit (which alternatively means that one out of five is a loss). Instead of considering the losing investment as independent of the other four, rack all five up together in terms of net profit and then divide that by five, not four. The answer, which is your profit per trade, must reflect on all trades in the strategy and in that sense, 20% of the final net profit is courtesy of the failed trade. Remember: if it's a necessary part of the overall strategy, it is not strictly a loss.

The end result of this kind of attitude is that you don't let the fear of tiny mistakes or failures keep you from accomplishing larger goals.

3b). Consider your losses to be tuition for your investment education. In case you are not one of them, most of the people in this industry have put down many thousands of dollars and dedicated many years of their lives on getting degrees in the matter. For those that jump in without such degrees, the education comes as part of the failed trades: hence, make sure you learn from each and every one of them! The right, professional attitude is necessary here, free of emotions, as otherwise you're sure to lose the long term profitability of such endeavors.

Investment work and the markets are known for being able to bring out people's best and worst features. Thus, controlling one's emotional and irrational reactions is fundamental so that they don't cloud decisions. As the saying goes: "Plan the trade, and trade the plan. - 23167

About the Author:

Damian Papworth invests for his lifestyle and his family. Not too long ago he researched baby high chairs. He created a website with his analysis on high chairs for babies.

Decreased Volatility Breakout Strategy (Part I)

By Ahmad Hassam

Without understanding the crowd psychology, you cannot become a successful trader. Always try to understand the crowd psychology. Trading breakouts is one of the most popular ways of making pips from the forex market. Decreased volatility breakout is one of the subsets of breakout trading. While this strategy is similar to the strategy of trading breakouts, but it is specific to a certain conditions in the forex market. With this strategy, you try to take advantage of periods of low volatility in the forex market.

When prices change to a large extent within a short span of time, volatility tends to be high. Volatility is a measure of the scale of price fluctuations over time. The more the price changes during a certain period of time, the higher the volatility of the currency pair. The reverse also holds the volatility tends to be low during such periods when prices oscillate more or less close to a certain price level without deviating much from it over a long span of time.

Entering the forex market in periods of high volatility can be stressful for most of the traders as they dont know whether the trade will go their way or not. However, it is the periods of high volatility that lets traders make pips and it is the volatile nature of the forex market that attracts the risk seekers in search of high returns. Have you ever thought; why not concentrate on the low volatility period instead of focusing on the high volatility market.

Forex market is just people trying to buy or sell currencies. It is the psychology of the crowd that rules the market in the end. There is a tendency in the currency prices to alternate between periods of high volatility and low volatility in the forex market just like other financial markets. This recurrent pattern is due to the crowd psychology which is the force behind changes in the forex market.

You must understand how trend is developed in the currency market and how the crowd psychology affects the different phases of the trend. There are four main stages of a trend and there is a different crowd psychology behind each stage of the trend. These four stages are: 1) Nascent Trend, 2) Fully Charged Trend, 3) Aging Trend and 4) End of Trend. These four stages are closely linked to the cycle of volatility in the market. Lets discuss these stages of a trend in detail.

First Stage-Nascent Trend: Most market players are still skeptical about the possible new trend direction during the nascent stage of the trend. In the beginning when the new trend just starts either upside or downside, volatility is low as both bears and bulls tread carefully and are cautious. Nothing is clear at this nascent stage of the trend when it is forming. Market players are trying to confirm or deny the start of a new trend. So everyone is cautious whether the new trend will continue or it will fizzle out.

Second Stage-Fully Charged Trend: The trend is in full progress and it is time for more action now. During this stage the trend becomes well established. The trend becomes fully charged as there is now evidence from fundamental data that supports the trend direction. When the new information proves them wrong, traders who are caught on the opposite side of the market become exposed. They become desperate to get out of the wrong side of the market.

During this stage of the trend, a lot of changing positions will take place. Traders who were initially on the wrong side of the market become new converts to the trend. This causes the currency prices to move more dramatically within this stage of the trend. Volatility is high during the fully charge stage of the trend.

New information convinces most of the traders of the direction of the trend. Traders become convinced of the direction of the trend. Everyone wants to jump in the trend. More and more positions are established bringing prices to higher highs in an uptrend or lower lows in a down trend. Hence volatility tends to be high during this period. - 23167

About the Author:

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!

How to Sell Gold for Profit

By Tabitha Reaves

This is the worst recession for over 60 years and as we have all had to cut corners, tighten our belts and look for ways to save cash, many people have been taking a good, hard look at where they can make extra money. Many of us have old jewelry which is simply wasting away in a drawer or a box somewhere - it is unlikely to be ever used again and it is in every sense of the word, dead weight.

Selling gold and especially old jewelry has become a boom industry in the US and around the world.

Why?

The answer is simple - in times of recession, investors look to buy gold because it is considered a stable, secure investment - gold is what backs the currency reserves of the US dollar and currencies all around the world. When economic times get rough, gold is where the smart money invests and in turn, this drives up the price of gold while stocks and shares fall in value.

Because top dollar is now being offered for gold, it makes a good proposition for gold refiners to buy in the relatively small quantities of gold and precious metals included in your jewelry collection. The issue for you is how to get the best price for the collection you are looking to sell and how not to get scammed in the process!

First of all, deal with a gold buyer who is prepared to offer you a published price for the precious metal involved - not just gold, but also platinum and silver - reputable dealers will publish a daily buy-price for metals so you can easily see what you will get for your metal and be able to compare prices with other dealers. If you cannot see a published price or the dealer is not ready to come forward with a price when you ask, avoid doing business with them - this is something which is basic and fundamental.

In addition, when you are dealing with a dealer using the internet (or indeed in any advertizing medium) you should take some basic precautions to make sure you are dealing with who they say they are! Remember, you are trusting a substantial amount of money to their gold buying process and you want to be sure you are going to receive payment from the person you are sending the precious cargo to. If they have an internet site, check the contact information and make sure you are dealing with a real company at the end of the telephone number. If you call the company and you only get a call-center or customer service staff who do not appear willing to discuss your potential sale, then quite simply, don't deal with them. You should also make sure that the address they give is a physical mailing address for their business and that it can be verified.

When you have decided who you are going to transact the business with, make sure that they provide you with secure and insured courier or mailing services so you can be assured that the jewelry makes it to their refinery and if there is a claim, you are going to be fully compensated for any loss or mistake. - 23167

About the Author:

The best online resource to sell gold or sell silver can be found at www.refinity.com

Stock Market Investments

By Michael Swanson

Despite the current stature of our economy it seems that many people are still avidly interested in stock market investing. In fact, the internet has actually made investing in the stock market substantially a lot easier then you could have ever imagined with stock picks.

With investing on the internet, you eliminate the middle man also known as your broker. You are able to make your own decisions about your investments and where you would like them to go. There are a wide array of different brokerage platforms that you can become apart of.

There are many different aspects that you need to look further into before you begin engaging in any type of stock market investing. One of the first factors that many people seldom bare to look at is the way that the stock market can inadvertently play with your emotions.

Before you invest any means of money you need to realize that when you invest in the market you are taking a chance of both gaining as well as losing a substantial amount of money. You need to make yourself aware that these type of investments are a game of chance.

You should also try to learn a great deal about the technical aspects of investing. Learning how to properly read charts and things of that nature will benefit you on the stock market immensely. You want to be an investor that realizes the value of their investment, not someone that simply invests in things without knowing anything about what they are getting themselves into.

Another great thing for you to do before you decide to invest in a company is seriously contemplate if the company is worth you investing in. You should look over the company's finances and things of that nature to see if your investment will be a great idea or turn into an investor's nightmare. - 23167

About the Author:

For more on stock investing with specific stock picks go to WallStreetWindow.com.