Why Cutting Losses is Essential to a Winning Stock Trading System

By Maclin Vestor

There are some people who can buy a stock with the intention of holding it for years and years. If this is you, you look at a lower stock price as an opportunity to get it cheaper, or on sale. While this may work for some, people often times under estimate the risk of supposed blue chip companies losing very significant amounts. See GM, AIG, Ford, Merrill Lynch, Lehman Brothers or Citibank as a few examples.

Perhaps one of the worst things about it is, not only individuals make this mistake, but these mistakes are even made by the rating agencies that are made up of groups of intelligent men and women working together for the sole purpose of rating stocks.

Now if you understand the risks, you know how to read financial statements, and you invest in stocks with dividends to ensure there is no accounting fraud and company actually has money it says it does as it pays out regularly, and you still realize that a solid company could still potentially become irrelevant due to breakthrough technology, illegal activities, or sudden loss of capital, overnight, then go ahead and continue to invest this way. In fact, this is one of the things that Warren Buffet loves doing, investing in companies in a time of maximum fear that he believes has a margin of safety.

However, the average trader just doesn't have the patience to own a stock for Warren Buffet's favorite holding time... forever. The average trader doesn't even hold stock for longer than 6 months let along decades.

If you are unable to continue to buy a stock lower and have the patience to hold on forever, and analyze a company with great detail before continuing to do this, then you must have some margin of safty in another way. Perhaps one of the best ways to do this is to cut your losses short. This will prevent you from incurring large losses, and will allow you to use your money towards a more profitable investment.

It's very easy for people to not realize their mistakes and miss out on the information that they are wrong. In fact, it is a self defense mechanism in our brains to defend our existing beliefs, even if we are shown all the evidence in the world against it. Rather than defend some idea that a stock will go up even when it's gone down, it's better to just cut losses short. You can make it a rule to sell the next trading day after a stock closes 8% below your purchase price. Rather than defend your stock, you can instead defend your trading system. Now if short term stocks seem to be bouncing just below 8% then climbing afterward, you will know that your system works so you will ignore any occasional losses that will happen, since you will have faith in your system of good money management, proper exit strategy and other important factors.

If you fail to cut losses short, you can often time lose far more than you set out for, which will not only hurt your portfolio, but it will also prevent you from being able to invest as much, and your ability to earn from future investments will be hinder more than it should be. Therefore, you must cut your losses short if you expect to make money in stocks and prevent yourself from incurring losses you are unable to manage. - 23229

About the Author:

Maclin Vestor teaches about various automated trading systems and teaches you to find a stock market trading system that works for you.

Forex Trading 101: Beginners Guide

By Henri Ritand

The forex market may seem daunting, don't let that keep you away. There are trillions of dollars traded everyday from around the world. With the right tools and a little research you can be part of the forex trading market. Unlike the stock market, the forex market can be very liquid, and fast paced. You can literally trade 24 hours a day, 7 days a week if you want to, from anywhere around the globe.

In the past if you wanted to become part of the currency market you must either work for a bank, or be a broker for a large financial institution or large corporation. It also had very strict rules about your net worth which kept most small fish out of the pond. It was and still is a very fast paced, liquid market. The regulations have become much more relaxed and most any individual can open an account with as little as $100.00 and trade the forex market.

Technology really started to turn around in the late 90's which opened the door for individuals to start trading forex. The internet and cell phone technology available today along with a good automated forex software, allows traders to work from almost anywhere. Making profits right from your own home is a real possibility trading forex.

Trading forex is becoming more popular day by day. It gives you the opportunity to earn large profits by trading currency in the largest most liquid financial market in the world. Because Forex trading is so liquid it also carries risks for losing large amounts of money just as it does for making money. Do your research, invest in some really good automated forex software and start slow. Most brokers have demo accounts for you to try before you actually put in any real money, and there are also accounts that actually allow you to trade pennies instead of dollars. These should help give you an idea of how the forex market works before you dive in to forex trading.

There are some seasoned traders that say you must trade the market before you can truly understand it. With that in mind, know you can learn the lingo, familiarize yourself with the charts and find a good expert adviser to get started in trading forex. But to become really good, you must actually become part of the largest financial market in the world.

Here are three simple things you need to start trading the forex market:

1. A computer with a high speed internet connection

2. A funded Forex account

3. A good forex trading system

Learning how to read charts is also a big step in learning to profit from trading forex while keeping your losses small. To put it in simple terms, charts help with the visual of what currencies are trading for around the world. By following these simple steps you can prepare yourself for trading in largest financial market in the world. Always remember the risks associated with earning large profits, make a good plan, and do good research. Having a good trading strategy and starting with a forex demo account will help in your endeavor to become part of the forex market. - 23229

About the Author:

Henri Ritand has put together a basic, easy to understand beginners guide to Forex Trading. Henri included some helpful tips including the importance of having a good Forex Automated Software when starting to trade the forex market.

Easy Financing Options for Rental Property

By David McCammon

Many investors are now finding that rental property can be an excellent way to create wealth. If you are considering getting involved in rental property investing, it is a good idea to educate yourself as much as possible. First, you need to find out what it takes to become qualified to purchase investment property because it is actually somewhat different than becoming qualified to purchase a regular home.

One of the reasons for this is the fact that a significant number of investors either walked away from properties or declared bankruptcy during the early 1990s. While you should certainly not be punished for someone elses problems, neither do lenders want to be left holding investment properties. Therefore, it is important to understand that the requirements for being approved for a mortgage on rental properties are somewhat different from what you may be accustomed to.

A home can often be purchased with a minimum down payment, especially if you are a first-time home buyer this is often not the case with rental property. Many who loan money require a minimum down payment of 15%.

There are lots of sources you can tap into for possible financing. These options include: Mortgage broker Local savings and loan or bank Private lender, FHA.

Regardless of which option you choose, you will find that most lenders will want to be assured that you will have a sufficient amount of rental income in order to cover not only the mortgage payment but also other expenses such as insurance, taxes and maintenance. Depending on the amount of income that will be provided from the property, some lenders may require a larger down payment.

There are many types of loans which you can use to finance the purchase of a rental property. One option would be a residential loan. This type of loan can be used to purchase from one to four units. The exact options that are open to you often depend on whether the property will be occupied by the owner.

An even other option would be a commercial loan. This is an option when the property is five units or more or it will be non-owner occupied. Due to the fact that it is a commercial loan, it is often far different from a residential loan in regards to terms and requirements. One of the main differences between a commercial loan and a residential loan is the fact that fees and rates are very often higher on loans like this.

Very often a larger down payment is also often required. The down payment on a commercial loan typically runs between 25% and 35%. While there are some lenders who may be willing to agree to a higher loan to value ratio; the requirements for qualifying for such loans are usually many times tougher to get.

The owner will also carefully examine the ability of the property to generate a cash flow that will allow you to repay your loan. As a result, the lender will typically examine the property to ensure it can provide an income that will not only allow you to cover the mortgage payments and other expenses but also provide enough of a cash flow that you will have additional income to place into other places.

Private party lending is another option for many prospective investors. One option would be to approach the current owner about seller financing. With this option the owner carries back the loan for a down payment and fair interest rate. You may find that you can save lending fees with the options and may also be able to take advantage of making a smaller down payment.

Another option would be what is known as a hard-money loan. This is a type of short-term financing where a third-party makes a loan to assist the investor with purchasing the property. Generally, this type of loan involves a higher interest rate due to the fact that the buyer has poor credit or because the property is in disrepair and requires extensive renovation.

FHA programs are frequently offered through traditional lenders. Keep in mind; however, that FHA does not actually lend money. They do provide insurance for lenders; offering numerous loan programs. Regardless of which financing tool you choose, remember that there is always the option to refinance at some later point in order to obtain a better rate and terms. - 23229

About the Author:

If the thought of profiting greatly in the wide world of real estate investing stimulates you, then you should download Davids free guide and Free Real Estate Course. To learn the safest and best profitable strategies visit Davids website Real Estate Investing.

Secrets to Stock Charts

By Mike Swanson

Stock charts are being deemed to be the most useful tool that you can utilize when stock trading on the open market. The charts allow you the opportunity to recognize the increases and decreases of the market so you can begin to make wise decisions in your investments.

You need to be able to evaluate the information that can be found on the stock charts in order to rest easy that you are making a good decision in your investment endeavors. The charts will show you the fluctuation of the stock market and the chances of different stocks climbing on the market as well as the possibility of the same stocks falling.

When you trade on the open market, you need to be apparent of the risks that you are taking. Since stocks are primarily based off of the revenue of a particular mainstream company, they do have the opportunity to increasing as well as decreasing.

The current economic recession that the world has been facing for the past few years has caused a lot of people to turn away from investing on the open market. The humorous thing is many of the people that made the decision to quit their investments that they had on the market, have since came back after they discovered that the main place to be able to make an income is on this open market.

Stock charts will give you a firm understanding of how the open stock market works. Inadvertently many people still follow the same guidelines when it comes to trading; they strike when the stock is low and hope that it rises so they will inadvertently make a profit.

The overall probability of a stock rising when it is at a somewhat lower stature is 50/50. However, through utilization of the stock charts many people have been able to distinguish between what stocks will serve them justice and what stocks will simply take them for everything that they have.

Stock charts are beneficial to both traders starting out their investment careers as well as veteran traders. - 23229

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S&P Futures (Part II)

By Ahmad Hassam

S&P futures contracts are another example of how 24 hours a day trading enables traders to respond to economic news releases in pre-market and after-market sessions. Regular trading hours for S&P futures contracts are from 8:30 A.M to 3:15 PM. S&P futures contracts are valued in ticks worth 0.1 index points or $25.

The evening session continues on the Globex until 8:15 AM overnight. It starts at 3:30 PM (15 minutes after the close at 3.15 PM). Individual S&P futures contract holders are limited to no more than 20,000 net long or short contracts at any one time.

If the index experiences major declines or increases beyond certain limits, a procedure is set in place to halt trading. If these price limits are crossed, circuit breakers are triggered. A price limit is how far an S&P futures contract can rise or fall in a single trading session. The limits are set on quarterly basis.

Collar Rule: The collar rule addresses price swings related to program trades that move the Dow Jones Industrial Average (DJIA) more than 2% by requiring index arbitrage orders, or orders that bet on the spread between the futures and the cash of stock indexes to be stabilizing. This limits the traders from piling buy or sell orders in an attempt to exaggerate the gains or losses of the market. What this rule does is limit the chance of huge gains or losses as a result of futures trading.

Overnight or pre-market trading can be thin and dangerous especially during slow seasons in the stock market such as summer, fall and around the winter holidays. Once you have mastered futures basics such as the performance bond margins, the mark to market requirements and the account specifics, its time to learn how a futures contract ticks.

Hundreds of futures contracts trade on the federally regulated futures exchanges in the United States. Each of these exchanges trade contract that are somewhat unique to it. CMEs most actively traded contracts are Eurodollar futures and S&P futures including the E-minis.

E-mini S&P Futures contracts: The E-mini S&P futures contracts (ES) are among the most popular stock index futures contract because they enable you to trade the markets trend with only one fifth of the requirement. The E-mini S&P futures contracts (ES) are the favorites of the day traders because of its high intraday price volatility and major price swings on a daily basis.

One tick on E-min S&P futures contract is equal to 0.25 of the index point or $12.50. The value of the E-mini S&P futures contract is $50 times the value of the S&P 500 stock index. The E-mini S&P futures contract can be very volatile and can move even more aggressively during times of extreme market volatility. - 23229

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading futures and currencies. Trade Dow Futures and S&P Futures!