Author: Editor

  • Margin Call – How to Profit From The Trade

    Margin Call – How to Profit From The Trade

    Margin Call - The Dangerous Behind
    Every second in your account you must have 25% of the total price of the stock you hold to cover the maintenance margin.

    By Guy Avtalyon

    A margin call is something that every trader would like to avoid.

    • Buying on margin means borrowing money from your broker to buy stocks.
    • There is no profit without the risk involved.

    Have you ever seen a better movie than Margin Call? A movie about the Financial Crisis? It just crossed my mind when I started to write this.Ā 

    Okay, never mind. The subject of this article is a margin call in the stock market.Ā 

    Let’s start from the beginning.

    What turns around and around the stock market is a risk. I know that is the major problem for most of you. How to take the risk? Because the risk has its bright and dark side and you know that. For example, you are trading some stock without guarantees that it will perform well.Ā 

    The identical risk that boosts stock prices one day can lower them tomorrow. Yes, the identical. Pretty scary.Ā 

    But here we come to the bright side of the margin call. For investors who want to profit a lot and quickly nothing is better than buying on margin.

    Buying on margin means borrowing money from your broker to buy stocks. Basically, it’s a loan from your broker.Ā 

    How “buying on margin” works?

    You can borrow from your broker up to 50% of the price of a stock.Ā 

    For example, when the stock price is $20,000 you will pay $10,000 and your broker will lend you the rest which is another $10,000.Ā 

    Let’s look at the possible scenarios.Ā 

    Assume the stock price grows at $24,000. The return on your investment will be 40%. You invested $20,000, but you have to give back to your broker $10,000 and you will end with $14,000 in your hands. But you invested yours $10,000 so you will have $4,000 of profit. This is good and you can be happy because you made a profit.

     

    But things may go in another direction.Ā 

    Assume the stock price went down at $16,000. You will end up with a 40% loss on your investment. Even more, you have to give back the borrowed money to your broker increased by charges, fees, and interest on the loan, of course.Ā 

    Buying on margin may be extremely risky. You may lose your entire investment. But you may lose more because of something known as a margin call.Ā 

    Every second you must have an adequate amount in your account to cover the maintenance margin. That amount is 25% of the total price of the stock you hold.Ā 

    What can happen if you don’t have enough cash in your account? Your broker will issue a margin call. That means, your broker is demanding you to cover the difference with more deposit and reach that 25% maintenance level.

    Let’s go back to our example and situation when things went wrong. What will happen if the stock price drop at $12,000? Your loss is $8,000 and now you have only $2,000 in your account. The rule is that you MUST have 25% and $2,000 is not enough to cover that. So, you lost $8,000 and at the same time, you have to deposit an additional $500 in your margin account to stay in the market. Also, you have to pay back the money to your broker.

    Is margin call dangerous to investors?Ā 

     

    It can be extremely dangerous. In our example the missing deposit is small as the money invested isn’t big, but you can count how it is an enormous loss when the value of the investment is $200,000, $500,000, or million dollars.

    The most frightful detail about margin call for you as new investors is that your broker has no obligation by law to warn you that your margin account is too low. So, what the broker will do?

    The broker will sell your stock and liquidate your assets if it is necessary. He or she needs to ensure the maintenance level in your margin account. Even more,Ā  the broker can begin selling your stock even the margin call is issued. Such will not wait for you and will not give you a grace period. Damn, you are dealing with a un-patient broker. This is an extremely painful and dangerous situation. If you come up to this situation how will you earn your money back when the market turns in your favor. You have nothing to trade with.

    The other danger about margin call is that you do not have an influence on which stock your broker may sell. Of course, the broker will choose the best players to cover fast and smooth the maintenance margin.Ā 

    Moreover, the brokerage may change the rules and issue the margin call based on them. You will not have even zero chances to delay paying the margin call.

    How to avoid the potential risk of a margin call

    First, stay away if you don’t have enough experience in trading. Second, open some other account for an emergency with enough money to cover the margin call.

    I can understand that you are willing to enter the market as a big player. At least to earn a big profit. Nothing is bad with that. Everyone wants the same. Just keep these things on your mind when you want to trade on margin. Buying on margin is an extremely exciting method, risky but with great potential to profit.

    If you are 100% sure that you have a great player in your hands, and don’t have enough money to buy it, do it. Borrow from your broker.Ā  Sometimes, a great risk will bring a great profit. In the end, there is no profit without the risk involved.

  • Payment Card and Prophecy by George Orwell

    Payment Card and Prophecy by George Orwell

    Payment Card and Prophecy by George Orwell
    The payment card will make payments easier, it is more convenient than cash but has drawbacks too

    by Gorica Gligorijevic

    Cash or payment card? About this topic, most of us have been speculating on this very issue, but until now mainly from a philosophical point of view.

    The current world seems to many like a dystopia. It’s a tale of the darkest times. Whose dystopia? Which writer best envisioned this time of confusion and dysfunction? Two classics from the 20th century. Aldous Huxleyā€™s “Brave New World” and George Orwellā€™sĀ  “1984ā€.

    ā€œA squat grey building of only thirty-four stories,ā€ starts “Brave New World”.Ā 

    ā€œIt was a bright cold day in April, and the clocks were striking thirteen,ā€Ā  “1984” opens.

    What horrible openings! Scary!Ā 

    Both writers wrote about how future governments will operate with a lot of energy spent in seeking to encourage economic consumption.

    What we have today?

    We, together, protect and transmit our secret lives through surveys and social media.

    We are sharing our personal data on which we all commonly depend. And we are doing that so easily.

    Do you feel the importance of this change in our own lives?

    It will be more clear when explained on the example of credit cards or loans.

    Payment Card – The customer is always right

    For example, loan review.Ā 

    From this review, the police, and not just the police, can see: do you drink Coca-Cola or Pepsi Cola, what kind of bread are you eating, what beer you drink, what brand and what size of shoes you wear, what size underwear you are buying, where you were five months ago when you have paid a hotel for the other two people and who they are.

    Scary enough? Who was right? Oh, how predictive was Orwell!

    In some countries, cash payments are canceled, only payment cards are used. That’s the reality. We can go a step further. The government, for “justified reasons”, declares the Regulation: for certain cardholders, daily payment from a card is limited to $500. The other group of owners has a limit of $2,000 daily, while the third group has unlimited card payments. Everything is a nice and computer programmed, based on the personal data of the cardholder and done by the push of a button.

    Cards and chips

    According to the banksā€™ published data, in the last year, 2018, they have reported record revenues. Of course, by having no limits on making trades with our money.

    It is already known that some of the largest companies are implanting chips in their workers. They put the chip into a part of the body and thus, instead of the cards, they control the arrival (check-in) and departure (check-out). And when you reach your retirement they activate your check-out.Ā 

    Or, for example, Sweden. They have a state program to put chips into citizens. One chip for everything. To take your money on the ATM, to unlock your home, to pay in the store, to make an appointment with the doctor. Even more, with that one chip, you can start your car, use public transportation, make payments in restaurants, buy medications. What a wonderful world!

     

    You are happy! When it will be possible for the whole world?

    Bad experiences with payment card

    Recently, I visited Holland. For a personal reason, I carried the cash. Actually, my payment card was stolen and I had to take this trip before solving the problem with it. Holland is an extraordinary country and I like to travel there. People are relaxed, easy-going and natural (maybe sometimes too natural), everything is full of brightly colored flowers, the buildings are brightly painted too. Public transportation is one of the best in the World, the food is really good especially cheeses, meat has a special taste as much as vegetables. In one word, wonderful! But…

    The first problem arose at the airport. When I tried to find a taxi with a driver who will take the cash. No luck. When I tried to purchase a ticket for the public transportation, the problem was the same. My cash was useless. I had to call my friend to come and pay for everything I needed. Well, I was never so close to anyone like my friend those 10 or 12 days, how long I was in Holland. He would pay with his credit card, and I had to reimburse him with my cash to cover my purchases.

    Payment card yes but cash rules

    It was accidentally that several days after my visit to Holland I was watching some movie, a contemporary one. No one would understand, even me, why I was so happy when I saw in one scene, that in the front of some store was written: Cash only!

    What I want to say, in some countries the law limits how much money you may have in cash. It announces a total cancellation of cash payments.

    And if the rule is to make payments only through credit cards, it is obvious that someone wants to control you.Ā 

    Do we have the liberty to choose the way we want to make payments?Ā 

    Yes, it is more comfortable to have one or a few payment cards in the pocket. But, how to say, no one asked us would we like more than one card, one chip or hands full of cash. And credit cards are not always the best solutions, nor are the chips.

    For example, you have money in the bank and a payment card in your pocket or the chip under your thumb’s skin. And for some reason such as natural disasters, riots, power failure, or simply by someone’s order, or even by mistake, by pushing the button in the bank you cannot pay for anything. And you are out of your home and your environment, who will pay your food and water, who will and how accept your card?

    It’s complete and total control and slavery of a human. Orwell’s “1984” is a fairytale of this.

    Do you have similar experiences? It would be nice to share with others.

  • How Long To Hold Stock?

    How Long To Hold Stock?

    How Long To Hold Stock?
    Patience is golden, but even being a golden rule of stock investing, it isn’t enough, there is more.

    By Guy Avtalyon

    Yes, you are asking the right question, because many stock investors ask: ā€œHow long to hold stock?ā€ There are some possible answers.
    You may hold your stock until it provides you a profit, or break your stop-loss rule, or you may hold your stock forever.

    Actually, thereā€™s no general rule that fits all stocks when the holding periods are in the question. So many variables can influence how long to hold stock.

    The decision to hold stocks for the long term or the short term is individual. It depends on your poverty, expectations, or advisor.Ā  Several factors are involved in your personal decision especially if you have a winner in hand. The right question is: Will the winner be an excellent moneymaker in the future and how long?

    How long to hold stock

    A lot of factors will influence your decision.

     

    First of all, the time you enter the market is important. If it is during a bull market you have to know two things. First, the usual bull market cycle will last from two to four years and you’ll be able to earn the majority of your profit during the first or second year. In simpler words, you have to wait until your stock rises up to 20 – 25% from buying price, that is the point where the profit can be taken. If your stock increase over 20% in the first 3 weeks or in a shorter period, hold it at least 8 weeks. After that period you have to examine the stock’s charts to check if your stock keeping up well. When you get this confirmation from the charts and the market is increasing too, there are a lot of chances that this trend will continue. You can expect the new breakouts and the value of your stock will rise more.

    For genuine market winners, the average time from breakout to top will be from 12 to 18 months.

    This looks like a pretty simple answer, but is it the right one?Ā 

    What if your stock starts a downtrend and you see you can be stuck in a losing trade for a long time? That is why you must have settled rules before you enter a trade.

    How to determine how long to hold a stock

    The best way to determine how long to hold a stock is to do that based on your trading rules.

    Before you purchase any stock you have to define what profit do you want to make. The next will be your ability to forecast how much your stock could decrease. Will your strategy provide you a bigger gain than loss? Is the stock in its downtrend, bottoming, or up-trend? You have to determine the largest possible loss you can afford.

    Traders-Paradise has one suggestion for you.

    The gain has to be minimum 1,5 to 2 times bigger than loss. There more variables you have to consider. For example, how much will you earn when sell your stock?Ā 

    The golden rule in stock holding

    Let us examine one possible scenario. You have bought the stock and you are 20% in profit after the first week. You predicted the worst scenario as a loss of 10%. In this case, your reward is at 2 to 1.

    What you have to do? Should you sell?Ā  Well, the brief answer is No.

    The right answer is that you should hold a stock for a longer time if you have, for example, a medium-term horizon. You have to hold your stock for several weeks or even months.

    Hold the stock as long as you want to make a notable gain from a stock price move. Some traders would advise you to hold a stock something between two and 10 months to get the best reward. You have to be very blessed to develop a great profit overnight.

    The average high-profit trade is 30% and the hold time is about 45 days. Also, the average drawdown is -11% to -15%. That is the statistics.

    Patience is golden

    You must be patient with a stock. Stocks need time to give you the profit you want. Long-term investments have made incredible profits.

    Anyway, you must be careful because stocks can drop suddenly. To avoid a catastrophe you have to limit your loss but don’t place your stop-loss order at 5%. Usually, a stock may pull back 10-15%, and very soon after that, a profitable move happens.

  • When To Buy Sell or Hold On The Stock

    When To Buy Sell or Hold On The Stock

    When to buy, sell or hold on the stock
    The enter or exit the investment must be in line with your investment plan.

    by Guy Avtalyon

    Beginners in the stock market are usually enthusiastic, but do they know when to buy, sell, or hold on to stocks to gain maximum growth and limit loss?Ā 

    There are no guarantees for stock’s price, they can go up or down driven by various circumstances. So how to know when to buy, sell, or hold on stock?

    No one can tell you about one specific, the best strategy, good for everyone. But advanced traders follow some ā€œrules of thumbā€ when they examine their investment movements. They are establishing entry and exit points and evaluating fundamental factors. But they had to learn some universal systems at first and after that, they were able to choose the one or a few that suit them the best.

    Examine Entry and Exit Points

    An entry point is the price level where the trader buys an investment or ā€œenters the positionā€. The exit point is a price where you sell or ā€œexitā€.Ā 

    If you want to avoid the wrong decisions and if you want to know when to buy, sell, or hold on the stock you have to define your entry and exit points. That means you must have a clear strategy to lower the risk and enhance your return. In other words, you have to set the right entry point to maximize winnings.Ā 

    Also, it is extremely important to define where to set a stop loss. This point is worth in case the stock price starts to drop. Yes, some traders will wait for the dropping price to grow, but that may be dangerous in case the stock value continues to decline. This is especially important for short-term traders with the idea to buy and sell in a short time.Ā 

    Traders usually practice stop and limit orders to maintain the balance between gains and losses.Ā 

    The point is to have more winning trades, right?Ā 

     

    To avoid permanent watching the charts and price changes you can set stop or limit order. That will provide you to enter or exit the investment according to your investment plan.Ā 

    A limit or stop order means that you decide how much stock you want to buy at a specific price or when it peaks a specific price. So, you can place a limit or stop order for a higher or lower price than the current market price. The market price is the prevailing price of the stock.

    Stop and limit orders act separately but associate to the trader’s action in the same way. They enable traders to not have to continually watch price movements, but traders have various goals with these orders.Ā 

    For example, when setting a limit order, the intent is to buy or sell a stock at a defined price. To be more clear, if a stockā€™s value is $85, and you want to buy it, you may set a buy limit order at $80 if you think it is your best entry point.Ā 

    Thus, if you want to sell the stock, you may place a sell limit order of $90 if it is your projected or planned exit point.

    Stop order is a defensive strategy to lower losses.Ā 

    To secure your investment, in case the stock continues increasing in value, you may set a stop order at a point a lot bellow the current price. But if you expect that stock to be trading below, you may try to minimize your losses with a higher-stop order that will be close to the current price or just a bit under the current price.Ā 

    Stop and limit orders are created to trigger when the pre-arranged price is reached. If you set a limit order at $90, the stock will be sold immediately when the stock increases, and $90 is touched. Or vice versa, if you set a stop order below the current price, the stock will be sold when the price drops and it reaches that price.Ā 

    I hope the point is clear, the trader with the limit order wants to sell when the price rises, and the trader who placed the stop order wants to sell when the price drops.Ā 

    Why is important to know when to buy, sell, or hold on the stock?

    There is some risk involved in limit orders. A limit order ā€œguarantees the limit price or betterā€ but on the other side,Ā  what if it never gets filled?

    A stop order means an exit from the stock position if the price drops, after your stock scores the stop youā€™ve set. In that case, your stop order becomes a market order and there are many competitors waiting to be filled. Hence, you don’t have a guarantee that your order will be filled at the specific price you placed. In some cases, you may end up selling the stock significantly below that level.Ā 

    Moreover, if you have a sell stop at $90 and the price falls to $40, your order will be triggered at $60, which is a good thing. But things could go in the wrong way too. For example, if you purchased a stock at $80 and placed a stop at $75, the stock might go down to $70 and be sold, of course, but it can jump back to $90.Ā 

    When to buy stock?

    In investing, it is important to determine what a stock is worth. Will it rise up to the estimated value? Set a range at which you would like to buy a stock. That might be helpful. Will you pay that amount for a particular stock? Be honest while giving the answer.

    If you don’t know the price target range, you will be in trouble with determining when to buy a stock.

    Also, you have to know about the financial health of a company. It is possible through the companyā€™s financial statements that have a treasure of information.Ā 

    You have to pay attention to the companyā€™s revenue, for example, or how it relates to its past reviews. Are the companyā€™s sales growing or shrinking? Read the companyā€™s guidance for revenue or sales, which reveals how it expects to perform in the future.

    Cash flow is important too because it will provide you information about a companyā€™s liquidity. A very good sign is when more money is coming into the company than it spends. It is a positive cash flow.

    Further, a stock might be undervalued. So, you must estimate a company’s upcoming prospects. Compare it with current reports. In this way, you will find a possible price target. If the current stock price is lower, buy it.

    When to sell the stock?

    Whenever the expected price is bigger than the current stock price, you have a chance to earn.

    The size of the return depends on how much of a discount a stock trades related to its expected value. Also, it is related to how much time the market needs to update its expectations. The higher the stock price discount and the sooner the market corrects its expectations, the higher the return.

    You can sell your stock when it hits its expected value,Ā  or a more winning stock arises, or you change your expectations.

    When to hold the stock

    You have to know that it can take time for a stock to reach its real value. Any stock price forecasting is actually simple guessing.

    Your stock may need several years for a stock to reach close to a price targeted. If you are sure your stock will grow, hold it 3 to 5 years. Very often, you will profit more. It is essential to know when to buy, sell, or hold on the stock if you want a profit.

  • China Will Take Your Money

    China Will Take Your Money

    2 min read

    foreign investments in China

    No, China will not take your money away but will accept it after having removed quotas for foreign institutional investments and consequently limits for their clients.

    Almost 20 years after first opening its capital markets to foreign investments, on Tuesday, September 10 Chinese State Administration for Foreign Exchange (SAFE) has announced the removal of $300 billion caps on foreign investments under its Qualified Foreign Institutional Investment (QFII) scheme.Ā 

    Foreign investments in China

    Similar cap for renminbi-denominated RQFII scheme has also been removed. Combined with last weekā€™s lowering of reserve requirement ratios by Chinaā€™s central bank, this move is aimed at increasing the liquidity of Chinese financial markets. Changes to QFII and RQFII schemes will greatly simplify the investment procedures for foreign companies by removing the application for quotas process. ā€œ[F]oreign institutional investors with corresponding qualifications will only need to go through registration procedureā€ according to the SAFE statement.

    This move is being lauded as a great improvement to the convenience of foreign investorsā€™ participation in Chinese financial markets, and effort to make Chinaā€™s bond and stock markets more widely accepted by international markets.Ā 

    Analysts cautions

    Many analysts are cautioning that this move will not cause a flood of off-shore investments, pointing out to the fact that only $111 billions of QFII cap was used to date. The figure which stayed, for all intents and purposes, unchanged since the cap was increased from $150 billion. According to Adrian Zuercher, head of the asset allocation for the Asia Pacific at UBS Wealth Management, ā€œcap was an important roadblock for institutional investors which has now been removed.ā€

    It must be said that this move is a continuation of efforts to remove red tape and ease foreign investments in financial markets. The process which started last year by removing the lock-in periods under QFII and RQFII schemes, and allowing investors to repatriate their funds at any time. Previously, funds which could be repatriated in one go were subject to very severe limits, which was a considerable obstacle for many institutional investors. With cases of repatriation approval process taking up to four months.

    Positive or negative

    This development comes in the atmosphere of uncertainty surrounding the US-China trade negotiations and trade war. Some analysts see it as a positive which underscores the fact that trade war has positive effects on China by accelerating its reform agenda more than was expected. Reforms geared toward giving overseas investors the same access to markets as to local players. Part of it was last Januaryā€™s license approval to rating agency S&P Global for operating in China, the first such license granted to a foreign agency.

    Separately, the Chinese government is allowing foreign banks and insurers to take a controlling stake in their joint ventures. Till today, JP Morgan, UBS Group, and Nomura Holdings have won approval, while Goldman Sachs and DBS Group are currently waiting on it. Also last week Deutsche Bank and BNP Paribas were given regulatory approval for underwriting debt in China.

    Stabilizing effect on the Chinese economy

    These moves serve the purpose of opening Chinaā€™s financial markets to foreign investment. But, most likely, will also have a stabilizing effect on the Chinese economy in the state of the trade war with the US. Having in mind global trade tensions and the US imposed tariffs having a draining effect on Chinaā€™s foreign currency reserves, this move could strengthen Chinaā€™s balance of payment by providing an inflow of foreign currency.

    You might be interested: Asian Stock Markets Perform Careful Increases

  • Should you buy a stock because of its dividend?

    Should you buy a stock because of its dividend?

    3 min read

    Should you buy a stock because of its dividend?

    Never buy a stock because of its dividend. A dividend shouldn’t be a reason to invest in a poor business. Most important is the performance of the business. That will drive a stock’s return and the company will be able to pay a dividend. So, you must pay attention to the business as a whole, the company’s plans, its goals, even to management and how they treat their employees.Ā 

    Dividend stocks are recognized as safe investments, that is true. They are the highest valued companies. They have grown their dividends during the past 20 years and these are usually held as safe businesses.Ā 

    But, just because a firm is providing dividends doesnā€™t mean it is a trustworthy investment. You have to learn how to avoid pitfalls that may arise, at first glance, with good dividends.

    Executives can use the dividends to pacify nervous and fidgety investors when the stock price isn’t running as they are expecting. You must know how the management is handling the dividends in a company’s strategy, for example. If you notice a lack of growth, stay away. Such a business isn’t good to invest in, even if it provides good dividends.

    Do you know what has happened in 2008?

    A great stockā€™s dividend yields were forced to unnaturally high levels due to stock price drops. The dividend yields seemed fascinating, but as the economic crisis developed, the profits fell. That caused the numerous dividend plans to be canceled entirely. The best example is the banksā€™ stocks in 2008.Ā 

    They were paying great dividends but whenever dividend is paid the stock value instantly falls by an equal amount. That’s the point. And you may ask if the bankers knew that? Of course, they did.Ā 

    Let me explain you something.

    buy a stock because of its dividend

    Very often, the chief purpose why some company pays dividends is because the executives can’t discover some solid growth possibilities within their own company to invest its earned profits in.Ā 

    Hence, the company allows extra earnings to stockholders by paying dividends. But this is good, you may say. Yes, but…

    When a company gives a dividend equivalent to its profits, that is a sign that they are not able to find investment opportunity within their own business that would give greater return. If such a company stays for a long time in a similar situation, the growth will be slow. And at some point in time, they will stop paying dividends and the stock price will decrease to worthless.

    That’s the secret. So when you ask yourself should you buy a stock because of its dividend, be careful and have a bigger picture in mind.

    You should buy a stock because the company is paying attention to the development, research, infrastructure… Things that will increase your profit as the stock price is going up.Ā 

    Now, can you answer me, should you buy a stock just because of its dividend?

    Of course not.

    Moreover, dividend-yielding stocks are taxable income.

    A dividend is a delivery of a part of a company’s earnings to stockholders. It can be done in cash, stocks, or other assets. It is a bonus to investors.

    Yes, many investors see dividends as the main point of stock holding. They want to hold the stock long-term and the dividends are an addon to income. Nothing is problematic in that. But buying a stock just because of dividend is very wrong.

    Dividends are an indication that the company is doing well, dividends are not bad. It has profits to share, more cash than it demands and it can give it to its stockholders. And a stock’s price may rise quickly after a dividend is paid.

    And there is a catch, on the ex-dividend day, the stock’s value will surely drop. The value of the stock will drop by a sum almost the same to the amount paid in dividends.Ā 

    When you want to buy some stock do it because you believe in business or you think the value will rise. Don’t do it only because of a dividend.

    You would like to know THIS

  • October Effect – Investing When The Stock Market Go Lower

    October Effect – Investing When The Stock Market Go Lower

    October Effect - Investing When The Stock Market Go Lower
    Is October effect just a myth or there is something?

    By Guy Avtalyon

    The October effect is a recognized market oddity when stocks tend to fail during October. The October effect is an irrational suspicion of some investors related to previous market crashes that happened during October. Investors become superstitious, you might think. Well, the fact is that some great historical market crashes happened this month.

    We will point some of them. In 1907, the Panic, later, in 1929, were three large crashes – Black Tuesday, Black Thursday andĀ  Black Monday, after almost 60 years 1987, Black Monday happened October 19, when the Dow fell 22.6% in one day. Also, on Oct. 9, 2002, the market caught a five-year low. And the market plummeted 16% in October of 2008 when the Great Recession began.

     

    When the stock market crashed in 1929, the investors were surprised. It was quite unusual because only a few weeks before the stock market was on the highest level ever, the stock prices were 25% higher than in the year before. In October 1929 stocks dropped nearly 25% for only two days. It cost investors billions of dollars. This market crash led to the Great Depression. October has accepted as a permanent warning to investors of how suddenly wealth can turn over.

    What is October Effect?

    There’s no proof that this great market crashes occurred in October for any other cause. Coincidence is truly a master of the game. Since there were not too many market crashes in October, we are free to say that investors will make money during October more often than they will lose.

    According to research conducted by Yardeni Research, the medium monthly return in October 2015, was 0.4%.Ā 

    It wasn’t a great return but still, it was. But can we say the chain of unfortunate market events over October is broken?

    The truth is that if markets go down over October, they do it very hard and painful. But just for a sec try to be reasonable. Compare the drop of 4.7% in one month with 11 good months when the average gain was about 4.1%. Everything is math.

     

    So, we can say, at least, that October could turn high in any direction.

    For investors, September is statistically the worst month since they lose approx 1% during this month. History shows that September can be difficult for stocks. Since 1950, it has been the most critical month for the S&P 500, with declined at an average of 0.5%. But, for the last 10 years, the S&P 500 has a 0.9% profit in September.

    Is it possible to predict the stock market?

    It is hard to predict the stock market. Markets are going up and down. You can be sure of one thing: when it is down, it will climb up. The markets go up over time and you are a long-term investor you shouldn’t be worried about the market’s condition over one month. But if you are a short-term investor your portfolio should be built mostly on cash and bonds, less on stocks. That means it is better to be a conservative investor. So, the October effect will have no or less influence on your investments.

    Investors’ sentiments can become negative when October is near. That may influence the stock market play. As investors’ feelings incline to the depressed, negative market growth can produce overreactions. They will start to sell stocks in panic and the negative influence will increase more.Ā 

    Keep in your mind, statistically October isn’t the worst month, it is September. But due to the great market crashes that occurred over October, we have that scary phrase – October Effect.

    By the way, do you know which month is the best for the stock market? July! Remember this.
    It would be amazing if the market crashes chose to happen just in one particular month of the year. Honestly, it is impossible, like the impossible is to have just one incredible good market month.

    October is just one of the 12 months of the year. The difference from others is that leaves start to fall. That is the October effect.

  • Secrets of Stocks Scalping Strategy

    Secrets of Stocks Scalping Strategy

    3 min read

    Secrets of Stocks Scalping Strategy

    Scalp trading requires incredible self-control and trading focus. Traders are interested in scalp trading because it has less risk, they can place hundreds of trades per day and it provides much more trading opportunities.

    Traders-Paradise reveals some secrets of the stocks scalping strategy. First of all, let’s make clear how to scalp trade.

    If you want to practice scalp trading you will find several different ways to make money. One way is to set a profit target per trade related to the price of the security in the range between .%1 – .25%. The other way is to follow stocks breaking out, the new highs or lows and using Level II to take as much profit as possible. You will need a lot of concentration and perfect order execution for this. Finally, the third way is to watch the news and trade upon the events that can cause extended volatility periods of a stock.Ā 

    It isn’t necessary, but we want to explain the Level II.

    Level II is the order book for Nasdaq stocks. Level II shows a ranked list of the best bid and ask prices with detailed data about the price action. It is very important in day trading to know who is interested in the stock.

    Winning is crucial in scalping. Your win/loss ratio must be high as the difference from the other strategies where the win/loss ratio may be less than 50%. This high level of winning trades shows that you have to be right much more often than wrong while scalping.Ā 

    That is why the stock scalping strategy is a challenging way of making money in the market.

    So, we have covered the basics. Let’s go further.Ā 

    Secrets of stocks scalping strategy – use the oscillator

    The idea behind scalping is that stocks can be more predictable covering extremely short periods. More than they can be over a longer time. For example, you can easily predict the course of stock in the next 20 minutes. Honestly, it is harder to predict where the stock will be in the next 20 weeks. At first glance, scalpers are sacrificing longer gains. Yes, that is probably true but they will not have longer-term losses if they are trading wrong.Ā 

     

     

    One of the most successful ways to scalp the market is by using an oscillator but also, it is one of the toughest to nail down.

    Oscillators can give you the wrong signals. If you are using one oscillator the possibility to predict the stock action is about 50%, which isn’t enough for this strategy.

    The commission costs are too high for that win/loss ratio.Ā 

    Also, scalp trading is possible with the slow stochastic oscillator. But the stochastic oscillator is not intended to be a standalone indicator. You will need some other form of proof to confirm the signal.

    You can combine the stochastic oscillator with Bollinger bands.

    So, it is smart to enter the market when the stochastic forms a proper overbought or oversold signal but is confirmed by the Bollinger bands.

    The stochastic oscillator is a momentum indicator. It shows the position of the closing price related to its high and low prices over some period. Bollinger bands show volatility. Together, these indicators help a trader to recognize scalping opportunities.

    Successful scalping requires a great knowledge of technical analysis to notice small deviations in the stock market and quick changes. A scalper will open a position for a few seconds or minutes and then close. Scalper needs higher frequency trading because the profits make per trade are regularly low.

    Scalping also demands access to news feeds, real-time charts, and data. As a scalper, you must get breaking news or real-time data of price movements. It is an essential part of successful scalping. Lastly, scalpers canā€™t allow being confused. As a scalper, you will make numerous daily trades, so you must keep focus and closely monitor the market each trading day.

  • Investing In Penny Stocks Can Be A Highly Profitable Strategy For Investors

    Investing In Penny Stocks Can Be A Highly Profitable Strategy For Investors

    3 min read

    Investing In Penny Stocks Can Be A Highly Profitable Strategy For Investors

    The charm of investing in penny stocks lies in the possibility to trade at a lesser $5 and investors can buy a large number of shares at one time. The worries about recession are growing and many investors are moving into safer investments like bonds. Of course, experienced investors are not panicked, they know what to do and how to protect their investments.Ā 

    But if you have a more extreme approach to market conditions today, maybe you should think about penny stocks.Ā 

    The truth is you have to be very cautious, buying penny stocks in unsure economic circumstances may be the antagonistic approach to the market. But if your risk appetite is powerful and your risk tolerance allows you, investing in penny stocks can be a profitable strategy for you.

    The question is which penny stocks to buy?

    Traders-Paradise will give you some idea, but you have to explore the suggested companies and find the best for you.

    Hebron Technology (HEBT)

    This penny stock has made great gains this year. Hebron Technology Co Ltd (HEBT) is from China. Last week, on Thursday, it earned 10% more as investors continued storing into it. HEBT stock has gained an enormous 400% in 2019.

    Hebron Technology Co., Ltd. is involved in developing, manufacturing and providing customized installation of valves and pipe parts for the clean industries such as pharmaceutical, biological, food, and beverages. The Company’s products are Diaphragm Valves, Angle Seat Valves, Sanitary Liquid-Ring Pumps, Clean-in-Place Return Pump, Sanitary Ball Valves and Sanitary Pipe Fittings.

    Investing In Penny Stocks

    Here are its Reports fiscal year 2018

    OrganiGram Holdings (OGI)

    The second penny stock to watch this month is pot stock OrganiGram Holdings Inc. This cannabis stock performed big progress after it won a slope from a leading brokerage. Last Thursday an analyst at Oppenheimer had placed a rating of ā€˜performā€™. And here is its annual reports.

    Can OrganiGram profit on cannabis market growth? We can recognize a good chance for the company’s future.

    OrganiGram is equipped to produce almost 90,000 kilograms of cannabis per year. The company plans to expand its production to 113,000 kilograms per year by the end of this year. That will rank OrganiGram in the top 10 Canadian cannabis producers.

    OrganiGram is one of four Canadian cannabis producers that has supply agreements with all of Canada’s regions. Also, this company is well-positioned for the cannabis derivatives market and new partnerships are coming with Pax Labs and Feather Company.

    OrganiGram’s annual report

    Trinity Biotech plc (TRIB)Ā 

    Why Trinity Biotech plc?Ā  Trinity Biotech is aĀ  small company with a market capitalization of US$28m. Maybe it is unfamiliar to most investors.

    Trinity’s new HIV screening product under name Trin-Screen will be introduced to the World Health Organization at the end of the year. Trinity Biotech stock is cheap right now it is at $1.42.

    Here are its Reports fiscal year 2018

    It could be a high increase in stock value. In order to fully understand TRIB here are some data.

    Trinity Biotech was founded in 1992. Its main aim was to become a leader in the diagnostics market. Today Trinity Biotech has an awesome portfolio of over 400 products. Specializing in the development, manufacture, and marketing of diagnostic test kits, Trinity Biotechā€™s continued success is based on the fact that as a company it consistently achieves standards of excellence in the quality of all it does.

    Its test kits are used to detect infectious diseases, autoimmune, cardiac arrest, hemoglobin disorders, and detect and control diabetes.

    It is quoted on the NASDAQ exchange. Sells products in Europe and America, in more than 110 countries.Ā 

    Bottom line

    A penny stock is a normal share of a small public company that is traded at a lower price. In the US, penny stocks are traded at a price less than $5, in the UK, penny stocks are the stocks that are valued under Ā£1.

    If you want to trade penny stocks set a strong stop loss. Investing in penny stocks can be highly profitable but risky too.

    We can assume the more volatility in the markets, especially among the penny stocks, soon. So, it is possible to see a wild ride. May the force be with you!