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  • 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: “How long to hold stock?” 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, there’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.  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? 

    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? 

    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?  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? 

    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 “rules of thumb” 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 “enters the position”. The exit point is a price where you sell or “exit”. 

    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. 

    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. 

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

    The point is to have more winning trades, right? 

     

    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. 

    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. 

    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 stock’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. 

    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. 

    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. 

    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. 

    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. 

    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 “guarantees the limit price or better” but on the other side,  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 you’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. 

    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. 

    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 company’s financial statements that have a treasure of information. 

    You have to pay attention to the company’s revenue, for example, or how it relates to its past reviews. Are the company’s sales growing or shrinking? Read the company’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 company’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,  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. 

    Foreign investments in China

    Similar cap for renminbi-denominated RQFII scheme has also been removed. Combined with last week’s lowering of reserve requirement ratios by China’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. “[F]oreign institutional investors with corresponding qualifications will only need to go through registration procedure” according to the SAFE statement.

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

    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, “cap was an important roadblock for institutional investors which has now been removed.”

    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 January’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 China’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 China’s foreign currency reserves, this move could strengthen China’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. 

    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. 

    But, just because a firm is providing dividends doesn’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 stock’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 banks’ stocks in 2008. 

    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. 

    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. 

    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. 

    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. 

    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 and  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%. 

    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. 

    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. 

    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. 

    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. 

    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. 

     

     

    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. 

    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 can’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. 

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

    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 ‘perform’. 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) 

    Why Trinity Biotech plc?  Trinity Biotech is a  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 Biotech’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. 

    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 £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!

  • Asset Allocation Models – Protect Your Investment

    Asset Allocation Models – Protect Your Investment

    Asset Allocation Models
    Here is how to protect your investment with different models of asset allocation

    By Guy Avtalyon

    Asset allocation models are the way to split your investment into different asset classes: stocks, mutual funds, bonds, private equity, etc. That will give you the possibility to lessen the risk of your investment. Every asset class carries some level of risk but different. For example, if the value of bonds rises, the stocks will fall. When the market is falling, real estate may provide you a nice return.

    The point is to have a diversified portfolio built by the asset allocation model among asset classes. Every investor has its own model of asset allocation. It is based on individual investing goals and risk tolerance.

    Also, personal asset classes can be separated into different sectors.

    You can use different types of asset allocation models.

    Asset allocation model created by your needs

    For example, for some investors equities are more favorable than other asset classes. Or if you are in serious ages you may prefer to put your money in some source of fixed income that can provide you stable retirement income because your goal is to save what you earned during your working life. Thus, you are not worried about market fluctuations. So, you may have the majority of your portfolio in stocks.
    But if you are a younger investor you may prefer some investment with faster returns.

    What are the different models

    Most asset allocation models come into four models: growth, preservation of capital, income, balanced.

    The growth asset allocation model is suitable for beginners interested in long-term investments. If you are at the beginning of your professional career you will be interested to deposit some amount every year in long-term investment such as common stocks that may not pay you dividends but can be good in the long run. Fund managers could advise you to invest in some foreign equities to diversify your portfolio.

    But if you want to preserve your capital you will like some other model of asset allocation, like preservation of capital. This model will suit you if you want to avoid risk to lose even a small part of your investment because you would like to use it in the next 12 months, for example, to buy a house. In this case, your investment portfolio will have about 80% in treasuries or commercial papers. There is some risk in this model of asset allocation due to the inflation that can lessen your buying power. Think about that.

    Income as an asset allocation model

    The usual income investor comes from a group of people near retirement because the need for cash in hand is of essential importance.

    The balanced model of asset allocation is kind of halfway between income and growth. It is a compromise between long-term growth and current income. This mixture of assets that can provide cash but also the growth of principal value.

    Balanced portfolios is built of medium-term investment and stocks of well-established companies.

    The investor’s needs may change during the time.

    The asset allocation will follow that change. For that reason, it is always smart to switch a portion of your investments before the important life changes. Do it occasionally. For example, you could move 10% of your investments to the income allocation model yearly as you are approaching retirement. So, you will have the whole of your portfolio adjusted to your new goals.

     

  • Limit order vs Market order – When and How to Use

    Limit order vs Market order – When and How to Use

    3 min read

    Limit order vs Market order - When and How to Use

    When you are buying or selling a stock, you have two main ways to define the price you want to trade. You can choose the market order and the limit order. If you choose the market order, you trade the stock at the current price, whatever it is. By using a limit order, you can set a price and when the stock meets it you can say the trade is executed.

    This is the basic difference. But to understand more, several things must be taken into consideration.

    Limit order gives you the price you want

    The benefit of the limit order is that you can set your price. When the stock meets that price, the order will be executed. It is usual to set a limit order to be executed in a frame of 3 months after you enter the position.

    A limit order can be placed for buy or sell a stock at a particular price. A buy limit order will be filled only at the limit price or below. Hence, a sell limit order will be filled at the limit price or more expensive. For example, you want to buy the stock at $20 or less and you place a limit order for this sum. The order will be executed if the price of the stock is at $20 or below.

    The disadvantage is that you are not promised to trade the stock.

    In case the stock never hits the limit price, the trade will not be executed. 

    The other problem may arise if there is not adequate demand or supply to fill the order. That could be the case with illiquid stocks Also, the stock price may change during the 3 months and your trade may be fulfilled at a price extremely changed from what you could have made.

    For example, you want to sell some company stock at, say at $90. Those stocks are suddenly traded from $85 up to $120. But your limit order is at $90. So, what can you do? Be informed on a daily base to avoid to end up with less money when you can get more.

    The opposite can occur with a limit order to buy. You may be forced to buy at a costlier price than you think the stock is worth.

    Use a limit order when you want to name your price a much different from the current. The other reason, you aspire to trade stocks that are illiquid. Also in the case when the bid-ask spread is great or you are trading a large number of shares.

    A market order is executed quickly

    The biggest benefit of a market order is that it can be executed quickly since you are choosing the best price possible at that time. The market order will be executed no matter what price the seller is asking or the buyer is offering.

    The most important disadvantage of the market order is that you can not determine the price of the trade.  It may influence if the price changes fast which could lead you to end up trading at a much-changed price from when you placed the order.  

    For example, you placed the market order after the closing hours. Suddenly, over the weekend, the stock price increased. What you have to do is to cancel your market order before the market’s opening.

    Also, the lack of buyers or sellers able to cover your order may cause the price to increase or decrease.

    Use a market order if you want an immediate fulfilling at any price or you are trading an extremely liquid stock. Also, if you trade several shares, meaning less than 100.

    Limit order vs Market order

    Limit orders will help you to save money on commissions. But you can save your money by a buy-and-hold approach to your investment. 

    Both limit order vs market order has its drawbacks and advantages. The final selection depends on you. The limit order can be expensive. A market order is simple to execute but can be a difficult choice during volatile market circumstances.

  • How to Calculate the Loss and Profit

    How to Calculate the Loss and Profit

    2 min read

    (Updated October 2021)

    How to Calculate the Loss and Profit

    It is always useful to discover the percentage rise or drop. That is called profit and loss.
    To calculate profit and loss we have to make clear some terms involved in the calculation.

    We will use the stock as an example. 

    * Cost Price ( CP): The price at which you buy a stock is the cost price. That is the amount paid for purchasing stock.

    * Selling price (SP): The Price at which you sell a stock is the sales price. That is the amount received when a stock is sold.

    * Profit (also the gain): You get a profit when you sell a stock at a price higher than its cost price. You will like to sell your stock at a higher price. CP < SP 

    * Loss: If you sell a stock at a price lower than buying price, then you caught a loss. CP > SP 

    The percentage of profit or loss is always calculated on the cost price.

    The formula for profit is

    Profit  = SP – CP  

    The formula for loss is

    Loss =  CP – SP

    Let’s calculate the percentage of loss and the percentage profit.  Percentage Loss and Percentage Profit are calculated based on CP 

    Profit% = (Profit/CP) × 100

    Loss% = (Loss/CP) × 100

    For example, one trader purchased a share of stocks for $1.000 and then sold it or $1.250. 

    What is the profit and profit in percentages? Is it 3%, 15%, 18%, 20%, 25%? 

    OK, this is basic. 

    The words “purchasing” or “buying” are indicated as CP, cost price.

    In our case, CP is $1,000.

    The trader sold the stock at $1.250.

    The word “sell” is indicated as SP, selling price. 

    In our case, SP is $1.250.

    We can easily find the profit. It is SP – CP, so

    profit = $1.250 – $1.000 = $250

    Don’t miss this What Is APY and How to Calculate it

    Now, we have to find the profit percentage.

    The formula is

    [(profit)/CPx100]

    so

    [(250/1000)x100] = 25%

    Our trader made a 25% profit in this transaction.

    But what would happen if our trader sold the stock at $800?

    CP is $1.000

    SP is $800

    loss = CP – SP

    loss = $1000 – $800 = $200

    or

    [(200/1000)x100] = 20%

    The trader’s loss is 20%.

    Calculate the Loss and Profit in Percentages

    • Divide the amount that you have profited on the investment by the amount invested. To calculate the profit, subtract from the price for which you sold the price that you initially paid for it.
    • Now that you have your profit, divide the profit by the initial amount of the investment.
    • The last step, multiply the number you got by 100 to see the percentage difference in the investment.

    If the percentage is negative,  you have lost on your trading. If the percentage is positive, you made a profit on your trade.

    By calculating the profit or loss you are actually estimating the change. Our calculation is based on the relationship between the selling price, and cost price. The difference shows if we are making a profit from the transaction or will we have a loss.

    You would like to READ: Gordon Growth Model – Mathematics of Trading