Tag: how to trade stocks

  • Stop-loss First, Then Consider The Entry

    Stop-loss First, Then Consider The Entry

    Stop-loss First, Then Consider The Entry
    In stock trading, the essential part is to move quickly in and out of the position to profit more.

    Guy Avtalyon

    Everyone who even thinks about trading must understand the importance of stop-loss and why the Traders-Paradise team likes to say stop-loss first. 

    The stop-loss is one of the simplest tools from any trader’s toolkit. This order is connected to the stock’s movement, no matter if the fundamentals for the company have changed. The stop-loss first,  because if you use it you’ll have a greater chance to outperform the market. Let’s explain this. When the price of the stock goes down, the stock becomes more volatile, which means more risk. 

    Correlations between stocks and the market increase more when markets are dropping than when they are growing. So, the portfolio risk rises, and therefore diversification impact reduces. Increased volatility and higher risk, can expose stop-loss order as extremely important in risk exposure control. The gain could be potentially made by reducing the risk and getting a higher risk-adjusted return.
    Using stop-loss strategies you can reduce your emotional reactions while trading, and overcome the volatile market. So, the saying “stop-loss first” covers many situations when it is beneficial and we’ll show you some of them.

    Why stop-loss is the first consideration

    Stop-loss is the primary guarantee for profiting in the stock market. When you set your stop-loss order you’ll avoid risk, protect your principal, and survive the market volatility. It’s like the insurance premium.
    Risk control is the most important. For example, you just learned to ride a motorbike. What you have to know as a must?  You’ll have to know how to control the speed of falling. You’ll be safer.
    But when it comes to stop-loss orders, not every trader is confident where to set this order. Some even avoid thinking about it. Let us explain something. The stock market is a risky one, while you have one winning trade you might have up to ten losing trades. Don’t worry, that’s normal. But you cannot depend on good luck or count on it. What do you need? Skills and capacity to profit consistently. Otherwise, the stock market will dump you out. 

    Why is stop-loss important?

    One of the reasons to use stop-loss is because you trade with limited capital. That’s the rule, no matter if you are the richest trader in the world. Limited capital is required due to the necessity to protect your whole capital from losses. It is possible only if you use a stop-loss order. In other words, you must know what the maximum losses you can take per trade, per day, week, or month. That is trading discipline. You can maintain it only if you set a stop-loss order for each of your trades.

    Moreover, if you consider a stop-loss first, before your entry point, you’ll be able to profit faster and reach your financial goals. In stock trading, you don’t want to hold stock for a long time, and you’ll want to sell them. But if the desired price isn’t reached,  you’ll need to close the losing position as fast as possible and move onto another trade. Of course, you’ll have to compensate for your losing trade elsewhere. That to be said, in stock trading the essential part is to move quickly in and out of the position to profit more. Move your money quickly and with profit, that’s the point. But if you do it randomly you’ll be faced with losses. You have to ensure your trades. How to do that? By using stop-loss first, then you can think about new entries. Also, the bounce backs will be easier in case you have losses. The math can confirm that.

    For example, it is easier for $1000 to fall to $800, but a lot more difficult for $800 to bounce back to $1000. This is a loss of 20%. To compensate for this loss you’ll need about 25% appreciation and come back to the initial capital. But even after a 100% bounce, the stock will be back to its buying price. That’s why you need to use stop-loss orders. If you wait there is a chance for momentum to go more against you.

    What does stop-loss determine 

    In trading, using a stop-loss order is important to overcome the imperfection of indicators. You have to exit a trade if it goes against you. If you’re a buyer, your stop-loss order will be a sell order. Consequently, if you’re a seller your stop-loss order will be a buy order.
    If you’re a buyer, the stop-loss order is a sell order. And vice versa, if you’re a seller, it’s a buy order. For example, if you set your stop-loss order at 3%, you’re actually setting the amount of money you’re prepared to lose per trade.
    Stop-loss relates to indicators, money, or time.  It’s up to you to choose what type of stops you want to use. For instance, you’re buying a stock at $50 because the indicators you use are showing that for this particular stock potential gain could be $100. This means the stock price could reach $150. Your initial stop could be at $25 which is 50% of your initial capital and to get a chance to make $100. Here we come to the risk-reward ratio. In this case, it would be 100:25 which is 4:1. 

    In short, it determines how big a position to take.

    Why to use stop-loss first?

    To avoid the concentration of positions

    As a trader, you’ll run the risk if you extend your exposure excessively. For example, if you keep holding onto positions or average them, then the concentration can occur in your picked stocks.
    For example, you bought a stock at $50 and if it goes down to $45, you might want to average your position. You’ll want that to reduce the cost of holding, for instance. But if the stock price continues to drop, you might be motivated to average your position again. So what could happen? You’ll fall into the loop. You’ll repeat this mistake, and repeat again and again in an attempt to reduce the cost of holding. The better choice would be to use a stop-loss order at the level of the first decline and cut your position. Why would you like to keep a few positions and end up overexposed to their cumulative risks?

    Getting higher leverage  

    In stock, trading leverage is important because it provides you to trade with margin. For example, you put in a margin of $100.000 into your trading account. But you want to trade a stock whose current price is $1.800. So, you could buy about 55 shares. But your broker allows you 4 times more leverage because the company is highly liquid and you now can open positions up to $400.000. Instead of 55 shares, you can buy 220 because it’s the cover order. Let’s assume that the support level for this stock is at $1.750 and you set your stop-loss at $1.700. Let’s calculate your trading risk.

    220 x (1.750 – 1.700) = $11.000

    Since you have a margin of $100.000 in your account, the cover order reduces the risk. Yes, but only if you plan a stop-loss first.

    Advantages of this order

    If you count a stop-loss first, you’ll be able to cut your losses and you’ll be able to protect your trades against bigger losses when the stock price drops sharply. Further, the stop-loss will be automatically triggered if the stock price moves to a certain price. Moreover, you can maintain the risk-reward ratio. For example, you are willing to take a 3% or 5% or 10% risk to get a particular profit. A stop-loss order will help you to achieve that. One of the advantages is that you’ll be able to make trading decisions without emotions and despite the market noise. Also, the stop-loss will help you to execute your trades based on your trading strategy and to stick with it. 

    Disadvantages of using a stop-loss 

    Nothing is 100% sure in the stock trading so even the stop-loss has some drawbacks. For example, you set a limit order and also, you set a stop-loss order, to buy a stock on a particular date. What if your stock opens at a lower price (gap-down) during the pre-opening session? Well, your stop loss will never be triggered. You will end up with losses. Here is a possible scenario. You set a stop-loss at $25, but the stock opens on a gap-down at $23. The stock price didn’t reach your stop-loss so your sell order will not be achieved. 

    Also, a stop-loss can be triggered by short-term fluctuations. For example, the stock price first fell to $24 but then bounced and Increased to $35. But you set the stop-loss at $25 and your holdings will be traded automatically as that price is reached.
    When you calculate where to place a stop-loss order examine what was the range of the historical fluctuation for that stock. For example, you will not place a stop-loss at 3% for the stock with a daily fluctuation of 6%.

    If you want to be a profitable trader, you’ll need to plan every single action. Just like you know the buying price, you must know where to set a stop-loss first and take a profit level. If you don’t do this well, the whole process might end up in big losses. Also, poor stop-loss orders can cause them. The stock trading history is full of both great and ugly stories, so many ups and downs, winning trades and failures.
    Learn stop-loss first, then consider your entry! That’s the whole wisdom.

  • How to Trade Stocks and Make Money?

    How to Trade Stocks and Make Money?

    How to Trade Stocks and Make Money?

    Everyone would like to know how to successfully trade stocks but only a few know how to do that. Here are some suggestions.

    There are not many people who know how to trade stocks and make money. Statistics confirm this. According to stats, only 5% of traders are successful. That means 95% of traders fail. Surprisingly, some stats show 80% of traders leave trading during their first two years. Moreover, almost half of all traders quit during the first month of trading. The other problem is that traders sell winners in a bigger percentage than losers.
    Profitable traders represent a tiny part of all traders with just 1.6% in the average year. Nevertheless, they are very active, the estimate is that they are accounting for 12% of all trading activities per day.

    Stock traders’ problems

    Maybe the biggest problem in the stock market is that traders don’t learn how to trade stocks and make money. They are gambling, to put it simply. Even when they are using some demo accounts or following elite traders, they use it to set up their trades automatically without a meaningful process or plan. We found an interesting thing, traders and investors usually overweight stocks in the industry in which they are working. That’s smart. That is the industry they know well, the companies are known to them too, so the probability of successful trades might enhance. But there can be some drawbacks too. The emotional approach to trade is one of them. Simply said, these traders may act as cheerleaders. That isn’t smart trading. Even if they have profitable trades, the percentage of such trades is small. Otherwise, there would be more efficient traders in the stock market. 

    Knowing these stats it’s understandable why traders fail. The trading decisions are not based on research or proven trading methods. They are based on emotions. Instead of learning how to trade stocks and make money, many traders view trading as a kind of game. Don’t hope to make millions with such an approach. It is more likely you will lose your shirt. Trading isn’t a game. On the contrary, it is a profession for which you’ll need skills, knowledge and continual education and development. It isn’t easy and no one should tell you it is. Hence, be careful of your trading decisions.

    How professional traders know how to trade stocks and make money?

    You might be questioning what professional traders know but you don’t. We are going to explain to you how to trade stocks and make money so you could act like a pro. It isn’t rocket science, actually, it is quite simple but we’ll need your full attention. 

    First of all, don’t think that becoming an elite trader is something you cannot achieve. You are just a few steps away from being that. All you need to unveil how to trade stocks and make money is just around the corner.

    So, let’s start!

    Successful traders usually don’t have any insider information that is unavailable to you. You can gather them also but the real question is why should you do that. In fact, all you need to have trading success is a small adjustment in how you think about trading. In simple words, it is all about your mindset. To become a successful trader you MUST change some of your trading practices if you want to know how to trade stocks and make money, of course.

    There is no secret recipe on how to trade stocks and make money

    Beginners in trading usually are looking for a secret and instant way to success. If you are not one of them, you probably don’t enjoy trading. It is possible you are looking for some tools that will guarantee the profit. Well, it isn’t wrong. There are so many tools out there. Many of them can make your life easier. But you have to love the trading process, even the charts reading and finding patterns. Yes, that isn’t the most exciting part of trading, some may say. But try to look at that from the other point of view. For example, finding just one good, steady, price pattern might enhance your trade and can be beneficial for a long time, maybe for your lifetime. 

    But let’s stay for a while on the subject of the joy of trading. The point is not to have fun (although you might have fun) but to understand what you are doing while trading and be ready to love it. There is no need to be an adrenaline addict but some dose of willingness to have excitement is necessary still. You have to understand the whole process, from the psychological perspectives, chart reading, to money management. And you have to love it. Otherwise, you will never succeed to become a really profitable trader. In other words, you need passion, knowledge, and tools.

    The importance of tools in trading

    When you start trading the stock market, you have to make three decisions: buy, sell, stay on the position. For that you need information. You have to know the stock historical performances. It is important to recognize the patterns. And that is exactly what one of the best books is giving to you. Let us introduce and recommend this particular one, the book The Two Formula: The Best Single Trading Pattern I Have Ever Used. This book doesn’t give you only theoretical knowledge. It is based on the personal experience of the author. That is the value per se. 

    What will you find in the book The Two Formula: The Best Single Trading Pattern I Have Ever Used?

    According to the author, Michael Swanson, the first time he used this trading pattern was in 1999. And how good this price pattern shows the fact he is using it for even more than 20 years. He reveals that just one single price pattern is quite enough for successful trading whatever you want stocks, funds, futures, commodities. Basically, you can use this price pattern for anything that you can draft on the technical charts. We have been reading a lot of books about trading. Also, we examined a lot of patterns but this particular one is extremely interesting. This trading strategy is completely unique. 

    Few words about trading strategies

    Essentially, a trading strategy is a method of buying and selling in the stock markets or some other markets. The trading strategy is based on rules that deem to end up with success in trading and in profit. So, most traders are guessing and trying to notice the bottom and the level where the price starts to go up in order to buy an asset in the hope it will rise further. The point is they are often wrong. Go back to the beginning of this article and you’ll see the stats. What do the majority of traders do? They are hunting price movement. But it very often turns into chaos. Why is that? They are not trading, instead, they are gambling, they place trades without a meaningful process. 

    When they see how big mistakes they have, traders use charts to figure out what is wrong and try to fix it. Sometimes they are spending hours, days even weeks, staring at the charts to predict how the price will go in the future by using technical indicators, a lot of them. And they are confused more and more. These complicated images can fry their brain but their trades will not become more successful.

    The simplicity of The Two Formula pattern

    For any trader, the simplicity of the pattern is extremely important. If you have too many indicators added to the chart you will have a blurred picture. The essence of profitable trading is to have a steady plan, something that really works when setting the position. You must have confidence in what you are doing and you have to know how your trade will end up. This “Two Fold Formula” book can help to achieve all of that.

    Where is the catch?

    This book shows how with a one price pattern setup you can make a profit while trading. Basically, it is a simple strategy and that’s why it is an effective one. Easy to understand, easy to use, without misunderstanding. Everything is explained clearly and smoothly and, what is most important, based on personal experience and proven. 

    Some traders have to lose, but you would have a chance to make a profit with this method. Any trade has only two ends: loss or profit. Why shouldn’t you profit? This may help you to trade like a pro

    Bottom line

    People are afraid of the risk, but these two formula pattern seems to be using some good indicators and a more “tuned” strategy. 

    Pro tip: use it with our preferred trading platform virtual trading system to see if it’s working before trying on real funds (68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money)

  • How To Trade Crypto And Stocks / Forex

    How To Trade Crypto And Stocks / Forex

    How To Trade Crypto And Stocks / Forex
    Basically, it is the same but with some differences. In this post, you’ll find all about them.

    By Guy Avtalyon

    How to trade crypto, stocks, or forex? It is similar but at the same time different from other trades, for example, stocks or forex. At first, we have to define the difference between crypto and Forex or stock trading because you have to have theoretical knowledge.

    What is crypto trading

    Crypto trading is simply the exchange of cryptocurrencies. Just like in Forex. In crypto trading, you are buying and selling a cryptocurrency for another. It’s the same as you buy Bitcoin or altcoin for USD and Euro.

    What is the Forex market

    Forex, also known as FX, or currency market is where you can trade currencies. The forex market isn’t centralized. It is, also, OTC or over-the-counter market. Here you can buy, sell, or exchange currencies at determined or current prices. So, it operates like any other market.

    What is stocks trading

    In short, it is the buying and selling of company stock – or derivative products based on company stock – in the hope of making a profit.
    Let’s go further!

    How to trade crypto

    Honestly, all of these types of investments are risky. Crypto gives greater growth than stocks or forex.

    You all know all about the Bitcoin. Well, Bitcoin isn’t the only digital currency that you can trade on the market. It is really the first and most popular one and is the real digital gold in the industry. The most important part behind cryptocurrencies is the technology that holds a large part of their value. The technology is what provides a safe way to identify a transaction and, also, the way to transfer currency or fiat money in exchange.

    If you want to trade crypto you need as first:

    1) A cryptocurrency wallet (or two).
    2) An exchange or platform to trade on.
    3) By using a bank account (find more HERE)

    There are only a few things, but important, you have to know about trading cryptocurrency.

    Trading cryptocurrency is simple to start, but there are some essential aspects to understand before you start trading and this is basic friendly advice to mull over, not professional investment advice.

    I’ll explain an example of Bitcoin.

    How to trade crypto

    Firstly, you’ll have to buy the underlying asset from an exchange or online broker.

    If you want to protect your Bitcoin, you must have underlying. That’s the best way. However, you’ll have to take some reasonable steps to reduce the risk of Bitcoin stealing and loss of private keys. The steps are simply a diversification of holdings across different wallets/storage types. Keep in mind that you’ll need two-factor authentication and strong passwords.

    Further, you can trade a CFDs derivative and hold a cash margin.
    If you want to trade on Bitcoin for a short or medium period find, use an online forex broker that will provide you 24-hour trading. Also, ask for the potentially lower margins, and also, the ability to go long or short. Choosing the right broker is very important. Your broker has to provide you the best trading tools and favorable commission rates.

    It is always smarter to buy a publicly listed security linked to Bitcoin and hold that shares with an online broker.

    Stock investors, investing in Bitcoin through listed security, for example, ETF or ETP, could be suitable. Especially for investors that prefer taking a passive position. More active traders might notice that the limited trading hours and possible lack of volume are limiting factors. That could limit their trading indeed.

    Overall, using listed securities that invest, track, or hold Bitcoin can be a viable alternative to diversify away from the risks of margin trading or safeguarding private keys when buying the underlying.

    How to trade forex

    You can trade currency based on what you think its value is, if you think a currency will increase in value, you can buy it. If you think it will decline, just sell it.
    In forex trading, you’re betting on the value of one currency against another.
    For example, EUR/USD, which is the most-traded currency pair in the world.
    EUR as the first in the pair is the base currency, while USD, as the second, is the counter. Read more HERE

    When you see a quoted price, that shows how’s much one euro worth in US dollars. Also, you’ll always see two prices. That is because one is the buy price and the other is the sale price. The difference between these two prices is the spread.
    When you choose to buy or sell, you are actually buying or selling the first currency in the pair.
    If you think the Euro will rise in value against the dollar, you buy EUR / USD. And vice versa, if you believe the Euro will drop, you sell EUR/USD.

    If prices are quoted to the hundredths of cents, how can you see any return on your investment when you trade forex?
    Leverage!
    When you trade forex you’re borrowing the first currency in the pair to buy or sell the second currency.
    To trade with leverage, you just set aside the necessary margin for your trade size. If you’re trading 200:1 leverage, for example, you can trade $2,000 in the market while only setting aside $10 in the margin in your trading account. Still, leverage will not just increase your profit potential. It can also increase your losses. If you are new to forex, you should always start trading with lower leverage ratios, until you feel comfortable in the market.

    How to trade stocks

    Stock markets are places where buyers and sellers of shares meet and decide on a price to trade.

    It is important to know that the corporations listed on stock markets do not buy and sell their own shares on a regular basis. You have to know that you\re not buying shares from the company, you are buying it from some other shareholder.

    There are many stock exchanges, many of which are linked together electronically which means markets are more efficient.

    The prices of shares on a stock are established through an auction process

    The prices of shares on a stock market can be set in a number of ways, but most of the most common way is through an auction process where buyers and sellers place bids and offer to buy or sell. A bid is a price at which somebody wishes to buy, and an offer (or ask) is the price at which somebody wishes to sell.

    When the bid and ask coincide, a trade is made. If there are many buyers and sellers at higher and lower prices, we say the market has good depth. Stocks are quoted by their ticker symbol, represented by between one and four capital letters, which are often loosely representative of the company name.

    Market orders are simply orders that direct your broker to buy or sell shares at the best possible price. A  market order doesn’t guarantee the price, but it does ensure that you’ll get the number of shares you require. When an order is completed, it is said to be filled.

    Stop orders are contingent on a certain price level being attained to activate the trade and your trade will be executed only when what you want to buy or sell reaches a particular price.

    If you understand how the financial markets are structured you can use the same skill and experience to profit in all three.

    It’s the same, you buy low and sell high against the crowd. There is no difference.