Tag: trading

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  • Difference Between CUSIP And ISIN Codes

    Difference Between CUSIP And ISIN Codes

    Difference Between CUSIP And ISIN Codes
    While the company’s reports may not all be true, nothing can be hidden if you use CUSIP for the US companies and ISIN for international trading.

    CUSIP and ISIN codes are some of the most well-known securities identification numbers that are used to trade.

    If we have in mind that both are codes used for securities to help settlement and clearing in trading, what is the difference between CUSIP and ISIN?
    ISIN stands for International Securities Identification Number, while CUSIP stands for Committee on Uniform Security Identification Purposes. Both are displayed as codes Let’s look at the difference between CUSIP and ISIN.
    We already explained in the previous post what CUSIP is, let’s explain what ISIN is to understand the difference between them.  

    What is ISIN?

    It is a security code that consists of 12 alphanumeric characters. ISIN is used almost all over the world, but it is particularly known and used in Europe. So, we said it consists of 12 characters where the first two are the country code. It is followed by 9 alphanumeric characters which are the national security identifier, and we have one more digit, the 12th. 

    Difference between CUSIP and ISIN

    Well, where is the difference between CUSIP and ISIN if both serve to help settlement and clearing in trading securities?

    The first difference is that CUSIP, mostly used in the US, North America actually, consists of 9 alphanumeric digits. The first 6 letters outline the issuer, the next two digits represent the issue, the last figure is the check digit.

    Both have the same purpose to uniform the identification of securities which are settled and traded.

    ISIN is accepted for shares, futures trading, options, derivatives, and debt security that are traded and settled. This code looks something like this: two letters to identify the country, for example, Germany, so they would be GE. The next we have a national security identifier formed of nine digits, for example, “275946739” and as the last but not the least one check digit.

    The country code is provided by the International Organization for Standardization or shorter ISO. The National Numbering Agency (NNA) provides the national security identifier for every country in particular.

    What is the check digit? 

    The check digit is received by using the Modulus 10 Double Add Double system. This system converts the letters to numbers by adding their place in the alphabet to nine. 

    To calculate the check-digit, use the first 11 digits, and start at the last number and go from right to left. Each second digit you should multiply by 2. Letters are converted to numbers. You’ll have a string of digits as a result. All numbers over 9 separate into 2 digits. Add them up. The next step is to subtract from 10 and you’ll have the ISIN check digit.

    For example, when the final result is 0, that means the check digit is 0.

    Alphabetical letters are transferred to a numeric value. The letter A is 10 and the others are as following:

    A = 10; B = 11; C = 12; D = 13; E = 14; F = 15; G = 16; H = 17, etc where  Y = 34.

    To summarize,  convert letters to numbers by using the model above but start from the right last digit, every other digit multiply by 2. Subtract the result from the smallest number ending with 0 to get the check digit.

    The check digit for CUSIP is calculated by converting letters to numbers by using their position in the alphabet. Every second digit multiplies by 2 to get the CUSIP check digit.

    The importance of these codes to investors

    ISIN codes are important for companies that have investors or want to raise the capital. The main purpose of the ISIN code is to clear and settle trades. 

    Both the ISIN number and the CUSIP number are an official code that is required today. The numbers will help you to identify the security. They are kind of a personal social security number for the companies. 

    For example, the ISIN number is necessary for cross border trading. Moreover, ISIN code has many purposes.

    An ISIN or CUSIP number isn’t a ticker symbol that spots stock at the market. For example, the company may have several ticker symbols. That depends on trading platforms but its securities will have the same ISIN number. ISIN code is required but companies cannot create the ISIN code themselves. When a company wants to have an ISIN number it has to contact the numbering agency, for example, the Association of National Numbering Agencies (ANNA).

    How to convert CUSIP to ISIN?

    The CUSIP number is entirely included in the ISIN number. The ISIN is a larger code with 2 prefixed letters, for example, the “US” for the United States of America. CUSIP number doesn’t have this prefix because it is entirely a North American identifier.

    For example, ISIN US0328974369 is extended from CUSIP 032897436. Keep in mind that this is an imaginary example, and as such not a real example. Let’s go further! You can notice that country code is added on the front of this numeric phrase, and the check digit is at the end. So. we can easily recognize that the issuer is from the US. 

    Let’s determine the digit at the end. Just a bit of math more.

    Let’s convert letters to numbers.

    U = 30, S = 28. 

    So we have 

    US0328974369 as 30280328974369

    The next is to collect odd and even numbers.

    30280328974369 = (3, 2, 0, 2, 9, 4, 6); (0, 8, 3, 8, 7, 3, 9)

    Now we have to multiply the group containing the rightmost numbers (meaning the FIRST group) by 2:

    3×2 + 2×2 + 0x2 + 2×2 + 9×2 + 4×2 + 6×2

    which is 

    6 + 4 + 0 + 4 + (1+8) + 8 + (1+2) 

    Now, add up the individual digits

    6 + 4 + 0 + 4 + (1+8) + 8 + (1+2) + (0 + 8 + 3 + 8 + 7 + 3 + 9)  = 72

    Then use the 10s modulus of the sum.

    Bottom line

    The CUSIP number is important to help the settlement and the trading securities. The CUSIP consists of nine characters, with letters and numbers. It is assigned to securities that are traded in the United States and Canada. CUSIP numbers are publicly available. 

    ISIN Numbers are expanded CUSIP numbers and represent the International Securities Identification Number system.

    This is how the international system for the clearance of securities is established. The difference between CUSIP and ISIN is in 3 digits and we showed you what they are and how to calculate them. Both can simplify trading, selling, or buying securities, especially in international investing.

  • Index Trading What is It and How It Works?

    Index Trading What is It and How It Works?

    Index Trading What is It and How It Works?
    In index trading, you are betting on the movement of the stock market as a whole.

    In the stock markets, you don’t need to trade individual stock only,  instead, you can choose index trading. Index trading is actually very popular in stock trading. 

    Let’s make clear what an index is. In short, it is a mix of tradable assets. The most popular indexes are the S&P 500, NASDAQ, Dow Jones Industrial Average (DJIA), etc. They are so-called benchmark indices. In the stock market, these indexes include the shares of individual companies. 

    Besides the opportunity to use the index as an indicator of the market condition, you can use it for real trading. But there is some characteristic of the index that you have to be aware of. An index doesn’t have real value, it is just a measure of the value of a part of the stock market. 

    How is possible index trading?

    We know that trading, in most people’s minds means buying and selling a single stock, currency pair, or some other asset. Well, trading isn’t just buying or selling securities, you can trade indexes also. Yes, an index is a financial instrument that consists of numerous assets with their average value.  As for the index meaning, they are a financial instrument that combines individual assets and represents their average value. 

    Index trading means speculating on price changes in a stock index benchmark, for example, the S&P 500, FTSE 100, the Dow Jones, etc. 

    In index trading, perhaps the most beneficial part is that you don’t need a huge capital. You don’t need to buy the whole index, meaning you don’t need to pay it at full price, you can pay, for example, 20% of its value. How is this possible? If you want to buy stocks you have to pay 100% of the value. Well, index trading is a derivative vehicle. The main difference between stocks and index trading is that you can hold stocks for years but in index trading, you don’t have such a possibility. Actually, you have but only if you enter the same position every month, for example. This means you can hold indexes for a specified period. 

    The other characteristic is that you are actually trading indexes options. Further, index options are settled in cash. It is common for index traders to use index options to hedge stock portfolios. Index options are also excellent when it comes to speculating the market. Index trading is basically the traders’ attempt to profit from the price changes of indices.

    The examples of index trading

    There are many indexes available that you can trade. Index traders can either focus on a single index or trade various indexes as a component of a more extensive strategy.
    For example, stock indexes are the most attractive because they mix some of the most important companies. If the companies are strong with permanent growth, the index value will increase. 

    The stock indexes are the most popular types of index trading. A stock index is a collection of stocks that presents, let’s say, a summary of how a particular section of the stock market is doing. For example, a biotech stock index will track biotech stocks.
    Index trading occurs when you don’t want to buy individual stocks Because you would like to have exposure to a whole section of the market. 

    There are numerous indexes, for example, FTSE100 (London), S&P/ASX 200 (Australia),  AEX index (Amsterdam), CAC 40 (France), DAX (Germany), besides already mentioned above.

    Why index trading?

    Index trading is a comparatively protected form of trading with combined risk management. The risks of index trading are lower than the risks of trading individual stocks.

    An index isn’t a manipulative financial instrument or it is at least. The price of an index will change along with the price changes of the constituent stock that make up a particular index.

    The other reason is that you have an embedded money management system. Index trading simply means you don’t “put all your eggs into one basket.”  Also, the risk is lower in this type of trading. It’s true that indexes can be volatile due to political events, economic predictions, or similar. But when an index is getting or losing 15% in value, the headlines will be full of that, trust us.

    By index trading, you’ll be protected against the risk of bankruptcy. An index can not go insolvent. If an index’s part goes bankrupt, it will be replaced by the next company on the list. That is great protection of your capital because if you own a stock of the same company you could lose everything you invested in it. Also, you’ll benefit from the global financial condition. By index trading, you benefit from the index’s possibility of permanent rise.

    For example, you invest $10.000 for a period of 2 months. At the end of that time, your gains will be 10% of the initial investment, or $1.000. Similarly, index trading permits you to profit from any kind of stock market changes. It doesn’t matter if the market grows or drops in value during these 2 months. Basically, you can profit in any market conditions.

    How to trade indexes?

    Position trading and trading with the trends are very effective strategies in index trading. A powerful approach could be to open the position and hold as long as possible. That is, in short, position trading. Major indexes have almost the same problems, reactions, so this could be a good approach.

    Also, one of the strategies in this type of trading could be trading with the trends. It is suggested to use long-term charts with other technical tools. For example, pattern analysis or indicators are useful to develop your position trading strategy.

    This kind of trading isn’t without risks. It is with the lower risks but still, some quantity of volatility is present. This is particularly true if you trade the stock indexes. So, you’ll need some risk management strategy. You can use some of the very powerful tools like stop-loss orders, trailing stop orders, or limit orders. Basically, in index trading, if you want to lock in profit, you’ll need everything possible that may help you to manage the trade according to your risk tolerance.

    Bottom line

    Traders know the names of the main global stock indexes. These indexes can also be traded through stock index CFDs. In fact, you can also buy and sell them in an alike way to how you trade stocks. Everything is almost the same, except the risk is much lower.

  • The Settlement Period For Stocks – What is T+1, T+2, and T+3 Timeline?

    The Settlement Period For Stocks – What is T+1, T+2, and T+3 Timeline?

    The Settlement Period For Stocks - What is T+1, T+2, and T+3 Timeline?
    When trading stocks, the settlement refers to the approved, an official shift from the buyers’ account to the sellers’ accounts. This never happens quickly, it will take a few days.

    By Guy Avtalyon

    The settlement period for stocks means that the trade became official at the end of one, two, or three days. For example, you aren’t an official owner of the stock on the day you bought it, you have to wait for 3 business days while your purchase becomes official, meaning to settle. The settlement period for the stocks refers to a period after the trade date. Terms T+1, T+2, T+3, are broadly used to indicate the settlement period is one, two, or three days after the trade of any type of security is executed.

    Today, when almost all trades are done electronically, these terms are used to show that the stock you bought doesn’t yours officially until the third-day from the purchasing day. So, technology does not influence this, it is an exchange rule. To be honest, this is an important rule because it could happen that you bought or sold by mistake or you made some errors, so you’ll need some time to fix that. 

    Without a doubt, some people buy stocks accidentally, random. Later they would like to cancel their purchases when they notice a mistake or change their mind. In case the trade is a real mistake, both participants are agreed to correct the problem. And they would like to do that at the less cost possible.

    Also, there is another group of people in the stock market that don’t want to pay stocks with some weird idea that their buying will be characterized as a mistake if they prolong the time to settle them. In short, they are expecting to obtain these stocks for free. Hence, the settlement period for the stocks is an important period for the sellers or exchanges to clear up such a trade.

    The basics of the trade

    There are three phases of any trade. First is the execution which is an agreement between buyers and sellers to buy or sell a stock for a specified price. When the buyers and sellers are agreed, the exchange registers the trade on its ticker tape. 

    The next step or phase is clearing. It is an accounting process. When you bought your stock, meaning the trade is executed, the exchange should send the detailed report to the National Securities Clearing Corporation to verify the accuracy.

    The last step is the settlement. On the settlement date, the buyers execute payment for the stock and the sellers deliver it to the buyer. Typically, the settlement period for the stocks happens three days after execution.

    Purpose of settlement period for the stocks

    The settlement period for the stocks provides both sides of the trade to fulfill their side of the settlement. For example, the buyer will get more time for payment to do, also the seller might need time to fix something, like to deliver the stock certificate. Even today when the whole trading process is done digitally, the trade is official only after the number of days assigned by trade settlement rules. When the last day of the settlement period comes, the buyer becomes the true owner of the stock and registered as that.

    What are T+1, T+2, and T+3?

    Every time you buy or sell a stock, or some other asset, you’ll have two dates to keep in mind: the date of the transaction and the settlement date. This T refers to the date of the transaction. The figures T+1, T+2, and T+3 point the settlement dates of stock transactions that happen on a day of the transaction plus one, two, or three days

    The day of the transaction or the transaction date is the day when you traded a particular stock, no matter if you bought or sold it. For example, you sold your stock on May, 29. That date is the transaction date. and nothing will change it.

    The settlement period for the stocks is important for investors interested in companies that are paying dividends. The settlement date can decide which party will receive the dividends. If you are a buyer of the stock, keep in mind to settle the trade before the date of the dividend payment to get the right to receive the dividend.

    The end in the settlement period for the stocks, the last day, is the day when the new owner is assigned and the ownership is transferred. The transaction date and settlement date will not occur on the same day. It depends on the type of security.

    Consequences during the settlement period for stocks

    You have to understand what the two-day settlement period for stocks means. Let’s say you are selling the stock and expect money immediately. That is not going to happen. Yes, you’ll see that money in your brokerage account but it will not be available until the trade settles. Only after the T+3 period, you can withdraw your money.

    What could happen if you are the buyer and the stock price dropped during the settlement period? Or you don’t pay in the three days? That will not get you out of the trade and the consequences are serious. 

    If you do not pay for the stock during the three days, the broker will sell it at any price. So you’ll have to pay for losses and penalties.

    Also, selling stock through the 3 days to profit and not paying for the stock is outlawed. It’s a so-called freeriding and refers to cash accounts. It’s better to use a margin account if you trade frequently.

    Stockholder of record and dividends

    When you buy stocks, you are not the stockholder of record until settlement completes. The investor who purchases stock, for example, two days before a dividend record date will not get the dividend. So you have to buy a stock at least three business days before the record date. In investors’ lingo, such a stock goes “ex-dividend”. 

    To decide which investor is qualified to get a dividend, the record date is part of a dividend announcement. The amount of the dividend and the payment date are included also. You must own the stock on the record date. Meaning the settlement date must be before or on the record date. The dividend payment date will occur a few days (sometimes a few weeks) after the previous date, the record date.

    For example, a company declared a $0.50 dividend payable to stockholders of record as of Jun 4, 2020. To have the right to the dividend, you should buy stock on or before Jun 1, 2020. That is three business days earlier. The following day, Jun 2, is recognized as the ex-dividend date. It will be the first day when the stock will trade without that dividend attributed.

    Why the settlement period for stocks is important?

    There are several reasons. This rule is important to limit the probability of errors, even today in this digital world. Also, it keeps the markets in order. For example, if the market is in a downturn too long settlement times might cause your failure to pay for your trade. When we have a limited time for the settlement period for stocks, the risk of financial difficulties and losing money is reduced.

  • Trading Bonds – How to Start Making Money

    Trading Bonds – How to Start Making Money

    Trading Bonds - How to Start Making Money
    A bond is a loan that the bondholder gives to the bond issuer. Governments, corporations, and municipalities issue bonds when they need cash.

    Trading bonds may seem unusual and difficult. But it isn’t. Actually, the whole process can be quite simple. Anyone interested in trading bonds shouldn’t have a problem getting started. You can find plenty of opportunities in trading bonds and the bond markets. But some things are special for trading bonds and bond markets. If you are not familiar with them, trading bonds might be very confusing. Honestly, it is important to trade bonds so let’s see how to do that.

    First of all, bond markets are much bigger than, for example, stock markets. One of the most important differences between bonds and stocks is that there is no exchange for trading bonds; it is done on the “over-the-counter” market but some kinds of bonds can be traded on exchanges. For example, convertible bonds are possible to trade on exchanges. Actually, trading bonds can happen anywhere where the buyers and sellers can make a deal.

    Trading Bonds: The participants in trading 

    There are two types of participants in trading bonds: bond dealers and bond traders.

    Traders can trade bonds among themselves, but trading is customarily done through bond dealers. Well, to be more precise, these places where you can trade bonds are dealers’ bond trading desks. Bond dealers are kind of intersection points. They have all types of connections available. Phones, computers are on their desks. But also, they are connected with some traders whose job is to gather all information about bonds, they are quoting prices for buying or selling bonds. To make the story short, these traders are responsible for creating the market for bonds.   

    Dealers and traders

    Dealers’ job is to provide liquidity for bond traders and make it easier to buy and sell bonds with a limited concession on the price. But they have some other possibilities to take part in trading bonds. Dealers can also trade bonds between each other. Sometimes they do so through bond brokers, meaning anonymously. Dealers make money from the spread between the bonds buying and selling price. This also the way how they can lose money.

    Bond trading can be very lucrative. That’s the reason why pension and mutual funds, financial organizations, and also governments are involved in trading bonds. When you have such powerful players in the market, it isn’t surprising that $1 million worth of bonds is small initial capital. The bond markets don’t have any size limit, trades may worth over $1 billion but also $100 million. That isn’t the rule for the institutional markets, there are no size limits for individual traders, also. Their trades are ordinarily below $1 million.

    Trading bonds strategies

    Trading bonds can be passive or active. Both approaches are legit and can produce you the gains.

    You can make money from bonds in two ways. You can invest in them and hold and receive interest payments after the maturity date. It is usually twice per year. That is a passive way of trading bonds.

    The other way to make money from bonds is by trading them. You can sell your bonds at a higher price than you bought them. For instance, you bought bonds at a nominal value of $20.000. After some time, their market value increases by 20% and you can sell them at $24.000. You’ll earn $4.000.

    Bond laddering is also one of the more active strategies and very convenient to start trading if you hold bonds with different maturity dates. You can use the profit from bonds with shorter maturity dates to buy bonds with longer maturity dates. This is named “income stream” and you don’t need a lot of money to use this strategy. It is pretty much economical and cheap. 

    Bond swapping is another active approach to trading bonds and very attractive for skilled traders. Where is the catch? Let’s say one of your bonds isn’t a good player and it is more likely a losing one, it’s not going to recover. Traders usually are selling these bonds to get a tax write-off for the loss. The money gained from the selling bond they reinvest in high-yielding bonds. That helps them to build a firm portfolio.

    The differences between the trading bonds and investing

    In trading bonds you are actually speculating on the price changes during a short period in time. You are buying bonds only when you believe they will increase in price. And vice versa, you are selling them only when you believe their prices will drop. So, your profit is coming from the bonds’ price movements. Trading bonds is also when you use the advantage of leverage. To be honest, that might magnify your profits but also, you may be faced with great losses. 

    Investing in bonds means that you are holding bonds for a long time. You decided to hold them whatever is happening and you are taking the risk to lose your money if bonds prices decrease. When investing in bonds the profit will come from interest payments. Further, on the maturity date, you will put down the total value of your position. 

    Should you trade stocks or bonds?

    Bonds and stocks are the most traded assets but in different separated markets. When trading stocks, you are actually buying ownership in some companies. When the company or companies are doing well, the value of your shares will grow.
    When trade bonds, you are actually lending money to the issuer of the bonds for a fixed period of time. For that you’ll charge interest. Bonds are often seen as safer than stocks. People use them as saving for retirement, for example.
    So, trading bonds is an investment strategy. You can use them as we mentioned above, but also, bonds are very useful if you want to diversify your portfolio.

    What to look out 

    Buying bonds can be a difficult path when you aren’t purchasing them right from the underwriter or you are buying used bonds. What to look out, how to know you’re making a good deal?
    Look out for the credit rating. It is important to know if the company can pay its bond. Standard and Poor’s and Fitch use a rating system that ranks bonds, the best quality is marked as AAA and the worst as D. Between these two marks you’ll find, in range of quality from good to less good, AA, A, BBB, BB, B, CCC, CC, C bonds.

    Further, you’ll need to know the bond duration. That is an indicator of how unstable the bond can be in terms of changes in interest rates. If the duration is longer, that means a higher fluctuation when interest rates shift. The problem is in the nature of the bonds. If interest rates increase, the price of a bond decreases. Also, be careful when buying bonds through the brokerages. They will charge you the fees. Check it before any bond-buying. Use publicly available data on the pricing of bonds, or bonds with equal maturities, interest rates, and credit ratings.

    Why trade bonds?

    Trading bonds can boost the yield on your portfolio. The yield represents the total return you’ll receive if you keep a bond to its maturity, but you’ll want to maximize it. The point is to sell bonds with lower yield and buying bonds with better. You are selling bonds with low yield and buying another to earn from the spread. For example, you hold a bond that yields 4,75% and you noticed a similar bond but it yields 5,25%. That is 0,50% more. So, you can sell your bond and buy this better yielding one and you’ll have a spread gain – yield pickup of 0.50%.

    Credit-upgrade trade is used when a trader assumes that a particular debt problem will be upgraded soon. When an upgrade happens on a bond issuer, the price of the bond will rise and the yield will decline. A credit-upgrade means that the company is marked as less risky. Traders want to catch this expected price increase and buy the bond before the credit upgrade. For this type of trade you’ll need some skills for credit analysis. 

    You might like to take credit-defense trade.

    It is very popular. When uncertainty in the economy and the markets increase, some sectors are weaker to fulfill their debt obligations. If you hold this kind of bond, just take a more defensive position. Pull your money out of that sector, don’t hesitate to get out.

    Also, you can trade your bonds to adjust a yield curve and change the duration of the bond portfolio you are holding. In this way, you’ll get an increase or decrease in sensitivity to interest rates, whatever you prefer. Keep in mind that the price of the bond is inversely correlated to the interest rate.

    The reason for trade bonds might be the sector-rotation. For example, you want to reallocate your capital to bonds from the sector that is supposed to outperform the industry or some other sector. If you are trading bonds in the same sector, one strategy could be to switch bonds form cyclical to the non-cyclical sector or vice versa.

    Bottom line

    To trade bonds, you’ll need an account. Choose your bond, when trading bonds, you can buy or sell assets from all over the world.
    Now, decide when you would like to open the position. Timing the opening and closing of trades plays the greatest role in how you are successful in the markets.
    Open your position by using some online trading platform. Determine how much you want to put on the position and do you want to go short or long. Add stops and limits orders.
    If your trade isn’t closed automatically by stops or limits, close it yourself to take profits or cut the losses. To calculate your profit or loss, subtract the opening price of your position from the closing price. 

    Simple as that.

  • How To Make Money By Trading Stocks?

    How To Make Money By Trading Stocks?

    How To Make Money By Trading Stocks?
    There are many ways of making money by trading stocks and numerous methods to find potential investments that match your trading strategy.

    It is almost normal wishing to make a lot of money in several months but do you know how to make money by trading stocks? Yes, it is possible. Everything you have to do is to make several high-risk trades buying stocks that are paying dividends. Simple as that. But it isn’t going to happen to all of us. 

    Someone can make fortune trading stocks in a short time. Some people can do that. But it is too risky. Honestly, when we talk about them we are actually talking about people who know how to make money by trading stocks. Others prefer other approaches. Many of them are less risky and safer ways to participate in the stock market. But still, it is possible to make a lot of money. That’s true. 

    Also, the truth is that some traders and investors got lucky but it isn’t a common story. Actually, it is the opposite. Most traders fail to make money on the market. So if you want to know how to make money by trading stocks you have to understand the nature of the stock market. We are not going to tell you the sad stories but what you have to know is that the stock market is a zero-sum game. Meaning, if someone doesn’t lose, you’ll never earn. Is that all? Of course not. There are more so, let’s see how to make money by trading stocks. 

    Can you make money by trading stocks?

    Why not? Thousands of people already did it and still do. Some are trading stocks every day or month but the others are more buy-and-hold types. They are sitting in the stocks for decades and today they are counting their millions. For example, risk-averse types will do that. They will choose some reputable company or the company with a promising outlook, good business plan, and stick it out for the long run.

    Also, there are some other approaches. You’ll find plenty of outstanding traders capable of making money through several quick but risky trades. Frankly, they are a minority. Great success in trading will come if you pick a day trading or short selling the stocks but it is connected to the extremely high risks. You’ll have to trade in the high-risk and volatile market. But it is one of the most important and usual features of the stock markets: they are volatile, they are risky no matter how strong or experienced you are. Let’s call statistics as help, only 20%, or even less, of traders, are successful when trading the stock market. The others constantly fail to make money.

    But this article is about how to make money by trading stocks. So, let’s go!

    As we mentioned above, one way is to adopt a strategy to hold stocks for a long time. At least five years, for example. If the stock pays dividends, it’s better.

    Quick ways to make money by trading stocks

    Making money by trading stocks, especially with a small amount, is challenging, and honestly, riskier. Of course, if you don’t know what you’re doing. But let’s try to be more creative.

    Certainly, it is ideal if you have more money to trade. But it’s not mandatory. The mandatory is to have the right strategy that works for you, to have a trading plan and trading journal. If you are a beginner in trading stocks, start modestly. Try with small amounts, test different approaches, and methods. After you did it, monitor, and examine the result you got. Don’t think about obtaining the fortune overnight. That’s not going to happen. 

    The smartest thing you can do is follow some of the rules and methods on how to make money by trading stocks and place a small amount, and over time raise it until you become ready to trade with larger sums.

    Let’s go! Play the market and earn money!

    Day trading is for traders with courage and heart. It demands to understand various forces at play in the stock market. For day trading you’ll need more experience. Well, if you are a good student and learn a lot, day trading will give you a chance to make a lot of money in several hours. The point is that you don’t need to invest a large sum, you can do it with a relatively small amount.
    But be careful, you’ll need to hedge your bet. What does it mean? You have to set stop-loss limits to cut potential losses. The advanced traders know that market makers push stocks to provoke our fear of failures or our greed. They want the stock to run for their profit, not ours.

    So you have to be very careful, to understand what you are doing, and to examine the market trends to be able to make important gains. For example, moving averages. Pay attention to them. If some stock breaks through the 200-day moving average that is the sign that potential upside or downside change in price is coming.

    Can you make money quickly by trading stocks?

    Yes, it’s quite possible. Just find companies in very volatile sectors. The other possibility is to find high-value or low-value stock with high risk but with the potential for an enormous reward. Also, you’ll have to be a short-term trader for that. That is the only way to make money quickly by trading stocks.
    For example, you’ll have to look for a high-value company that stock recently fell but you must have some clue that the stock price will rebound soon. When it happens, you’ll sell them for a higher price.

    Also, one of the possibilities is to buy a stock of some startup with the potential to produce tremendous returns. This is risky, also but can generate a great reward. The point is to hold it shortly, wait for a significant increase in price, and sell quickly. The risk here is that startups, in general, could be risky investments. A very small number of them succeed to survive a few years. They are like comets, light the sky for a while, and boom – disappear. But while they are here, in the markets, they are a great opportunity for traders to make money by trading their stocks.

    Trading stocks for a living

    People are trading stocks for a living which means they are making enough money for everyday life and over. Trading stocks can be a full-time job but also, a part-time job. What you choose depends on you. You have to find out how to make money by trading stocks from your home. Also, you may try day trading as a regular job.

    How much money you’ll make depends on your trading strategy, your skills, knowledge, etc. But not all is in your hands. You’ll have to know how the markets are doing and be familiar with many other things. Professional traders can make above $5,000 per month but that varies depending on the amount of money you put in play.
    For example, beginner traders can make several hundred or a few thousand monthly. Once, when you become more experienced with developed skills, your gain will be much higher.

    Buy low, sell high to profit from your trades 

    This approach is easy to master. It is a tested and proven formula for making a profit as a trader. But you don’t want to jump in the trade always when a stock price rises or falls. Sometimes you’ll need to stay aside and wait for your moment. It’s incredibly important not to panic when a stock falls below the price you paid. That’s the point with stock prices, they may rebound and if you exit the position too early you might miss the greater profit.
    When deciding whether the stock price is high or low enough to guarantee a trade, you should examine just a few things: the company’s earnings per share, do employees buy its stock, take a look at the company’s profit history, strength in different circumstances.

    The point is to buy low, that’s true. However, it is important to recognize the company that is able to recover and its stock will rise in price. That is exactly what would you like and as fast as possible, best right after you bought the stock. 

    The same is with the second part of the saying – sell high.

    When selling stock to reinvest the profit, you would like to ride the trend of the stock price rising as long as possible. The keywords “as long as possible.” That’s why you’ll have to learn how to recognize when the price stagnates and in which direction will go after that. In other words, you’ll have to know how to track the trends.

    In day trading or short selling, buying low, and selling high is essential to your profits. In these kinds of trading, you are dealing with highly volatile markets. The stock prices will fluctuate frequently and literally any change in stock price could end in a profitable trade. Yes, there are lots of risks but rewards might be magnificent.

    Diversification is important

    You must have a good trading plan and a diversified portfolio but not over diversified. 

    Diversifying will protect you against unpredictable changes. For example, all your stocks were in biotech, but new products have a bad influence on your stock’s prices. So, your whole portfolio could be crashed. If you have a well-diversified portfolio the influence will be protected against such trends. Also, this strategy is proper for balancing high-risk and conventional investments.  

    We have one suggestion if you really want to know how to make money by trading stocks – never walk away from trading after you made a profit. If your goal is to trade in a long time, it is smart to reinvest part of your profits or all of them.

    Bottom line

    Trading isn’t easy but practicing will help you a lot. At first glance, it may look so easy and simple. What you have to do? Just to pick a good stock and trade it. We all would like it to be that simple. The truth is that traders are carrying their knowledge to the market every single day. They can make a difference between good trades from bad trades, they are able to catch the trends, they know when to enter the position and, which is more important when to exit. Moreover, they know how long they should stick to their rules but also when it is time to break them and profit.

    Some do get lucky in the stock trading, that’s true. But it is very rare. Behind any successful trade lies great knowledge. Armed with that, you’ll make money in the stock market.

  • Head and Shoulders Pattern – How To Trade

    Head and Shoulders Pattern – How To Trade

    Head and Shoulders Pattern - How To Trade

    Head and shoulders pattern occurs on all time frames. It can be detected visually. The complete pattern gives entries, stops, and profit targets, so traders can easily execute a trading strategy. 

    A valid head and shoulders pattern occurs very rarely. But when it appears, traders recognize it as an indicator that a significant trend reversal has occurred. A usual head and shoulders pattern is held as a bearish setup while an inverse head and shoulders pattern is held as a bullish setup. 

    But let’s start from the shape of this kind of triangle pattern.

    As you can see, the head and shoulders pattern is a chart formation that follows a baseline with three peaks. The outside two, on the left and right side, are similar in height but the middle is highest. This pattern is used mostly in technical analysis because it is broadly accepted that this pattern is a strong trend reversal indicator. One of the greatest advantages of head and shoulders pattern is its accuracy that shows that an upward trend is approaching its end.

    But let’s start from the shape of this kind of triangle pattern.

    Head and Shoulders Pattern - How To Trade

    In the image above you can see a large peak in the middle and smaller peaks from both sides, left and right from it. This pattern is extremely useful for traders because of its ability to predict reversal, from a bullish to bearish.

    And as you can see, the first and third peaks are smaller than the middle one. The horizontal line is known as neckline and all peaks will fall back to this line which represents the level of support. When the third peak falls to the neckline traders believe that a breakout occurred and the bearish downtrend started.

    In our image, you can see a bearish reversal. But if all these peaks are formed under the neckline it would be a bullish reversal.

    How to trade the head and shoulders pattern?

    It’s crucial in trading this pattern that traders wait for the pattern to form. Why is this important? Sometimes the pattern will not develop completely or maybe it will not develop at all. If the pattern isn’t developed completely, meaning it is almost or close to be, don’t trade. Just wait until the pattern breaks the neckline.  

    When you trade a head and shoulders pattern it is crucial to wait for the price move to go below the neckline after the peak of the right shoulder. So the regular pattern has one smaller peak, one fall, second higher peak, second fall, third smaller peak, and third fall to the neckline. Wait for the price action to break the neckline and then trade. When you have an inverse head and shoulders pattern, you should wait until the price action goes above the neckline, once when the right shoulder is formed.

    Open a trade only when the pattern is complete. 

    It is very important for any trader to have a plan before entering the position. For example, the best way is to write down your entry point, stop-loss, and profit targets. Also, do the same with variables that might alter your stop or profit target.

    For the head and shoulders pattern, development time isn’t a crucial element since it can develop over any period of time. Yet, traders believe that pattern that takes a longer time to form is more significant. Meaning, the probability to identify a significant price reversal is greater.

    How the head and shoulders top pattern shapes

    The head and shoulders pattern appears in the precise order and we’ll describe it. Keep in mind that we have only one variable here. It is how long it will take to finish each step in the sequence.

    As we said, in trading the head and shoulders pattern, we have to wait until the price moves a bit under the neckline after it reaches the peak of the right shoulder. For the inverse, wait for the price action over the neckline.

    Once the pattern is complete, we can initiate the trade. Traders usually enter the trade when a neckline is broken. But this is not the only entry point. The other method demands more patience since it’s based on the possibility that the movement may be missed completely. For this entry point, we have to wait for a pullback to the neckline after a breakout has already happened. This is a more conservative method. The point is to be sure if the pullback will stop or continue the original breakout. This is important because if the price continues to move in the breakout direction, we will have a missed trade.

    How to place the stops?

    In the conventional head and shoulders pattern, traders commonly place the stops above the right shoulder, just after the neckline is broken. The other way to set stops is to use the head of the pattern as a stop. This approach is risky and your risk-reward ratio can be reduced.

    When we have the inverse pattern, set the stop a bit below the right shoulder. Also, as previously explained, you can place the stop at the of the head and shoulders pattern, but you’ll be at exceptional risk once the trade is taken.

    How to set the profit targets?

    First, we have to explain that the profit target in this pattern is the difference in price between the head and low point of any shoulder. When you find out that difference, just subtract it from the neckline breakout price. It is important to provide a price target to the downside for a market top, right?

    For the market bottom, the difference should be added to the neckline breakout price to provide a price target to the upside.

    Here is an example.

    Let’s say that $100 is high after the left shoulder and $90 is the low of the head, so the difference is $10. And let’s say the breakout is $100,50. What you have to do is to add the difference to the breakout price, which is $110,50. That is giving us a target price of the same amount. 

    In the case of the regular head and shoulder pattern, you should subtract this difference from the breakout price.

    We already mentioned a timeframe. Sometimes traders will wait more than several months until they reach the perfect profit target after noticing the breakout. That is the reason to monitor the trades in real-time.

    Head and shoulders pattern really serves

    It is impossible to find an ideal pattern that will work in any circumstances and all the time. But we’ll point out several reasons why this pattern works.

    Firstly, when the price drops from the market high (which is the head in the patter), sellers would enter the market and there will be less aggressive purchasing. Further, when the neckline is met, traders who purchased in the last wave higher or on the rally in the right shoulder of the pattern, are confirmed wrong and thus facing large losses. They will exit their positions, which will drive the price to the profit target.

    The importance of stops

    Setting the stop above the right shoulder is reasonable because the trend can move downwards if the right shoulder is lower than the head. So, there is a little chance for the right shoulder to be broken until an uptrend continues. The profit target reveals that traders who made wrong trades will exit their positions, which will create a reversal. The neckline is a painful point for many traders. Many of them will decide to exit the positions, which will drive the price to move closer to the price target.

    Also, you can examine the volume from this pattern. When the inverse head and shoulders pattern occurs it would be ideally the volume to grow as a breakout happens. This presents a rising buying interest. It is very important because it provides the price to move closer to the target. When the volume is decreasing, that means that the traders’ interest in the upside move is lower.

    The traps of trading head and shoulders pattern

    Nothing is perfect and this pattern also. You can be faced with some problems when trading this pattern.

    First of all, this pattern isn’t easy to spot. More harder is to wait until it develops and completes. Sometimes you’ll have to wait very long. The other problem that may occur is stop-levels. It is hard to set the proper stop level. Also, the profit target couldn’t be easily reached every time. Sometimes, you’ll need more detailed data to uncover how the market condition may influence your exit from the trade.

    One of the widely spread beliefs is that this pattern could be traded always. It isn’t true. 

    For example, when you notice a massive decrease in one of the shoulders caused by some event, your calculated price targets will not be reached. Also, not all traders are able to notice this pattern. Some will do it without a problem but the others will never notice one.

    Bottom line

    We hope you have a better understanding of the head and shoulders pattern now. If yes, put it to work. Try to recognize both the head and shoulders and inverse head and shoulders patterns. When you recognize them, just monitor the development. This pattern can help you to find trends ahead and establish fair targets. Also, you’ll be better prepared to enter the trade when the time is right.

  • Create a Forex Strategy – How to Do That?

    Create a Forex Strategy – How to Do That?

    update: 2/1/22

    Create a Forex Strategy - How to Do That?
    Almost everyone can set up the rules but stick with them when things go bad means that you have confidence in your forex strategy. 

    Yes, the question of how to create a forex strategy is maybe the most tricky part for all you would like to know more about forex trading before entering the forex market.
    The main goal of finding how to create a forex strategy is to choose the one which will provide you the protection against the losing trades but give you a chance to have more winning ones. Otherwise, you’ll lose your money invested in the forex market.

    You can achieve this thanks to a proven forex strategy. 

    To know how to create a forex strategy you have to follow some rules. Well, it’s maybe better to call them steps. By using this set of rules you’ll be able to create any forex trading strategy, from the simplest one to the most complex.
    The main problem for the majority of forex traders is that they rely on some strategy that isn’t well tested. That leads them to great losses and failure. Even if you spend hours, days searching the internet, it may happen you’ll not find any suitable for you.

    The only solution is to learn how to create a forex strategy that can meet your goals.

    Knowing what rules to follow

    As we said, there are some rules you have to follow when you start to create a forex strategy. But firstly, we have to highlight one thing. It doesn’t require too much time to come up with a forex strategy, but it does take time and effort to test it. As you can see, you have to be patient with that because it can benefit you. If you create a forex strategy and test it extensively and you see it works for you, it could lead you to earn potentially a lot of money.

    Rule No 1

    The first rule is that you have to know what kind of forex trader you want to be. Do you want to be a day or swing trader? So, knowing the time frame is the first rule when you start to create a forex strategy.

    How to do that, how can you know what kind of trader you want to be?

    From the very beginning, you have to decide if you would prefer to look at charts every day, week, month or maybe every year. Also, the time frame rule will answer you about how long you would like to hold on to the positions. So, you have to define which time frame you want to use to trade. It’s true that you will look at various time frames, but this particular one will be your main time frame and the trade signal will come from there.

    Rule No 2

    The next rule is to detect indicators that will help you to identify a new trend. One of the main goals in forex trading is to recognize trends earliest possible. For that, you’ll need indicators.

    For example, the moving average is one of them. As we learned from elite traders and according to our experience, the best way is to use two indicators. It is quite simple. Just use one fast and one slow. All you have to do is to wait until the fast indicator crosses under or above the slow indicator. This is a so-called crossover. Moving average crossover is the simplest and fastest way to notice a new trend. There are many other indicators but this one is more comfortable to use and the easiest one.

    But be careful, the last thing you’ll need is to pick a fake trend so you’ll need a confirmation of the trend. For that, you have to use some other indicators. For example, RSI, MACD or Stochastic. It’s up to you to find the one that suits you the best but it will come after you gain more experience in forex trading.

    Rule No 3

    You have to know your risk tolerance. Before you implement any trading strategy or develop your rules, it is very important to define how much risk you want to take in each trade. In other words, how much money you can afford to lose per trade. However, no one would like to talk about losing trades, but it is crucial for everyone to consider potential losses much before you imagine how big your winning trade can be. So, you’ll have to learn about risk management. Risk tolerance is individual and differs from trader to trader.

    Rule No 4

    You have to know when to enter and exit the trade, so entry and exit points are extremely important. After you define how much money you are ready to lose per trade, it is time to figure out where to enter and exit the trade to get profit. Basically, you enter the trade as soon as your indicators provide you a sure signal. Some traders enter the trade before the candle in their charts is closed, some will enter when it is closed. It’s up to you and your trading style, meaning are you an aggressive trader or not. 

    What really matters is to stick to your practices. After all, you are the one who developed it.

    Create a forex strategy on your own

    When you are looking to create a forex trading strategy, you would like to know how to do that and how to develop trust in the strategy you created. Your forex trading strategy MUST give you a strongly rooted belief that you can trade it and profit. Otherwise, you’ll fail.

    So, before you use it, you’ll have to test it.

    Before you even start to create a forex strategy you must have some presumptions. You’ll need a feeling that it might work for you. Yes, it will be a struggle but once when things get going you’ll be unbelievably satisfied.

    Frankly, creating a forex strategy isn’t an easy job. You’ll have to define what exactly you need. This is extremely important because you’ll need to test your strategy precisely. That means you’ll need to know both entries and exits. But it is a small part of creating a forex strategy.

    What should you know before starting to create a forex strategy?

    Here are some questions that you may follow to find the answers and when you have done it, you’ll see that you have your strategy. Maybe not all fall into creating a strategy but they will surely help you a lot to create a forex strategy. 

    First, you have to decide on which currency pairs you can trade your strategy.

    So, make a market selection.

    The other question you should ask and find out the answer is will your strategy work on different market conditions. For example, is it useful in trending markets, high volatile markets, bull or bear markets?

    Also, as we mentioned above, the entry time frame is important. Ask yourself which time frame to use to enter the trade. Would you prefer a lower time frame to entry or high time frame for trend direction? What circumstances have to be met to enter a trade? When it comes to exits you have to figure out do you want to use a fixed take profit level or profit level based on average true range. That is a technical indicator invented to read market volatility.

    The decision of which chart setup you’ll use can be of great importance.

    The type of chart, what indicators to include, which settings for the indicators, etc.

    Further, you’ll have to choose a position sizing strategy. That means you’ll have to decide will you use a percentage-based position sizing. Maybe you would like to increase your position size periodically. Will you use some fixed lot or contract sizes?

    Also, just to repeat, define your risk tolerance and money management. You have to determine the risk-reward ratio you want to get. Will you use a trailing stop-loss? Which one: based on percentages, volatility-based, fixed pips values or ticks values? Will you use stop-loss orders and how will you move them? 

    Do you plan to enter various correlated currency pairs at once? How will you hedge your position? By using inversely correlated pairs or something else? Are you planning to monitor your trades constantly? Would you hold your trades over the weekends?

    Maybe the last but for sure not the least, do you follow the news and how frequent? 

    If you want to create a forex strategy, you’ll need the answers to all these questions. So, take your time.

    The next step is backtesting. To get accurate information about how good your strategy is you have to follow your strategy, never change the rules while testing or your data will not be accurate. For testing use a representative sample of your trades based on the questions above. Examine how your strategy is working in different market conditions for different currency pairs. 

    And you’ll be able to trade for real after you have done all of this. But keep in mind that live trading with real money can differ from your tests because the real money is involved.

    Bottom line

    So, you started to create a forex strategy. Is it simple? Of course, it isn’t for good reason. But you must have the confidence to trade your strategy and to incorporate it into your trading plan.

    Traders-Paradise recommends starting with the smallest lot size your picked platform permits. If it shows the profitability you may keep using your forex trading strategy. Later, you can increase your position size. The strategy you created should work in the long run.

    If you prefer to trade stock patterns we are recommending to learn it more from the “Two Fold Formula” book and. Also to test it with a virtual trading system.

  • Day Trading Stocks – Most Profitable Type Of Trading

    Day Trading Stocks – Most Profitable Type Of Trading

    For day trading stocks you need volume, volatility, and a trend or range tendency. When using a stock screener, enter your rules into the relevant fields to narrow the surplus of stocks down to a few.

    Maybe it is too difficult to explicitly say that one type of trading stocks is more profitable than the others but Day trading stocks is the choice of active traders because of its profitability. Why did we say it is difficult to point to the special one? Because it depends on what kind of trader someone is and, maybe much more, on which strategy the trader chooses to use. Also, it isn’t the same which market you trade and what assets you are trading. 

    The individual traders can make a few trades per day since it isn’t hard to enter and exit several trades daily. Of course, big investors would prefer long-term opportunities. 

    One is sure, getting into day trading stocks is a decision that no one should make in a hurry. You should take time to examine all difficulties, to learn them since day trading stocks requires very careful planning. Only in that way, you’ll be able to earn your life-time capital in just a few hours. Yes, it is possible because day trading stock is one of the most profitable types of trading.

    Before we jump into the day trading stocks we have to explain what day trading is.

    What is Day trading stocks? 

    Day trading stocks means the trader is opening and closing the position during one trading day. When a trader opens a trade at 10 PM and closes it before 2 PM we are talking about day trading. You can find the traders who trade day only, some will perform it depending on the situation and opportunities, but also, so many traders never implement day trading stocks.

    How does a day trader pick the stock?

    Of course, a day trader is very careful and never just picks a stock no matter which one. Day traders always estimate the reasons to trade a particular stock. And as the reasons are different, traders have different criteria and strategies.

    Since there are thousands of stocks in the market to choose from, the main question is how to do that? What is the best criterion, measure, method? It differs too. And if we try to figure it out, we can get confused. Look, some traders can find a new stock every single day. They are seeking stocks that are breaking out of patterns. Some are looking for the most volatile stock or the stocks that breakout of support or resistance levels. Also, some traders have the favorite stock or two and trade them every day for months or years. This isn’t without a good reason behind. If you know the particular stock very well, you’ll need less research on it. Since you already have the chosen one, you don’t need to search further for new stocks and breakouts or volatility. 

    How to find a stock for day trading?

    If you want to become a day trader, you have to pay attention to several things.

    Volume

    For a day trader, a stock volume is important to enter and exit trades. To explain this more. When the volume of the stock is high it is much easier to enter and exit the position and to do without slippage or with very little. Why is it important to avoid slippage or to lessen it? Slippage happens almost all times but generally during periods of high volatility when traders use the market orders. 

    It happens when a trader gets a different price than expected, no matter if such a trader is on an entry or exit from a trade. Slippage occurs when the market order or your stop-loss point shifts somewhere between the time of your entry and the time of the execution. This is especially noticeable during periods of higher volatility when orders are bigger than the usual amount of shares on the bid or offer.

    While choices vary, but many day traders will trade stocks with a daily volume of several million, some have over 90 million. That is a big number and it is hard to manage that. So day traders usually narrow the number of stocks down by using a stock screener. If they still have too many stocks to observe, the traders commonly reduce it to stocks with a volume of 3 of 4 million on a daily average.

    Volatility

    Volatility is important too because day traders need stocks with strong change during the day. The stocks have different volatility. Some will move 0.5% daily but others will move 5% or more per day. Picking the stock may depend on many factors, for example, reflexes, a trading style, your temper, etc. For the majority of traders, the stocks that shift 0.5% to 2% daily are the best choice since they can handle that volatility. Volatility over 5% daily is hard to handle. Only the most experienced traders trade these stocks.

    Trend and range

    These two components are important in day trading stocks. Traders differ by what they are trading, so we have trend traders, range traders and some that use both excellently. As you know, the trend is the direction of stock’s price, while the range is the difference between low and high prices over a particular trading time. The stock price is moving all the time. It can go down or up showing a downtrend or uptrend. A stock screener is very helpful here and will separate stocks with trend or range depending on your setups for the strategy you chose.

    How to learn day trading stocks?

    There are many ideas and methods to maximize profits from day trading. Nevertheless, managing the risks connected to day trading is most important.

    First, trade only the amount you can afford to lose. You must have aside some amount of money for day trading. Don’t rent money for day trading because it’s possible to lose it. Start with a small amount and keep strong control over losses until you get some knowledge and experience. Don’t think you can quit your day job immediately. Day trading is seductive, we know that. But you need to test your strategy when the markets get rocky, for example, during the recession. If you are profitable, you can easily shift to day trading.

    When to buy?

    Day traders try to make money by using small price movements in assets. They have to leverage vast amounts of money to do so. They are focused on liquidity. That allows them to enter and exit a stock at a favorable price. Further, they keep an eye on volatility, higher volatility leads to greater profits or losses. Trading volume is another thing that they are considering. High volume means there are a lot of people interested in the particular stock. When the volume is increasing that is a sign that the price will drop or go up. After you choose a stock you want to trade you have to learn how to recognize the entry point. Some tools can help you. For example, some news services, but it has to be a real-time service because the stock prices can be influenced by news.

    Quotes are important too. Electronic communication networks, for example, display the best open bid and ask quotes from various market players and can automatically pair and execute orders. 

    Intraday candlestick charts are useful but provide a rough analysis of price action. 

    Your entry point has to be defined very accurately, you have to know the exact point when you are going to enter the position. For example “during the downtrend” isn’t precisely defined. You have to define more specifically and test it too and find if there is a chance for that to be generated each day or more often. 

    Also, the direction has to be tested. You would like the price to go in your expected direction. After you check and test everything you may have a potential entry for your strategy. 

    After finding an entry point you’ll need to judge how to exit, or sell, your trades.

    When to sell?

    There are many ways to exit a winning position. For example, trailing stop and profit target. The profit target is the most popular. The other well-known price target strategies are scalping, fading, daily pivots, momentum. The best time to exit is when the interest in the stock is decreasing. The volume will show that. Your profit target should provide you more profit on winning trade than you would have a loss in a bad trade. For example, if your stop-loss is 2% away from your entry price, your take profit level should be more than 2% away. You have to know your exit before you even enter the trade. The exit level has to be precise.

    Bottom line

    Day trading means to take advantage of small price changes. It can be a profitable game if you play it carefully. Hence it can be a risky game for new and inexperienced traders who don’t have a strong trading strategy. This type of trading is connected to the high volume of trades. So you have to respect some general principles if you want to become a day trader.

    You may have profitable trades by following the patterns. More about it learn from the “Two Fold Formula” book, we recommend. But we also recommend to test it by using our preferred trading platform firstly.

    You might find these interesting too:

     >>> Is Day Trading Like Gambling?

    >>> Swing Trading and Day Trading – The Difference

    >>> The pattern day trader rule

    >>> Day Trading the Best Methods – Day Trading for Beginners

    >>> Day trading stocks – How to find best trading platform

    >>> What is the best day trading strategy?

    >>> Money Required to Start the Day Trading

     

     

  • The Global Recession – How to Survive?

    The Global Recession – How to Survive?

    The Global Recession Is Here
    Are we deep in the global recession? Yes, we are, and if we are not yet, we will be in a short time. There is no doubt about that.

    By Guy Avtalyon

    It isn’t a question, the global recession is here without a doubt. But how long will it last? Will it be short-living or painful? Is there any chance of recovery by the end of the year? What will come in the aftermath of this recession? What will the world look like when the coronavirus outbreak ends? So many questions!

    The COVID-19 pandemic is making changes to the global economy very quickly. Hence, giving any prediction is extremely challenging. One thing is so obvious, this is a shock with a great impact on the economy. 

    Some economists are expecting the global economy to decline by almost 2%. The GDP is down, unemployment is growing, inflation is rising almost all over the world. It looks like the whole world is on its knees. 

    The rapidity with which this COVID-19 pandemic is growing has required another cycle of huge cuts to any GDP predictions. 

    How can we know the global recession is here?

    First of all, no one expected that the virus would spread this fast and only rare economists warned of the impact of the coronavirus outbreak on the global economy. Today, we can claim with the high level of certainty that we entered the global recession. 

    We have lockdowns across Europe, the US, parts of Asia, and many other countries. That has to be the baseline for any predictions. These lockdowns could degrade GDP across the EU and US, for example, by 7% to 8% this year, experts said. 

    Moreover, the global GDP for this year is equal to the planetary financial crisis. The direct stroke to enterprises and jobs in the first six months of this year will be much worse, stated economists.

    The lockdown policies have prompt and dramatic effects on daily economic activity reducing them daily by about 20% from their regular levels. For example, the three-month crisis with a five-week lockdown period reduces GDP by 20% a day. That means a 7% to 8% drop in quarterly GDP.

    Something is very wrong in the global economy right now

    The coronavirus crisis has sent the global economy into a fall. So many industries have ground to a halt. For example, tourism, restaurants are closed, hotels, air travel. Also, many factories reduced production and fired their workers. Unemployment is rising almost everywhere. Everybody stays at home. Almost the whole world is producing less and we’re spending less. 

    The stock market suffered huge losses and enormous daily changes. The trading has been almost halted. 

    So, the global recession is here. But what are the full magnitudes of this? It is pretty obvious we cannot know that now and the question is will we be capable of estimating it soon? Some experts are trying to explain the situation in which the global economy is right now. Also, some of them warned before the coronavirus outbreak there is a possibility of the recession to come this year. Of course, no one could predict the coronavirus pandemic. That just gave speed to the downturn. 

    The economic consequences of the exponential spread of the virus is shocking financial markets all over the world. Market volatility exceeded its peak during the global crisis 2009 and equity markets and oil prices falling to their lowest lows.

    Large drops in asset prices and high volatility will impact economic actions, for example, through credit and investment flows. Lower stock prices can grow the debt-to-equity ratio and restrict their access to credit. The logical end can be bankruptcies. Banks can reduce lending because companies’ and customers’ defaults of loans rise. The result in banks’ balance sheets will be worse. Do you understand that the global recession is already here?

    How to survive the global recession?

    Recession is defined as two consecutive quarters with negative economic growth. It can be caused by, for example, monetary panic. That caused the Great Recession, for instance. Also, the recession may come due to the rising oil price which is defined as an economic shock. One of the reasons behind the recession can be something that John Maynard Keynes described as “animal spirits.” We experienced it with the dot-com bubble. Also, the mixture of all three may cause a recession. 

    Today it is coronavirus and lockdowns caused by its outbreak and the focus on health protection due to it. The companies halt, workers are fired, demand and revenue fall. The only thing that increases is our concern on how to overcome the global recession we have now. But there are several ways to decrease the loss.

    In the article “Roaring Out of Recession,” Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen noticed that through the recessions of 1980, 1990, and 2000, 17% of the 4,700 public companies they examined done terribly: some went private or went bankrupt, or were sold. Nevertheless, 9% of the companies did manage to recover in the next three years after a recession. They succeeded to exceed rivals by 10% or more in the meaning of sales and profits growth. Moreover, their earnings rose regularly and the companies remained to rise.

    May the global recession last for a long time?

    Almost the whole world is caught in the recession caused by the coronavirus pandemic. The fears are growing. As long as people’s physical communication is a possible danger, companies cannot move to regular conditions. And once, when this pandemic ends, maybe the regular condition before the pandemic will not be regular. What if people start to avoid shopping malls, cinemas, theatres, restaurants, crowded concert halls? Even after the virus is contained or the vaccine is available? The economic recovery may take years and years. The global economy is frozen, the global recession is on the scene. But life will bounce back. The coronavirus will be tamed and put under control, and people will come back to their factories, offices, and shopping malls, of course. 

    But even after that, the new world that will begin will be gagged with stress. And, when that will be? No one knows. Millions of people lost their jobs and that affects the societal costs. What if bankruptcies leave the industry in a vulnerable status, exhausted from investment and reforms?

    The families may stay upset and risk-averse. What if this pandemic makes them tend to save? Some social distancing measures could remain indefinitely. If this situation endures and people continue to hesitate to spend, the whole world will have a big problem. Yes, life will bounce back, but psychology cannot just like that. It is more likely the recovery will be very slow and last for a long time.

    Bottom line 

    Developing countries have severe consequences already. The money is running away, commodity prices are falling, oil for example. This scenario is visible in Chile, Mexico, and many other countries. China is a slowdown and that has a great impact on countries where the factories with components are. Europe is in recession, the US is still fighting with the coronavirus pandemic. 

    People are lonely now, but they will be starting to return to normal life. But if they had to spend all their savings, and if they destroyed the credit ratings or declared bankruptcy, then they will not be capable back to normal life. 

    No one can say with a hundred percent certainty how long the global recession will last. We are pretty much sure that the recession started in March in the US but we cannot say when it will end. Well, the recession in the US or the global recession isn’t officially declared nor it can be. We all hope it is a remarkably deep but short-lived recession. 

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    Stay safe! #StayHome