THE ABCs OF STOCK OPTIONS !!

As a performance incentive many companies are starting to offer employees the “option” to buy company stock as a part of their compensation packages. These “options” are referred to as stock options and they provide a unique opportunity for an employee to potentially increase his or her wealth along side company shareholders. The employee receiving company stock options should have a good understanding of the characteristics of the different types of stock options in order to maximize their potential benefits.

A stock option is a right granted by a company to an employee to purchase one or more shares of the company’s stock at a set time and predetermined purchase price. The employee benefits when the value of the company stock appreciates over and above the predetermined purchase price following the granting of the stock options, enabling the holder to purchase the company stock at a discount. There are two types of stock options: non-qualified stock options and incentive stock options.

Non-qualified stock options (NQSO) are more frequently offered to employees than Incentive Stock Options because of their flexibility and minimal requirements. NQSOs afford the employee the right to purchase a set number of employer shares at a specific, predetermined price. If the employee wishes to acquire the employer stock then he or she will exercise the option and purchase the employer stock at the predetermined (exercise) price. If the stock’s value has appreciated over and above the predetermined price the employee has received the benefit of acquiring the stock at a discount. The difference between the exercise price and the market value (commonly referred to as the bargain element) will be taxable income to the employee as ordinary income, potentially as high as 35%.

The other type of stock option is the Incentive Stock Option (ISO). In direct contrast to a nonqualified stock option, there is no income tax consequence when an employee exercisers the option to buy the employer stock. The difference between the exercise price and the market value (bargain element) is only taxable upon the ultimate sale of the employer stock. In other words, a gain is only recognized when the employer stock is sold and not when the option is exercised. If the stock is held the appropriate time period before being sold, all the gains recognized may qualify for long-term capital gains treatment, a maximum rate of 15%.

Being able to take part in an ISO program allows an employee to receive a number of tax saving benefits. But with these tax benefits comes added complexity to keep track of and to understand. For example, to qualify for the favorable long-term capital gain taxation, the employee must hold the stock for at least two years from the date the ISO was granted and for at least one year from the date the option was exercised. This is commonly referred to as the “2 year / 1 year rule”. If the employee sells the stock before these requirements are met, gain on the stock is taxed as ordinary income in the year of the sale, essentially converting the ISO to a non-qualified stock option.

An additional complexity of an ISO that should be kept in mind by the employee is the potential for an alternative minimum tax (AMT) consequence upon exercise of an ISO. For this and other reasons, it remains important to work with your financial advisor and tax professional when evaluating the strategies to take full advantage of the opportunities and benefits of stock options.

stock trading PSYCHOLOGY !!!

Many of today’s highly successful traders will tell you that the general key to success in trading is to be able to comfortably take a loss. It is general knowledge among experts in the trading psychology field and among traders that the market is not predictable and it is safe to say that it never will be. In the world of trading, it is expected to take a loss; even those who are highly skilled traders know that it is inevitable. With that said, let us have a look at things you as a trader should be aware of, how you can take a loss effectively and use it towards the greater good of your trading world.

Trading psychology tells us that when a trader loses he begins to become somewhat of a perfectionist in his dealing. Many traders think that in trading, a good day will always be one that is profitable. Trading psychology experts tells us this is not true. A trader should define a good day as one where they have extensively researched and planned with discipline and focus, and have followed through to the entire extent of the plan. Yes, when a trader has mastered the art of accepting losses and working through them with a well thought out plan then good days will become profitable in time.

Because the art of trading in an unpredictable market fluctuates so greatly from one day to the next, experts in trading psychology believe that it is important that you concentrate on what you can control, instead of things that are beyond your control. Looking into the short-term you cannot expect to be able to control the profits of your trading. With that said, look at what you do you have ability to control.

You do have the ability to control the difference between good and bad days. You are able to control this factor by extensively researching the strategies you implement within your trading experiences. By learning to research your chosen strategies, thus controlling the amount of good and bad trading days you experience, you will, in the long-term begin to generate profits, which is the ultimate goal of every trader.

Trading psychology experts tell us that it is important to become realistic in trading instead of becoming a perfectionist. Perfectionist traders, relate a loss with failure, and will become obsessed with the failure, focusing only upon it. Realistic traders understand the unpredictability of the market and taking a loss is simply part of the art. The main key you must remember in trading psychology to be able to effectively limit your losses, instead of becoming obsessed with them. A common thing seen within the trading psychology world is that traders who are obsessed with their losses often have a hard time bouncing back from them, thus losing in the end.

Experts in trading psychology have organized three basic strategies you can use to effectively stop losses. These strategies are:

* Price Based * Time Based * Indicator Based

Stops that are priced based are generally used when the other two have not functioned. To make this work you will need to make hypothesis’s about the trade and identify a low point in that particular market. Then you will set your trade entries near your points, thus making sure that losses will not be overly excessive if the hypothesis fails.

Time Based stops constitutes making use of your time. Designate a holding period you allow to capture a certain number of points. If you have no achieved your desired profit within that time limit, you should stop the trade. If effectively used you should stop even if the price stop limit has not been achieved.

The Indicator based stop makes use of market indicators. As a trader, you should be aware of these indicators and utilize them extensively within your trading experiences. Look at indicators such as, volume, advances, declines, and new highs and lows.

Experts in trading psychology say that setting stops and rehearsing them mentally is a good psychological tool to use and will help ensure that you follow through.

UNDERSTANDING the STOCK MARKET !!!

Many people look to the stock market to enhance their hard-earned money more and more each year. Some people are not even aware of their investments, because they can come in the form of pensions with their place of employment. The company invests this money in efforts to increase your retirement funds. In order to fully understand what is happening with your money, you should understand how the investments work.

The stock market is an avenue for investors who want to sell or buy stocks, shares or other things like government bonds. Within the United Kingdom, the major stock market in this area is LSE (London Stock Exchange. Every day a list is produced that includes indexes or companies and how they are performing on the market. An index will be compromised of a special list of certain companies, for example, within the UK; the FTSE 100 is the most popular index. The Financial Times Stock Exchange dictates the average overall performance of 100 of the largest companies with in the UK that are listed on the stock market.

A share is a small portion of a PIC (public limited company), owning one of these shares will give you many rights. For example, you will gain a portion of the profits and growth that the company experiences, additionally you will obtain occasional accounts and reports from the chosen company. Another exciting feature of owning a share of a company is the fact that you are given the right to vote in various aspects of what happens with the company.

Once you purchase a share of a company you will receive something called a share certificate, this will be your proof of ownership. This certificate will contain the total value of the share, this will likely not be the price that is listed upon the exchange and is specifically for reasons of a legal matter. This will not affect the current value the share currently holds on the market.

Typically, as a shareholder, you will receive your profit in the form of a dividend; these are paid on a twice per year basis. The way this works is if the company makes a profit, you will as well and on the opposite end of this spectrum if they do not make a profit, neither will you. If a company does extremely well their value increases, which means the value of the share you own will as well. If you should decide to sell your share, you will only benefit from it, if the company has experienced growth.

stock OPTION TRADING --- the SAFER BET !

When I bought the futures of XYZ Company with great hopes of making a quick buck I had not foreseen the other side of the picture i.e. making great loss. The lot size on the contract was 950, which meant that for every single rupee up or down move in the stock I stood to gain or lose Rs. 950, a substantial amount by any standards. The market took a dip and my stock ended up lower by Rs. 40. In other words I lost Rs. 38000 in just a couple of weeks. Although I had time till the end of the month when the contract expired but I closed my position taking the loss. Another lower tick on the stock would have required additional margin money from me.

Did it leave me any wiser? I sure hope so because that is when I did some research and came up with a safer bet in the form of stock options.

Most Indian traders use stock futures due to the profit potential or lack of knowledge of stock options. The risk involved in stock futures makes options much more attractive.

The difference in buying a stock future and option is that the later is not obligatory.

The future is an agreement to buy or sell a security at a certain time in the future at a specified price, an option gives one the right but not the obligation to do the same.

This right to buy or sell in options comes at a price, which is called the premium.

Types of option: There are two types of options –call option and put option. A call option gives the buyer the right to buy a security on a future date at a predetermined price; Put option gives him the right to sell a security on a certain day at a certain price. The future price is called the strike price.

Benefits of Stock Options

• gives the buyer the right

• Not the obligation

• To buy or sell

• A specified underlying

• At a set price

• On or before a specified date

Now let us see how it works out :

The stock of xyz is trading at Rs. 100 and you expect it to go up to 150

In cash segment you buy 100 shares and pay Rs. 10000, (100 shares x Rs. 100)

If the stock reaches your target of 150 you make Rs 5000 by selling your 100 shares at Rs. 150/share

If the stock falls by Rs. 50 you make a loss of Rs. 5000 by selling your 100 shares at Rs. 50/share

In futures you buy a contract of 500 shares (lot size) of the same share for Rs. 50,000 (500 shares x Rs. 100)

If the price reaches 150 you make a profit of 25000 (500 shares x Rs. 50)

If the price falls to Rs. 50 you make a loss of 25000

In options you buy a call option (right to buy a security) for 500 shares at a strike price of Rs. 105 paying a premium of Rs. 2500 (assuming a premium of Rs. 5 per share for 500 shares)

If the price reaches 150 a profit of Rs. 45 per share (Rs. 150-Rs. 105) the net profit after deducting the premium of Rs. 5 per share paid by you gives you a profit of Rs. 40 per share or a total amount of Rs. 20000 ( 500 shares x Rs. 40)

The option shows its advantage if the price drops by Rs. 50. You have only bought the right to exercise an option to buy. Therefore if for some adverse reason the stock price plummets your loss is limited to the amount of premium you have paid in this case Rs. 2500 ( the premium paid by you for the right to buy 500 shares at Rs. 105)

As is clear from the example, options have a clear advantage in limiting your risk.

Buying a call option is a bullish stance where you expect the price of stock to rise and buying a put option is a bearish stance and you expect the price of stock to fall.

Selling options can be as risky as futures. The seller or writer of an option takes a huge risk in case of unfavorable price movements. He only profits from the premium he collects from the option buyer for providing assurance to buy or sell securities at a pre determined price.

the logic behind technical fundamental analysis!

Let me first say that I do not now engage in technical analysis; nor, have I ever engaged in technical analysis. I do not believe doing so would be a productive use of my time.
Having said that, I do not claim technical analysis has no predictive value. In fact, I suspect it does have some predictive value. The Efficient Market Hypothesis is flawed. It is based upon the (unwritten) premise that data determines market prices. As Graham so clearly put it in “Security Analysis”: 

 “…the influence of what we call analytical factors over the market price is both partial and indirect – partial, because it frequently competes with purely speculative factors which influence the price in the opposite direction; and indirect, because it acts through the intermediary of people’s sentiments and decisions. In other words, the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.”

I’ve seen a lot of people cite this quote, without bothering to notice what’s really being said. Graham had a very broad mind, much broader than say someone like Buffett. That’s both a blessing and a curse. At several points in Security Analysis (and to a lesser extent in his other works), Graham can not help but explore an interesting topic more deeply than is strictly necessary for his primary purpose. In this case, Graham could have said what many have since interpreted him as saying: in the short run, stock prices often get out of whack; in the long run, they are governed by the intrinsic value of the underlying business. Of course, Graham didn’t say that. Instead he chose to describe the stock market in a way that should have been of great interest to economists as well as investors.

Data affects prices indirectly. The market is a lot like a fun house mirror. The resulting reflection is caused in part by the original data, but that does not mean the reflection is an accurate representation of the original data. To take this metaphor a step further, the Efficient Market Hypothesis is based on the idea that the original image acts on the mirror to create the reflection. It does not recognize the unpleasant truth that one can interpret the same process in a very different way. One could say it is the mirror that acts on the original image to create the reflection. In fact, that is often how we interpret the process. We say an object is reflected in a mirror. We rarely use the active “an object reflects in a mirror”.

For some reason, when we talk about the market we like to use inappropriate metaphors. We talk about wealth being destroyed when prices fall. Yet, no one talks of wealth being destroyed when the price of some product falls. When the market rises, we talk about buyers, as if there wasn’t a seller on the other side of the trade. Above all else, we talk about “the market” not as a mere aggregation of trades, but as some sort of object all its own.

The Efficient Market Hypothesis does not recognize the true importance of interpretation. Saying that data (publicly available information) acts on market prices omits the key step. After all, the same data is available to every blackjack player. Casinos just don’t like the way a card counter interprets that data.

The Efficient Market Hypothesis is not the only argument against technical analysis. There is also empirical evidence that questions the utility of technical analysis. However, empirical evidence alone is not sufficient to prove technical analysis has no predictive power. If most knuckleball pitchers had limited success, the knuckleball might be an inherently ineffective pitch, or there might be a better way to throw it. The same is true of technical analysis.

The adjective “random” is a very strange word. Although it is rarely the definition given, the most appropriate definition for random would have to be “having no discernible pattern”. The word discernible can not be omitted. If it is, we will take too high a view of science and statistics. There’s a great introduction to economics written by Carl Menger which begins:

 “All things are subject to the law of cause and effect. This great principle knows no exception, and we would search in vain in the realm of experience for an example to the contrary. Human progress has no tendency to cast it in doubt, but rather the effect of confirming it and of always further widening knowledge of the scope of its validity.”

All things are subject to the law of cause and effect; therefore, nothing is truly random. A caused event must have a pattern – though that pattern needn’t be discernible. Even if one argued there is such a thing as an uncaused event, who would argue that stock price movements are uncaused? We know that they are caused by buying and selling. Stock prices are the effects of purposeful human actions. Several sciences study the causes of purposeful human action; so, it would be hard to argue any human action is uncaused. Furthermore, each of our own internal mental experiences suggests that our purposeful actions have very definite causes. We also know that the actions of some market participants are based in part on price movements. Many investors will admit as much. They may be lying. But, there is plenty of evidence to suggest they aren’t.

 If the actions of investors cause price movements, and past price movements are a partial cause of the actions of investors, then past price movements must partially cause future price movements.

Technical analysis is logically valid. Not only is it possible that some form of technical analysis might have predictive power; I would argue it necessarily follows from the above assumptions that some form of technical analysis must have predictive power.

So, why don’t I use technical analysis? I believe fundamental analysis is a far more powerful too. In fact, I believe fundamental analysis is so much more powerful that one ought not to spend any time on technical analysis that could instead be spent on fundamental analysis. I also believe there is more than enough fundamental analysis to keep an investor occupied; so, he shouldn’t devote any time to technical analysis. Personally, I feel I am much better suited to fundamental analysis than I am to technical analysis. Of course, there is no reason why this argument should hold any weight with you. I also believe there is sufficient empirical evidence to support the idea that fundamental analysis is a far more powerful tool than technical analysis.

Even though I believe there must be some form of technical analysis that does have predictive power, the mental model of investing which I have constructed does not allow for such a form of technical analysis. In other words: logically, there must be an effective form of technical analysis, but practically, I pretend there isn’t.

Why? Because I believe that’s the most useful model. One should adopt the most useful model not the most honest model. I’m willing to pretend technical analysis does not work, even though I know some form of it must work.

Really, this isn’t all that strange. In science, I’m willing to pretend there are random events, even though I know there must not be random events. In math, I’m willing to pretend zero is a number, even though I know it must not be a number. A model with random events is useful. In most circumstances, a refusal to allow for random events would be harmful rather than helpful. The model with random events is simpler and more workable. The situation is much the same with zero. It isn’t a number. To include zero as a number, you would have to put aside the principles of arithmetic. So, we don’t do that. In school, you were taught that zero is a number, but that there are certain things you must never do with zero. You accepted that, because it was a simple, workable model.

I propose you do much the same in the case of technical analysis. You should recognize the logical validity oftechnical analysis, but create a mental model of investing in which technical analysis has no utility whatsoever.

importance of trading plan!!

Why do you need a Trading Plan?

1 – During trading hours, emotions will turn smart people into idiots. Therefore, you have to avoid having to make decisions during those hours. For every action you take during trading hours, the reason should not be greed or fear. The reason should be because it is in the plan. With a good plan, your task becomes one of patience and discipline.

2 – Consistent results require consistent actions – consistent actions can only be achieved through a detailed plan.

What should be in your trading plan?

1 – Your strategy to enter and exit trades

You have to describe the conditions that have to be met before you enter a trade. You also have to describe the conditions under which you will close a position. These conditions may include technical analysis, fundamental analysis, or a combination of both. They may also include market conditions, public sentiment, etc…

2 – Your Money management rules to keep losses small – the goal of money management is to ensure your survival by avoiding risks that could take you out of business. Your money management rules should include the following:

- Maximum amount at risk for each trade.
- Maximum amount at risk for all your opened positions.
- Maximum daily and weekly amount lost before you stop trading

3 – Your daily routine – after the market closes, before it opens, etc…

4 – Activities you carry out during the weekend.

5 – I also like to include reminders that I read every day

I will follow a trading plan to guide my trading – therefore my job will be one of patience and discipline.

- I will always keep my trading plan simple.
- I will take actions according to my trading plan, not because of greed, fear, or hope.
- I will not deceive myself when I deviate from my trading plan. Instead I will admit the error and correct it.

I will have a winning attitude.

- Take responsibility for all your actions – don’t blame the market or world events.
- Trade to trade well and for the love of trading, not to trade often and not for the money.
- Don’t be influenced by the opinions of others.
- Never think that taking money from the market is easy.
- Don’t try to guess the future – trading is a game of probabilities.
- Use your head and stay calm – don’t get excited or depressed.
- Handle trading as a serious intellectual pursuit.
- Don’t count how much money you have made or lost while you are in a trade – focus on trading well.

A trading plan will not guarantee you success in the stock market but not having one will pretty much guarantee failure.

what is the difference between stocks and futures!

Are you new to trading? Perhaps you wonder what the difference is between trading Stocks and trading Futures. Often when I meet someone new who inquires as to what I do, I get a response of “that’s like trading stocks, isn’t it?”

In some ways they are similar, but only minutely so. So let’s consider some of the major differences between the two.

Most individuals have likely traded stocks at one time or another. Usually, it is to buy in order to ‘own’ a percentage of a particular company or to liquidate such partial ownership. They pick up a phone to call a broker or go online to purchase or sell. The order is facilitated through an ‘exchange’, such as the New York Stock Exchange for example.

Buying and selling Futures is similar in this respect. You can call a broker or go online to buy or sell Futures contracts. The order is then facilitated througha commodity exchange, such as the Chicago Merchatile Exchange for example. Yet while buying a stock gives you part ownership in a company or portfolio of companies (as in a fund), buying a Futures contract does not give you ownership of a commodity or product. Rather, you are simply entering into a contract to purchase the underlying commodity at a certain price at a future time, noted by the contract. For example, buying one May Wheat at 3.00 simply creates a contract between you and the seller (whom you need not know as this is taken care of via the exchange) that come May you will take delivery of 5000 bushels of Wheat at $3 per bushel, regardless of what the price of Wheat at market happens to be come May. As a speculator simply trading to make a profit from trading itself and with no interest in actually taking delivery of product, you will simply sell your contract prior to delivery at the going market price and the difference between your buy price and sell price is either your profit or loss.

When you buy a stock, you are part owner of a company. When you buy a Futures contract, you simply areentering a contract. With stocks, you will pay for the stock at the time of your purchase plus broker commissions. When buying a futures contract, you are simply entering the buy side of a contract and no monies is paid other than commissions to your broker.

Stock exchanges and commodity exchanges are both membership organizations established to act as middlemen between the buys and sells of all types of traders, from business entities to the individual small trader. The stock exchange act to bring capital from investors to the businesses that need that capital. They facilitate the transfer of property rights (ownership in the various companies offering stock).The commodity exchange act to bring people willing to assume risk for the opportunity to make a substantial amount of money for taking such risk. This helps transfer the price risk associated with ownership of various commodities, such as Soybeans, or a service, like interest rates, from producers.

To buy stocks, you only need enough money in your account to purchase the stock outright plus commissions. Once you make the purchase, the money is removed immediately to make the purchase. With trading futures, since you are not actually purchasing anything but simply entering a contract to do so at a later time (which you will exit prior to avoid delivery), the broker will require a certain amount of margin (good faith deposit to cover any possible losses) in what is called a ‘margin account’. Each commodity has a different minimum margin requirement depending on several factors. Your broker may use the exchange calculated margin or require a different margin of their own. If the value of the commodity were to decrease and you are on the buy side of the contract, then your contract has lost value and your broker will notify you if your unrealized losses exceeds have gone beyond your minimum margin requirement. This is called a ‘margin call’. Naturally you would want to have more capital than simply the margin amount when trading futures to avoid these broker calls. The broker has the right (and likely will) liquidate your position if you are getting too close to not having enough to cover the losses in order to protect themselves.

With buying stocks outright, there is no potential for a margin call. You simply own the stock outright. So perhaps you may be wondering why anyone would bother buying futures contracts rather than stocks. The major answer is:LEVERAGE.

Leverage gives the trader the ability to control a large amount of money (or commodity worth a lot of money) with very little money. For example, if Live Cattle futures requires a minimum margin of $800 to trade a single contract, and a single contract represents 40,000 lbs at the current market price of say 75, you would be controlling $30,000 worth for a leverage of over 35:1. This is appealing to many traders and justifies the risk. What is that risk? Just as leverage can work in your favor, it can work against you at the very same ratio. Known as a ‘two-edged sword’.

You can increase the leverage of trading stocks if you trade with a margin account. This usually allows you to purchase stocks on margin at the usual rate of 50%. So for every dollar you have you can purchase $2 worth of stock. The leverage is 2:1. How this works is that the broker is actually ‘lending’ you the other 50%. Of course by purchasing stock with margin you can lose more than you have due to the leverage. And in this case you can end up getting a ‘margin call’ from your broker if your stock losses too much value. But trading stocks comes no where close to the kind of leverage you get trading Futures.

When you look at these two trading vehicles, the bottom line comes to MARGIN and LEVERAGE.

7 mistakes in share trading

MISTAKE ONE

Lack of Knowledge and No Plan

It amazes us that some people expect to trade the stock market successfully without any effort. Yet if they want to take up golf, for example, they will happily take some lessons or at least read a book before heading out onto the course.The stock market is not the place for the ill informed. But learning what you need is straightforward – you just need someone to show you the way.

The opposite extreme of this is those traders who spend their life looking for the Holy Grail of trading! Been there, done that!

The truth is, there is no Holy Grail. But the good news is that you don’t need it. Our trading system is highly successful, easy to learn and low risk.

MISTAKE TWO

Unrealistic Expectations

Many novice traders expect to make a gazillion dollars by next Thursday. Or they start to write out their resignation letter before they have even placed their first trade!

Now, don’t get us wrong. The stock market can be a great way to replace your current income and for creating wealth but it does require time. Not a lot, but some.

So don’t tell your boss where to put his job, just yet!

Other beginners think that trading can be 100% accurate all the time. Of course this is unrealistic. But the best thing is that with our methods you only need to get 50-60% of your trades “right” to be successful and highly profitable.

MISTAKE THREE

Listening to Others

When traders first start out they often feel like they know nothing and that everyone else has the answers. So they listen to all the news reports and so called “experts” and get totally confused.

And they take “tips” from their buddy, who got it from some cab driver…

We will show you how you can get to know everything you need to know and so never have to listen to anyone else, ever again!

MISTAKE FOUR

Getting in the Way

By this we mean letting your ego or your emotions get in the way of doing what you know you need to do.

When you first start to trade it is very difficult to control your emotions. Fear and greed can be overwhelming. Lack of discipline; lack of patience and over confidence are just some of the other problems that we all face.

It is critical you understand how to control this side of trading. There is also one other key that almost no one seems to talk about. But more on this another time!

MISTAKE FIVE

Poor Money Management

It never ceases to amaze us how many traders don’t understand the critical nature of money management and the related area of risk management.

This is a critical aspect of trading. If you don’t get this right you not only won’t be successful, you won’t survive!

Fortunately, it is not complex to address and the simple steps we can show you will ensure that you don’t “blow up” and that you get to keep your profits.

MISTAKE SIX

Only Trading Market in One Direction

Most new traders only learn how to trade a rising market. And very few traders know really good strategies for trading in a falling market.

If you don’t learn to trade “both” sides of the market, you are drastically limiting the number of trades you can take. And this limits the amount of money you can make.

We can show you a simple strategy that allows you to profit when stocks fall.

MISTAKE SEVEN

Overtrading

Most traders new to trading feel they have to be in the market all the time to make any real money. And they see trading opportunities when they’re not even there (we’ve been there too).

We can show you simple techniques that ensure you only “pull the trigger” when you should. And how trading less can actually make you more!

share market forecast!

Every day I see in the financial section of newspapers how to forecast what the market will do in 6 months, 12 months, several years. “Ten stocks that will double in the next 6 months.” Right! I have trouble trying to forecast what it will do tomorrow. Do not trust any who claims he knows what the future will be for the market.

Of course, your broker will send you gobs of slick material about various companies that predict they will double or triple in the next 12 months. On the New York Stock Exchange there will be about one half of one per cent (0.5%) of companies that will double this year. Are you smart enough to pick those winners? I’m not and I am considered a professional trader. And I am sure your broker isn’t either. He just wants to make a commission and is probably promoting a stock his brokerage company wants to push.

Every investor wants to know the future and will send money to some “expert” who will send him news about a company that only (?) he knows. And pigs can fly. One thing about the market. It is almost impossible to keep a secret and everyone knows everything about other companies. As soon as some “analyst” finds a cogent fact that can influence a stock price he will share that “secret” with a few close friends. Within minutes the “secret” is known by hundreds of thousands and is immediately reflected in the price of the stock.

If you do get sucked into one of these money traps by some smooth-talking salesman or newspaper verbiage I strongly suggest you immediately plan your exit strategy. Without an exit plan you can easily lose a large amount of your “investment”. This is not an investment; it is a gamble and should be treated as such. The first thought of any professional trader is ‘if I am wrong how much am I willing to lose’? Maybe 2%, 5%, certainly no more than 10%. Pros understand that small losses are OK, but never take a big loss.

From 1982 to 2000 it seemed everyone was a financial genius. How many of those folks kept those big winnings from 2000? Almost none. Most lost 40% to 60% of their money. Brokers said, “Hang in there. You are in for the long haul”. Unfortunately he did not tell you that Modern Portfolio Theory is based on a 40 year time line.

Yes, but understand you don’t need to predict anything. Don’t forecast. What you can easily learn is follow the major trend. You bought in 1982 and you sold out in 2000. The trend can be found in many ways with the simplest being posted every day in Investors Business Daily newspaper under the IBD Mutual Fund Index. When the Index price is above the 200-day moving average you own equities and when it is below you are in cash or bonds. Nothing complicated,

Don’t try to forecast the market. Let the market trend tell you.

always remember these before investing!

what an aspiring person should keep in mind before investing in stock market

{a) i advise people to become interested in a stock when none is interested in the same stock. As per me BUY RIGHT & HOLD TIGHT for years to come. i have been holding few stocks for last 10 years and i am still minting money from those stocks.

(b) i further advises that one should not follow big investors blindly as their risk profile and long term goals with time frame may be difficult to be followed by retail investor.

(c) Market is supreme and every thing is reflected in the price and thus their is no point in fighting the trend as market is always right.

(d) One should be able to create a balance between the fear and greed.

(e) As per me one has to learn the stock market trading as none can teach the market as stock market experience is the best teacher.

Thus follow my advice in stock market, BE PATIENT and grow big like Warren Buffet or any iconic man from Dalaal Street.