Stock Market Trading Newsletter, June 30, 2008

The Week Ahead: The slowing economy and high oil prices are impacting companies hard especially General Motors whose stock hit a 53 year low. Its long term debt rating is now six notches below investment grade and may have to cut its dividend or raise cash. With that said, the auto sales report for June comes out Tuesday along with construction spending numbers and the ISM Manufacturing Index. Factories orders are due Wednesday, but Thursday's employment report ahead of a long holiday weekend is the one to watch.

Long-Short Stock Investing Strategy

Long-short or long/short is a stock investing strategy followed by many hedge funds, portfolio managers and individual investors. The strategy was introduced in late 1980s. Long-short stock investing includes buying (taking long position) stocks which are assumed to perform high and selling (taking short position) stocks which are assumed to perform low, than early ones. Theoretically this is a risk-free investing strategy, as long as both positions are of same size.

Fibonacci Time Zones Technical Indicator

Fibonacci time zones are one other extensively used technical indicator based on Fibonacci numbers. These are used to forecast timings of major price changes. Fibonacci time zones are a series of vertical lines placed at increasing intervals according to Fibonacci numbers (1, 2, 3, 5, 8, 13, 21, 34, 55, etc). They are useful for both upward and downward trends.

What is Beta Value of Stocks?

Beta value is a measure of a stock’s volatility with respect to market volatility. It is a popular indicator used by many traders and investors to facilitate their trades. The market volatility is taken as 1, and beta values of a stock are calculated as a measure of how much the stock price moved from this market volatility.

Hedging Arbitrage and Netting Arbitrage

Both hedging and netting arbitrage are arbitrage strategies practiced exclusively by forex traders. Both are risk-free arbitrage practices, but are practiced less common because of the scarcity of (difficulty of finding) arbitrage opportunities.

Stock Market Newsletter, June 23, 2008

The Week Ahead: Stock markets continue to be under pressure as oil surges and a spike up in commodity prices pinches consumer budgets. Now a possible military showdown between Israel and Iran could be looming. The Case Shiller Index for home prices and consumer confidence numbers are due out on Tuesday. The FOMC's decision on interest rates comes Wednesday in addition to the durable goods and new home sales numbers. The 1st Q final GDP is due Thursday while personal income and spending numbers are released Friday.

Insured Asset Allocation Strategy

Insured asset allocation strategy is a fairly active portfolio management strategy which is ideal for investors with low-risk tolerance but who need active portfolio management. In insured asset allocation strategy investor establish a base portfolio value (often somewhere between 75% and 100% of total capital invested). Total portfolio value is not allowed to drop below this base value.

Fibonacci Retracement Technical Indicator

Fibonacci retracement is a charting technique based on Fibonacci ratios. It is widely used by traders of all types to find support and resistant levels, to find entry and exit points and to place stop losses. Fibonacci retracements come handy when prices of financial instruments retrace after noticeable up-trends. These retracements offer opportunities for traders to buy stocks/currencies/futures at low prices.

Important Market Factors that affect Day Trading

Day trading includes quick response to changing market conditions. A day trader must look at various market factors to find a trading opportunity or to close a trade with minimum/no loss. Here are some factors which affect markets and stocks on a daily basis.

What is Take Profit Order?

Take profit orders or T/P are orders just reverse of stop-loss orders. These orders are practiced by forex traders to close positions when a profit level is reached. Take profit orders includes a take-profit point, which is specified as the number of pips or exchange rate from the current trading price point. When take-profit point is reached the trade is closed locking the profit from the trade.

What is Dynamic Asset Allocation Strategy?

Dynamic asset allocation is a highly active portfolio management strategy, which involves constant/frequent adjustment of investments with respect to market and instrument performances. Unlike strategic and tactical asset allocation strategies, dynamic asset allocation does not include any fixed investment ratio among investments.

Wash Sale Rule for Traders

Wash sale rule or 30-day wash-sale rule is a tax rule imposed by Internal Revenue Service (IRS) on traders and investors. As per the rule a trader/investor can’t claim tax reduction for the loss of a trade if he purchases back the same instrument (replacement instrument) with in a wash sale period. Wash sale period includes 61 calendar days – 30 days before the sale date and 30 days after the sale date.

Fibonacci Fans Charting Technique

Fibonacci Fans are a charting technique based on Fibonacci ratios. It is widely exploited by traders to predict future support and resistance levels for a stock or other financial instruments and also to analyze the speed of a trend. Typical Fibonacci fan chart consist of 3 lines, but the trader can increase the number of lines if necessary. Like Fibonacci arcs, Fibonacci fans can be created for both short-term and long-term bullish and bearish trends.

What is Risk Arbitrage?

Risk arbitrage, as the name suggests, is the arbitrage process which involves risk. Risk arbitrage differs considerably from market arbitrage, which is rare, risk-free and market maker friendly. Risk arbitrage is widely practiced by retail traders and market makers. Although it involves risk, the practice is still considered as a low-risk trading strategy.

Commodity Futures for Beginner Traders

There are many commodity futures markets with a variety of products are available to trade. But all of these markets and products are not suitable for beginner traders. Beginner traders should choose markets/products which satisfy certain requirements as follows.

Stock Market Weekly Letter, June 9, 2008

The Week Ahead: The price of oil had its biggest one day spike ever on the same day unemployment was reported to have the biggest one month increase in 22 years. A perfect storm of bad news for the economy. Important to watch will be Tuesday's trade balance and Ben Bernanke's keynote address on inflation in Boston. The Fed's beige book of economic activity will be released on Wednesday as will OPEC's oil report. Retail sales, jobless claims, and business inventories are due Thursday while the CPI report is released Friday.

The Problems with Predicting the Market

Many traders, especially beginners try to predict the market and often face huge losses. Although most markets behave in a cyclical manner, this cycle isn’t that much predictable – especially for short-term traders. There are many things which influence the market performances and no single trader can consider all those at the same time. Here are important things/facts to consider.

Stop If Bid and Stop If Offer Orders

Both stop-if-bid and stop-if-offer are stop orders used to limit trading losses resulting from market uncertainty. Stop orders are excellent tools against high price volatility and low market liquidity. Both stop-if-bid and sop-if-offer orders are common in forex market, but remember not all forex brokers allow these orders.

Fibonacci Arc Charting Technique

Fibonacci arcs are a charting technique based on Fibonacci numbers, used to predict the future support and resistance levels for a financial instrument. A typical Fibonacci arc consists of three curved lines; but traders can increase the number of lines with respect to Fibonacci numbers. Fibonacci arcs can be created for both short-term and long-term trends, and as well as for both bullish and bearish trends.

Risk Minimizing Day Trading Tactics

Day trading is the most active form of trading having maximum trading risk. It requires real-time news, quotes and charts. Day traders practice many complex strategies for getting profited from the market. Here are some simple tactics which can minimize trading loss of day traders, especially beginners.

Stock Maket Trader Letter, June 2, 2008

The Week Ahead: A major consumer sentiment reading reached a 28 year low with soaring food and gas prices lowering the potential for other discretionary purchases. Look for the ISM Manufacturing Index and construction spending numbers on Monday. Auto sales and factory orders are due Tuesday. Oil and gas inventories along with the ISM non-Manufacturing Index are out on Wednesday. Chain store sales and jobless claims are released Thursday. Finally, Friday brings the all important employment report for May.