Financial and Investment Resources

Archive for September, 2009

Learning about investing can be very overwhelming. There are countless events that can affect the value of an investment that a lot of people are too intimidated to lay their cash down on anything, choosing instead to simply let their money sit in a bank account. If you are really thinking about investing or are trying to decide what you seriously should invest your money in, here is one recommendation: Gold Jewelry.

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For gold in phisike is a cordial; Therefore he loved gold in special. – Chaucer

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Gold Price Trends

Gold prices have been going up regularly since about 2004 when the price of gold really took off. The value of gold is escalating even more significantly in the USA because on and off the American dollar has been sinking. As the dollar decreases, gold soars. Gold’s value consistently increases as gold becomes scarcer. One reason that gold prices stay steady (if not on the rise) is that, for some rare reason that the price of gold decreased, the mines that produce gold simply stop operating for a season, with the result that the demand for gold bumps up again right away. The price of gold, as opposed to other investments, fluctuates independent of the stock market.

24 Karat – The Best Investment

Many people feel that twenty four karat gold is by far the best gold investment. Twenty four karat jewelry is the purest gold that jewelry is made of. It is usually in a yellow gold color. Twenty four karat gold is the best quality investment, especially if you are wanting to invest primarily in gold jewelry, because the highest quality that gold jewelry can be obtained in is in is twenty four karat. That is the purest gold that is available, so you can’t find gold jewelry that is better than twenty four karat.

Pros and Cons of Gold Jewelry as an Investment

Like any other investment, there are good and bad points as far as investing in gold jewelry. The upside is, naturally, that gold is about the most stable thing you can invest in. You will not have to keep track of what the stock market is doing; you don’t have to pay attention to the Dow Jones Index at all. All you must do is keep your jewelry in a safe place. Of course, keeping your jewelry in good shape can be a challenge, and there is no sure way to know that the value of the jewelry will hold up as well as investing in pure gold will. It could increase faster or not quite as much as gold coins. The highest karat of gold available in jewelry form is twenty four karat and that is not without its flaws, the largest being that it can be damaged.

Deciding what to invest in is not an easy process, especially if you are new to the fields of investing and advanced financial management. The high point about investing in gold jewelry is that the price of gold almost never goes down and even if it does, it increases before too long. Gold is one of the most stable things you can put your money in because it always appreciates in value.

Gold Jewelry News at http://goldjewelry.endlessfreeplr.com/Gold_Jewelry_-_A_Stable_Investment.html gives you useful gold jewelry information in your email free every week.
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The Forex market seems to be one of the hottest markets right now.

Let’s take a look why

It takes small amount of capital to get going and you get leverage with it.

This is important because a lot of people entering the market are looking for ways to make money and not just to invest their spare cash.

Leverage means that you can use other people’s money to make your investment bigger. Not to try to scare you but this also introduces greater chance for Loss. This is not for the faint hearted or people not willing to learn how to trade, understand their trading phycology and follow money management rules. Having been duly warned please keep reading about the great potential and positive aspects of Forex trading.

Leverage is a very powerful tool to make money very quickly.

The Forex Market is the largest in the world worth more than a Trillion dollars a day. This is important for many reasons:

It provides amazing liquidity. There are always people ready to buy and sell so you can always enter and exit your position easily. Smaller markets may not always give you the ability to exit your trade so easily.

It is difficult for larger players to influence the market. In the stock market the larger players can influence a particular stock and cause movement just by their trades.

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The sun is always shining somewhere.

There is always trading going on 24 hours a day Monday to Friday. It goes from city to city following the sun. Plus you still get your weekends of to relax. With stocks the markets closes and news is released and the stock can gap at the open leaving you in a worse position. When you can trade a very liquid market open 24 Hours it makes it a whole lot easier to manage your positions and relax.

You are trading so that you can have a better life right?, not just stuck in front of a computer. It is important to get clear on why you are trading or you can just be just swapping one situation for another and not really improving your life. Pep talk over with let’s get on with it.

Volatility

Stocks may go in sideways movements and suddenly rush up or down and there are a lot of stocks to choose from. Sure there is some stocks renown for being volatile but it is easier to find consistent volatility in the Forex market. The market is always moving so there are always plenty of opportunities for day trading

So I obviously think that the Forex Market provides great opportunity for people to enrich their lives. It gives people willing to learn a little a great lifestyle that many will envy.

I hope that you enjoyed that simple summary. There are many more great reasons to trade forex.

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Forex, the Foreign Exchange Market, is a worldwide market for buying and selling foreign currencies. The major currencies that are traded include the U.S. Dollar (USD), Euro (EUR), British Pound (GBP), Canadian Dollar (CAD), Australian Dollar (AUD), Japanese Yen (JPY), and the Swiss Franc (CHF). The purpose of this article is not to go into the details of how Forex works, but to compare the benefits of trading in the Forex market versus trading the Equity (American stocks) or Futures markets (Commodities).

The Forex market is the largest market in the world with over 2 trillion dollars traded every day. This compares to the 200 billion dollars traded daily in the Equity and Futures market each. Because of this, the Forex market benefits from fairer prices, price stability, and better trade execution.

Forex has the advantage of being open 24 hours a day. The Forex market opens on Sunday afternoon and remains open until it closes on Friday afternoon. The Equity and Futures markets are only open Monday through Friday 8:30 a.m. to 5:00 p.m. Eastern Standard Time. This gives Forex traders the opportunity to trade around their personal schedule. Also, liquidity in the Equity and Futures markets are reduced after regular trading hours.

When trading Forex, you will not incur the commissions or transaction fees that exist in the Equity and Futures markets. You pay a spread on the currency pair you are trading and costs are very low, especially when compared to the other markets.

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Investment leverage in the Forex market can be as high as a 200:1 margin. In the Equity and Futures markets your average margin is 4:1. This means that you can control $10,000 worth of currency with only a 50-dollar margin.

In the Equity and Futures markets, investors are expected to fund several thousand dollars to open a trading account. In the Forex market, you can open a mini account for only 300 dollars and begin trading.

In the Equity market, short selling is very risky and comes with limitations. In the Forex market, you are able to buy long or sell short any currency pair with no limitations or difference in risk.

As an investor in the Forex market, you are able to concentrate on only a few major currencies. There are seven major currencies yielding four major currency pairs that most Forex investors concentrate on. Whereas in the Equity market, investors have over 40,000 stocks to choose from when contemplating where to invest their money.

There are many factors to consider when deciding on which market you want to spend your time and money. The Forex market provides many benefits over the other major investment markets that will allow you, the investor, to make larger profits, take less risk, and spend more time with your personal life and less time investing.

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You know, it’s true what they say. “The more things change, the more they stay the same!” It has been just about three years now, since January of 2003, that I wrote my now classic “I Was Wrong” article, admitting that trend following was not dead after all. And in the past couple of years, we have seen some good trending markets and some nice returns, with the Turtle computer model being up between 50% and 100% for 2003 and 2004 respectively. And while the current final yearly results are not quite in yet, although 2005 got off to a pretty rough start, it looks like a late rally in many of the markets is going to wind up giving us another profitable year.

But the truth of the matter is, if you look very closely, as I have, at both the Turtle system in particular as well as other trend following systems in general, there are some things that have changed slightly. An examination of ‘rolling’ five or ten year periods will show some smaller deteriorating statistics since the ‘formal’ origination of the trading method back in the early 1980’s. The total returns are slightly lower, the drawdowns are a little deeper, and the recovery periods are a little longer.

There are several reasons for this, most of which can be summed up under the wide umbrella of natural progression. On the one hand, we have the good old fashioned Darwinistic “survival of the fittest model”.

Hey, trading is basically still one big zero sum game, where somebody has to win, and somebody else has to lose. The winners are the smarter combatants, the losers will tap out and fall by the wayside (or even become ‘brokers’). As with any competition, this means that eventually, you will have the winners competing against other winners, thus raising the bar for the entire level of competition, and making the whole damn game harder to begin with. At least that is the philosophical argument for what happens.

The technical argument is a lot more cut and dried, but it is basically the same story. In the ‘old’ days, whoever was the first and quickest to figure things out while they were still changing had a huge edge. But then along came that crutch to human thought, the computer. By the early 1990’s everybody had one sitting on his desk, and the playing field had been greatly leveled. Information still flowed, but now it flowed faster, and everyone became more quickly aware of it. Which meant that all the traders on the outside were now able to more quickly adjust their positions and come back into line with whatever sudden new information had become available.

I have spoken at great lengths before about how and why trend following works, and the fundamental reasons that trends come about in the first place. Simply put, when something happens to either the supply or demand of a commodity (or stock), the equilibrium fair market value shifts, and the price moves to a new level. In the old days, sometimes it took a while for the market mechanism to find this new level, but nowadays, thanks to more powerful computer speed and efficiency, everything is all happening a lot faster.

The end result as far as we are concerned is two fold. First of all, the trends that do occur are more explosive coming out of the box, which means the trader has to be both quicker and more nimble, both jumping on board, and holding on. Secondly, and more importantly, is the fact that these trends don’t run as far, or last as long, as they used to, before all the players have had a chance to adjust their positions, and the market (any market) comes back into balance.

To put it in Turtle terms, a good freeze or heat wave or embargo used to cause a market like Coffee or Soybeans or Crude Oil to run for months, and give us maybe a 40 N move before it was over. I remember a hot dry Summer in 1988 when Beans ran 40 N. I also remember that Crude Oil during the first Gulf War in 1991 ran for just about a 40 N profit as well. Hell, there was even a nice 40 N run in the Stock Indexes during the dot.com bubble of the mid 1990’s. But in the past five years or so, I am hard pressed to think of any market that has had such a big super trend.

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Back in the 1980’s, these were the kinds of moves we got excited about, and we got one or two of them almost every year. 20 N moves were fairly common place, and 10 N was nothing that much to get excited about. But since the turn of the century, I think 20-25 N moves are about the largest I can recall seeing. I think Feeder Cattle last year at 23 N was the largest trend of the year, and a further problem is that not too many people even follow that (relatively) small market.

But remember, we still need these few big home run trades every year to pay for all the small losses and whipsaws and slippage and other costs of doing trading on a daily basis. The basic problem during the ‘difficult’ periods is not that we don’t get any trends, but that the trends we do get are not big enough or long enough to pay for all the other stuff. We are still trading in a distribution that has more losing trades than winning ones, so at least some of the few winners we do hit still have to be large enough to cover all the losses.

The question we face as continually evolving traders becomes, what, if anything, are we supposed to do about this kind of stuff. In the past, I have been a large advocate of the school of thought that says, “if it ain’t broke, don’t fix it”. Sure, the Turtles, or any other trend followers, were not getting the easy triple digit returns from two decades ago. But hey, we were still doing better than anybody else around, and I for one did not see a lot of reason to complain, or even get upset about it.

But my thinking has changed in the past couple of years. I’m no longer holding out for the 40 N outliers, because they just don’t come around that often any more. I have not gotten to the point where if I see a trend approaching 20 N profit, I start putting one foot out the door, and looking around for warning signs to get me to duck out quickly. Those warning signs will come in the form of some other types of indicators I have learned to pay attention to. But keep in mind that all of this is still just a math and probability decision, not one of fear or emotion or just ‘wanting’ to take a profit.

Without getting into too much of the detail, let’s just say that at some point it can still be obvious that if you have a reasonable minimum probability of catching a big move, you should try to hold out for it. On the other hand, if the chances are lower of that big move occurring, then at some point it has to become better to take the smaller but surer profit. And while the odds are not always so quantifiable, and this is as much art as it is science, let’s just say I have been getting better at it with more experience over the years.

The bottom line is that where I used to hold out as long as possible, often times after the trend had reversed on me, now I am quicker to exit first and ask questions later. And to be sure, I have left some money on the table when the trend kept going and I had gotten out prematurely. But I have also saved a lot more by recognizing when the party was over and getting out before everybody else ran for the door. And the funny thing is that one of my brokers thinks I have become a better trader, because he has always been an advocate of locking up a profit and putting some money in your pocket. But that is not the reason I do what I do, my criteria are technical and unemotional in nature.

Of course, Richard Dennis was always an advocate of using personal discretion to override mechanical technical criteria, the trick has been getting good at knowing how and when to do this. And I think this is something that cannot be taught, even by me, but just comes with experience. I can now look at half a dozen different things, including stochastics, market profiles, sentiment indicators, and even news reports, and somehow assimilate that all in my mind and decide when it ‘feels right’ to make a discretionary move.

Last year at Thanksgiving, I exited some Currency trends right near the top of the market. And this year, I got out of the Energies right after Hurricane Katrina, two days off the top. As I have gotten better at this, I have also been able to strengthen the courage of my convictions to stick to my guns and not second guess myself. In the past, if I would get out of a trade too early and it kept on going, I would think I made a mistake and then try to jump back in, ostensibly at a worse price than when I got out. Now, once I’m out, I have the patience and discipline to stay out, and fight the temptation to jump back in and whip myself around.

It seems when I am wrong, I am wrong by a little, because even if the move keeps going, it doesn’t go too far before it eventually peters out and turns around. I got out of the Yen last week, and have left about 1 N on the table so far. And I just got out of some Gold the other night, and right now it is sharply higher again (also by about 1 N). But when I’m right, as in Unleaded Gas this past August, I was able to save myself close to 10 N before the market reversed enough for the computer model to finally give a liquidation signal. So that seems like a pretty fair tradeoff for me. And it is also the big reason that my personal trading account is outperforming the Turtle computer model so far in 2005.

Russell Sands

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When I studied the principles of investing in university, I was taught that the price of a share reflected the value of the company. With fundamental analysis, there are many methods on how one can analyse the financial statements of companies to find out whether a share is a good or a bad investment. You can conduct horizontal and vertical analyses on standardised financial statements, which are just fancy terms for comparing numbers. You can calculate certain financial ratios to get a better understanding of a company’s liquidity, working capital management, its ability to remain in business over the long term, and its profitability.

I applied these concepts when I started trading the stock market. Soon I found that if I wanted to trade shares in a timeframe of less than three months, decisions based on these analyses were not useful. I did not want to buy shares only to receive dividends. I wanted to trade for capital gains.

I was dissatisfied with my knowledge, the tools and the methods that I had to trade the markets. With my desire to trade a timeframe shorter than three months and my strengthening belief that emotions greatly impact on trading, I began to search for different approaches to buying and selling shares.

I went back to one of my textbooks in university. I wanted to know how else I could analyse the markets. From the passage I read, I learned that one can analyse the markets in one of two ways: fundamental analysis and technical analysis.

I bumped into a newspaper ad one day for a trading seminar. While reading through the ad I saw the words: technical analysis. An expert trader was going to speak on the exact topic I was interested in learning. It was a free seminar and everybody was welcome to come along. So I called a friend of mine and I asked if he would be interested in attending this trading seminar. He was.

The seminar was organised by a business selling trading courses: courses to instruct people on how to trade the share market. When we arrived, we were led into a small room. There were about thirty people. The spokesman was apparently a veteran trader who wrote two books on trading. Let’s call him Bauer for the purpose of this article. Bauer had a very strong presence. He was a huge, tall man with a clean-shaven head.

I was on the front row seat trying to listen and understand every word this man said. It was his teachings that planted the seeds of how I eventually grew as a trader over the years. Many times, I heard his voice in my head, reminding me of the lessons I learnt from his books and the lessons I learnt from him that day. I will try to enumerate the lessons I learnt from this man to help you the way they helped me.

This man had my attention from the very beginning. “The share market is a game where people try to steal money from other people. That is the objective of the game and it is legal”, he began. I wondered what the professionals in Wall Street would have thought about that statement if they heard it. I smiled. I liked him already.

He continued: “If you are going to join this game, you are essentially given permission to steal money from other people and in exchange, you are okay with them stealing your money also. Some of the brightest people in the world will be playing with you. Therefore, if you are going to war and fight an army with real weapons, you better make sure you do not go there with a plastic gun.”

He said that people rush to the markets to lose their money. It sounded laughable but I guess it was the only conclusion one can draw from the fact that most people begin trading without sufficiently preparing and educating themselves. Of course, most of us do not put on a trade with the hope of losing our money; however, that is what we are effectively doing when we trade without adequate preparation.

“They just cannot wait to lose their money. They do not bother learning about the market first. They think it is easy. Most people know that they need training before they can fly a plane or perform surgery, but I do not know why they think it is easy to make money trading”, he exclaimed. He was quite emotional about it.

“Trading is hard”, he declared. Only about 5% of people know how to trade profitably. And so the probability of finding someone else who knows what they are doing is very, very small. “Do not rely solely on the advice of your brokers, your fund managers or whoever else. Your best hope for success is to educate yourself. The sooner you do that, the better off you’ll be.”

“When it comes to buying and selling shares, there is no such thing as investing. What people normally refer to as investing means long-term trading to me”. When people hold on to their investments for five or more years with the intention to sell later, then all they are effectively doing is trading…just with a longer time frame.

“Do not buy shares solely for the dividend payments. They offer you measly rewards”, he said. “Do trade only with the purpose of making money from capital gains. Buy low, sell high and that’s how you should make your profit.”

At the time, I was juggling between the concepts of short-term trading or investing for the long-term. I did not know whether I was taking the right approach by attempting to make short-term profits. He made his stance on the matter strongly.

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He asked us if we knew what drove prices up or down. Remembering what my lecturer said in university, I responded, “the price moves up and down close to the intrinsic value of the share”.

He turned his attention to me and asked, “What share are you trading?”

“XYZ (I changed the name for the purpose of this article)”, I replied quite happily. Perhaps I could squeeze a tip or two from him about the stock.

“Do you know what the intrinsic value of XYZ Company is”, he asked.

I nodded my head sideways and muttered, “no”.

“I’ll tell you what the value of XYZ is… it is zero!” He barked.

I was taken aback by his response. Zero? Then what are we paying money for when we buy a share? I thought. Then he clarified himself.

“Price is only a perception – it is people’s perception of what they think the value of the share price is”.

“The key to success in trading is psychology”, he continued. Psychology? I thought. How did psychology get involved in this? “The stock market is like an opinion poll. It is a measure of what people think is going to happen. If they think the price will go up, you will see an upward movement on the chart because there are more buyers so the sellers increase their price because some of these buyers are willing to buy at higher prices”, he explained.

He then used an example to explain a typical trader’s behaviour when he trades without a system. As he explained it, I recognised my own behaviour in his demonstration.

This was all a revelation for me. When I was buying and selling shares I wondered what type of people were on the other side of the trade because collectively, they were pretty smart. Now I know. It was people like Bauer who were on the other side of those transactions, doing the exact opposite of what I was doing, using similar methods like the ones he was using. They were looking at the share market with a philosophy and an approach that were completely alien to me. Traders like him were making all the money and traders like me were losing.

I shook my head in disbelief that other people saw things the way they did. I felt excited knowing that there was another alternative, another approach in analysing the markets.

“What you need, is to develop your own trading system.” He exclaimed to everybody in the entire room. “Without a trading system, you will fail. I guarantee you. This trading system must be something that is suited for you and you only. Even if I give you my trading system I am certain that you will fail to make money, because my system is not designed for you. It is designed for me. That is why you need to learn how to use the tools and acquire the skills needed to be a trader”.

I accepted his advice without fully understanding this concept of matching a trading system to suit the trader’s own personality. It lingered in my mind for a long time. The wisdom of his advice became apparent to me as I slowly learnt more about the nature of trading.

Bauer diverted our attention to the charts on the screen projected from his laptop. All I saw were lines, curves, rectangular boxes and more squiggly lines. The tools of a professional trader: I thought. I was being shown the tools that my market ‘adversaries’ have been using to ‘clobber’ me with all this time. My heart was beating faster than usual. I was in awe. I wanted those tools.

I asked Bauer what program he used to analyse the markets. He told me. I also asked him how many indicators he used. I had read enough about technical analysis by that time to know that technical analysts use indicators to analyse share prices. There are many indicators to choose from so I wanted to know how many of those are used by professional traders. He started counting his fingers. ‘Seven’, he said.

I think many people there had not really read up on technical analysis but I had done my homework and by that time, I was pretty much the only person in dialog with him, asking him questions. I wanted to gain as much knowledge and wisdom he was willing to give me.

Then I heard one of the most important lessons I’ve learnt which minimised my losses during my early years of trading: “Trade so small that it is almost a waste of your time. Assume the next trade is going to be the first out of a thousand trades you are going to be making in your life. Even though your profits are smaller, your losses are smaller too. There is no need to rush. Do not worry about getting rich too quickly.”

He was suggesting that novices like me should trade using small position sizes. That means to buy small number of shares at the start. I was intrigued. I did not know a person should trade that ‘small’.

Eventually, the seminar ended. I grabbed the booklets and brochures given out by some of the staff. In one of these brochures was the name of the program he uses. They were selling the software with the courses they were offering. I could not afford the entire package but I knew I had to buy the same charting software Bauer used. I decided to learn as much as I could about how to use charts and graphs to analyse the market. I needed to develop my own trading system.

As for my friend, he said he had a car loan to take care of first. He would look into trading shares later when he had a little more money to set aside.

A couple of days later, I got a call from the organiser of the seminar, telling me that based from the questions I had been asking that night, I was the type of person that would most benefit from their education package. Bauer was asked to demonstrate the need for trading education because he traded the markets. In the process, he was selling the courses well. Bauer seemed knowledgeable and experienced. He has enlightened me and probably several other people in that room about how much there was to learn. I was sold. I just could not afford the courses at the time but I wanted them so badly that I asked the sales person on the other end of the line if I could work for them in exchange for the course.

I did not get to do the course but I bought the software from a different distributor at a cheaper price. I also bought the two books Bauer wrote. I figured that I could acquire the skills and wisdom through self-education. I learnt a lot from those two books and from using the software. Having that opportunity to attend that seminar was a ‘gift from the heavens’, as far as I was concerned. Wherever you are, Bauer, I thank you. You – and others like you — have made me recognize the value of passing on knowledge and experience for others to follow.

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