Investing Basics

Learn to Trade

Stock trading has many layers of complexity and begs the question; are great traders born or taught?  Unfortunately, for 95% of us, learning to trade successfully is a long, arduous process in which our experiences (good and bad) shape the way we look at the market.  Trading is very emotional and many investors will find that their discipline does not apply when it comes to the market and trading.

Learn about yourself before you learn to trade.  One of the first things a trader must decide early on in their career is what type of trader they want to become.  Some traders will focus on long term investing, while others will learn day trading techniques.  It all depends on your appetite for risk and your investment goals.  Do you want to learn to trade stocks in order to take control of your retirement accounts or do you want to make a living out of the markets?

Covering the Basics

If you’re just getting started with investing; learn to trade stocks first before diving into any other security types.  Stocks are one of the oldest investment vehicles and the easiest to comprehend.  That’s because the order instructions for stocks are fairly simple.  A trader can buy stocks long or sell stocks short.  There are no complicated options or futures calculations involved. 

It is best for an investor to learn trading techniques by practicing in a simulated environment where there is no real money at stake.  This will allow you to get a feel for the market, and how it moves, before jumping into the shark tank.  However; don’t get too comfortable trading funny money.  To take your trading to the next level, you will need to learn to trade in a real market with real money.  While you may ask what the difference is, there is something to be said about trading with your hard earned cash and managing your emotions when you do so. 

Don’t treat the stock market as a get rich quick scheme and learn to trade from the ground up, without taking any shortcuts (trading systems, investment advisors, etc).  Much like a doctor that will spend over 8 years after college to begin practicing, traders should approach their profession which such zeal.  Now, we are not saying that trader’s should wait 12 years before they put on their first trade, but be prepared to pay your dues with your time and your money while you learn to trade.  There is no get rich quick system that can be learned in 30 minutes.  For every trader that makes money in this matter there are hundreds that take a loss.

Active Trading

Active trading is much more challenging because it requires constant decision making.  There are many sites claiming that a trader can learn day trading in a couple weeks, but the reality is that it will take significant amount of time like any other profession.  It will take time to understand the intraday market dynamics and how to use different day trading strategies to put on trades with the highest probability of winning. 

A day trader can elect to trade the morning volatility, midday quiet period, or late day breakouts.  Therefore, it is essential that you learn to trade with many different trading strategies, as not all strategies will work in every trading timeframe. 

The first hour of the day requires the most skill as many securities open with large gaps, up or down.  These gaps occur from a build up of buy or sell orders accumulating before the open of the market.  This early morning volatility makes it very difficult for a novice, and even professional, to trade and requires quite a bit of practice in order to sort through the madness.  The most amount of money is made and lost in the first hour of trading.  For this reason, many professional traders avoid the early morning madness and focus on trading after the first 30 minutes has passed.  It is in this timeframe when true trends transition from ones which were manipulated by the market maker to ones which have true institutional interest. 

Visit the mysmp.com day trading education center to get a full list of free trading strategies that you can use to learn trading techniques which are used by professional traders.

Learn Options Trading

A great way for you to hedge your portfolio against risk is to learn options trading.  Options are used by many traders to protect themselves against adverse movement in their positions, and even used by many professional traders to speculate on the direction of price.  Options provide a large amount of leverage which allows traders to command a large amount of stock with a small amount of capital. 

Many traders will create options trading strategies to take advantage of various market conditions; bullish, bearish, or neutral.  For example, options straddles are entered by traders when they know a large move is coming, but are not sure about the direction.  Conversely, traders use butterfly spreads when they believe that the price of a stock will remain relatively unchanged; this strategy profits off of time decay.  Finally, covered calls are created by traders to lower their net cost of a stock purchase in exchange for limited upside potential.  I think you get the point; there are dozens of strategies that you can use

At mysmp.com, we have an options trading education center where you can learn to trade many of the different options strategies, including the ones we just discussed here.

The term market trend analysis is used by many financial professionals but can have a different meaning, depending on who you talk to. At its most basic level, trend analysis is defined as the collection of historical data for the purposes of making future predictions or forecasts. It is believed that when certain conditions continue to present themselves with a similar outcome, there is a higher probability for these conditions to yield the same outcome in the future.

At the highest level, many pundits will pontificate on the future prospects for the economy through economic trend analysis. Inflation, employment data, housing, consumer spending, consumer confidence, and interest rates are just some of the key indicators that they will track closely. For example, it is historically observed that an inverted yield curve (short term interest rates higher than long term interest rates) typically precedes a period of economic recession. Similarly, inflation trend analysis will show that the economy goes through cycles of increasing inflation followed by decreasing inflation. During high periods of inflation, traders tend to move assets into inflation hedges such as gold and oil. It is important to understand the implications of economic trend analysis as it can help you understand where to keep your assets.

Economic trend analysis is the first part of your investment picture; it provides the backdrop for the type of economic environment you will be investing in. When you understand where to invest your assets, a more sector specific or company specific analysis should be performed. Stock trend analysis and financial trend analysis are the two main forms of investment analysis that can be performed.

Stock trend analysis, or technical analysis, is the art of studying previous price patterns and making forward looking assumptions on where price will head. Technical analysis has become increasingly popular among the day trading and swing trading crowd with the vast availability of historical data. Traders can slice and dice this data in any way they please, uncovering repeatable patterns and back testing trading strategies without putting real money to work. This is truly a study of human emotion and money flow versus a study of a company’s balance sheet.

Conversely, financial trend analysis is the art of analyzing a company’s financial performance trends. Financial performance can be gauged against prior periods or even against industry peers. This form of financial trend analysis allows investors to understand if a company is relatively improving or not, year over year. Additionally, this analysis allows companies to strategically plan and budget future initiatives and put pre-emptive measures in place to tackle emerging financial issues before they occur. Some of the most common analysis metrics are EPS, P/E ratio, A/R turnover, operating margins, and cost of capital to name a few.

Conclusion

Remember, past performance is no guarantee for future results. Each situation should be taken on a case by case basis as it presents its own set of unique circumstances. The biggest mistake you can make is to throw all your chips at an investment which you believe will go up because history says it “should”.

Are you tired of surfing the web, looking for trading strategies that actually work? Well, you have come to the right place. At mysmp.com, we hold nothing back; we strive to provide our audience with free trading strategies that others will charge you an arm and a leg for. You will find a variety of commonly used professional trading strategies within our day trading, stock trading, and options trading centers.

A trading strategy is nothing more than a set of rules or guidelines that a trader uses to select potential stock picks. These rules include filtering criteria used to discover different opportunities and also include entry and exit criteria. The money management part of a trading strategy is equally as important as the filtering process used to find a trade.

Over the past 15 years, algorithmic trading (or system trading) has become very popular. With real time data and other analytical tools being available to retail traders, algorithmic trading volume has exploded with traders looking to create the “holy grail”. The fact of the matter is that it is extremely difficult to automate a trading strategy to be successful in every type of trading environment. For this reason, it is important to hardwire your brain to spot good trading setups. Act on your experience rather than following a robot which is bound to short circuit.

Day Trading Strategies

Within our day trading strategies section, you will learn the techniques that professional day traders use to profit day in and day out. A majority of trading profits are made in the first two hours of the trading session. We teach you how to profit off of early morning volatility and trade the morning gap.

There is no singular solution to conquering the markets; it’s all about having a wide array of tools at your disposal. Read our articles on Fibonacci trading techniques, tape reading, and the Level 2 Window to get a leg up in your trading approach.

Option Trading Strategies

Options can serve as a great tool to either hedge your trading positions or even speculate on the direction of a stock. If used correctly, options can serve as a great tool to taking a leveraged position without putting up a large sum of money. In our options education center, you will find advanced option trading strategies which take advantage of all types of market conditions; bullish, bearish, or indifferent.

Stock Trading Strategies

Finally, in our stock trading education center, we present a variety of popular stock trading strategies which cover longer term and more cyclical approaches to investing. Ever hear of the popular saying, “sell in May and go away”? Investors who followed this investment strategy would have done substantially better than those who prescribed to a buy and hold strategy. It is ideas such as this that you cannot afford to ignore.