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This page was created to give you access for
trading tools and information. It helps to be able to keep
track of what is going on in the stock market from day to
day, and to understand the various stock trading systems that
people use when investing, such as day trading, swing trading
and scale trading. Most investment newsletters focus on one
of theses.
Scale Trading is
a disciplined, mechanical approach to buying low and selling
high. It is based on the economic law of Supply and Demand,
built on the premise that a physical commodity has an intrinsic
value and, therefore, will not likely become valueless.
The "what works" for the Scale
Trading approach is that we can
outline our trading plan ahead of time by carefully evaluating
current supply/demand statistics and then comparing those
with the commodity's historical price range. This gives us
the ability to then pinpoint the price at which we want to
begin our scale down buying and, most importantly, calculate
the total capital we will likely need to maintain that scale
under our worst case scenario. In addition to patience and
money, here is the combination you need for scale trading:
Physical commodities only - something that is grown or mined
and is consumed, therefore subject to supply and demand forces.
Historically low prices - you can determine that several ways
but basically all you have to do is look at a long-term price
chart for the last 20-25 years and divide the price range
from low to high in thirds. A market in the lower third is
a candidate for scale trading although you may not want to
implement such a plan unless prices fall into, say, the bottom
10% of the total range or a more recent range of, say, the
last 10-15 years.
Swing Trading:
A style of trading that attempts to capture gains in a stock
within one to four days.
To find situations in which a stock
has this extraordinary potential to move in such a short time
frame, the trader must act quickly. This is mainly used by
at-home and day traders. Large institutions trade in sizes
too big to move in and out of stocks quickly. The individual
trader is able to exploit the short-term stock movements without
the competition of major traders. Swing traders use technical
analysis to look for stocks with short-term price momentum.
These traders aren't interested in the fundamental or intrinsic
value of stocks but rather in their price trends and patterns.
Swing Trading requires that pay close attention every day
to all stocks.
Day Trading: Day
traders rapidly buy and sell stocks throughout the day in
the hope that their stocks will continue climbing or falling
in value for the seconds to minutes they own the stock, allowing
them to lock in quick profits. Day trading is extremely risky
and can result in substantial financial losses in a very short
period of time. If you are a day trader, or are thinking about
day trading, read our publication, Day
Trading: Your Dollars at Risk. We also have warnings
and tips about online trading and day trading.
Day Trading for a Living
There are two primary divisions of professional
day traders: those who work alone and/or those who work for
a larger institution.
Most day traders who trade for a living work for a large institution.
The fact is these people have access to things individual
traders could only dream of: a direct line to a dealing desk,
large amounts of capital and leverage, expensive analytical
software and much more. These traders are typically the ones
looking for easy profits that can be made from arbitrage opportunities
and news events. The resources to which they have access allow
them to capitalize on these less risky day trades before individual
traders can react.
Many people attracted to the "Get rich
Quick" theory of investing jump too quickly into one
of the stock trading systems defined above. Being willing
to stay in for the long haul sometimes is the common sense
approach, but if you are planing to go one of these directions,
it is all about "doing your homework". Our stock
market investment newsletter, The Common Sense Investor, will
help you make decisions that will provide for a more proffitable
future.
DARK
CLOUDS ON THE HORIZON
OIL
has given investors a much needed respite, dropping temporarily
back below $50 per barrel. Don’t get too comfortable because
it won’t last too long. We expect demand to start rising again
this summer and there will be no way to increase supply. Oil
prices will again rise in earnest and gas prices will move
up right along with it.
One
thing that Wall Street refuses to acknowledge and investors
continue to think is a temporary apparition is higher oil
prices. HIGHER OIL PRICES ARE HERE TO STAY.
With
the unstoppable growth of China and India and the US consumers
“bigger is better” consumption attitude, OIL prices will remain
high. In fact, it will take at least a decade and even higher
oil prices to cause consumers to become much more energy conscious
and conservative. Only then will oil prices begin to trend
lower but that trend could begin from prices that no one ever
thought was possible…over $100 per barrel.
The
fact that oil will remain high and most probably move higher
in the future will keep a cap on the stock market. It also
raises the specter of inflation which keeps the FED raising
interest rates. This too keeps a lid on the stock market.
Rising
oil and rising interest rates cause the consumer to slowdown
spending and corporate profits to slowdown. All of these in
moderation will keep a lid on how high the market can go over
the next few years. An acceleration in any of these items
and the market could head back into a renewed bear market
which should take us down to retest the bear market lows.
For
COMMON SENSE INVESTORS you must be ready to profit when we
get the market moves we were looking for (like now) and you
must always keep your losses small. As the market continues
to move higher over the next few weeks make sure that you
take some partial profits and move your stops higher so that
you are ready to get out of a position once the market turns
lower. We also want to use this market rally to look for good
stocks to short, so that we can profit as the market heads
lower.
I
expect the summer to be dreadfully slow(much like last summer)
and the real profits will come from the downside shorting
stocks that disappoint. We will keep you apprised of the stocks
that meet our criteria.
Lets see what the new year will bring! Our
investment newsletter will add tips throughout the year.
Have
a Profitable 2006,
Marc
Barhonovich
Editor
The
Common Sense Investor
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