Before you embark upon a journey of trading stocks or futures, and before you make any trades, you MUST determine and establish your risk level. Traders that fail to do this are usually doomed from the start. The fact is that most trading accounts that go bust are because of the failure to determine at what point the trader will cut their losses and move on to the next trade. Rookie traders are particularly prone to do this. They hang on to losing positions hoping that they will turn around – only to watch the price drop even further. Too much thought and effort are expended on the buying decision instead of the selling decision. The sad truth is that it’s the selling decision that will determine your fate as a successful trader. And successful trading is dependent on how long and how well you can protect your account against loss until the big profit comes your way. Setting a risk level for your account and for your trades will provide such protection.

If you’re like everyone else, you’ve got an online trading account and you’re free to move in and out of positions without the input or interruption of a broker. If you’re not doing this, we recommend that you do. So when you buy a position, have you determined where you would to sell it if the price would fall? Many traders only think about the price going up – they never think about what they’ll do if it goes down. You MUST determine this limit BEFORE placing a trade.

We recommend that get out of the position if it drops anywhere from 7% to 10% from where you purchased the stock, option or commodity (or any other market derivative). Yes, it could rebound and take off 100 points after you sale, but it could also drop 100 points and your account would be wiped out. Consider this, if your account drops 50%, then you need a 100% gain to get it back where you were! This is why you MUST place a stop-loss after every trade you place with your broker. Do this without fail IMMEDIATELY after placing a trade with your online broker. Once you’ve placed a stop-loss level with your online broker, the system will automatically sell your position when that level is reached. Remember, stay in the game until you hit that big trade!

Chuck Cox is a Technical Writer and Industrial Scientist by professional with a background in statistics. He has used mathematical and statistical methods to invest and trade in the stock, futures, and options markets. Chuck has owned various businesses and presently operates several websites. To learn more about trading in the markets, visit his website, http://www.earncashathometoday.com/trading-stocks.htm

The Macedonian Stock Exchange (MSE) is not operating successfully. True, some of the parameters which we use to measure the success of a stock exchange have lately improved in the MSE. For instance, the monthly money volume has increased together with the number of transactions. But this is a far cry from success.

Who is to blame? Is the current management of the MSE incompetent?

I do not think so. Actually, I think the MSE has an excellent management team, doing their best to incorporate new trading techniques and to list new firms. The problems lie elsewhere.

A stock exchange is a very important financial market. It is a highly efficient and visible instrument of financing. In the West, it is used to finance most of the needs of corporations, way above financing available from banks. Individuals and firms save some of their income and invest it. The stock exchange is meeting grounds for savers wishing to invest their savings - and firms looking for investments.

Another function of stock exchanges is to assist governments in financing their internal borrowing requirements. Governments sell obligations (called bonds) to investors through the stock exchanges in their countries. A stock exchange is, therefore, an indispensable tool for re-financing national debt.

But a few conditions must prevail before a stock exchange functions properly.

The most important condition is the existence of a healthy, growing economy in the stock exchange’s country. Investors flock to robust economies and shy away from sickly ones.

On the face of it, the Macedonian economy belongs to the latter category. High unemployment, low savings, retarded growth, a gaping trade and payments deficits. But this is an optical illusion. The economy is in much better conditions that most Macedonians would care to admit. The unemployment figures are skewed. They reflect efforts to evade paying social taxes - not real unemployment. The economy is growing, even by official estimates. The black economy is growing even faster. The deficits are covered by enormous capital infusions from donor countries. Macedonia is receiving more international credits per capita than Russia. It is always convenient to blame the worsening economic climate - but the cold, objective figures do not bear this out.

When an economy is growing - the profits of companies (including those listed in the MSE) will grow with it. This makes the shares of these companies an interesting buy.

Since no one is buying - we must look for the problem elsewhere.

A prospering stock exchange is linked to the existence of the right micro and macro economic management. Macedonia has more than its share of problems in this respect.

The process of transformation of businesses with social capital had four basic flaws:

first, it introduced no new management, ideas or capital to the beleaguered firms which were "transformed". The market simply does not believe that they were transformed. The same people run the same shows under a different hat.

Second, such transformation violates the concept of Hierarchy, a chain of command.

It blurs the distinction between labour (workers) and capital (owners). What is wrong with that is that a ship must have a captain - and only one. Someone must have the authority and the responsibility. Collective management is no management at all.

Moreover, innovation change and revitalization are all prevented. What change could come from the same set of worn out managers? How can thousands of owners decide to worsen the conditions of the workforce - if owners and labourers are one and the same? So, management is polluted by irrelevant, non-economic considerations: power struggles amongst groups of workers, social considerations and political ones.

We identified one villain. The other one is high (real) interest rates. When interest rates are high, three effects prevent the resuscitation of the stock exchange:

First, firms have high financing expenses (interest payments) - which reduces their profits. Second, it is not worthwhile to borrow money and to invest in shares.

Third, it is more tempting to invest money in bank deposits, yielding high interest rates - than in shares. High interest rates are the poison of stock exchanges.

The same is true for low savings rates. If people and firms do not save - there is no capital available for investment in stocks.

This, exactly, is the current situation in Macedonia : impossibly high interest rates coupled with exceedingly low savings. There is basic mistrust between clients and their banks. They prefer other ways of keeping their money.

But all the above is far from exhausting the list of pre-conditions for the proper functioning of a stock exchange.

Investors must have timely, accurate and full information about the firms that they invest in. This will allow them to respond in real time to developments in the company and to prevent losses. This will also make it difficult to cheat them - which is were we come to the question of accounting standards. Only lately have the accounting rules in Macedonia been revised to conform to the Western systems of accounting. Even now, the similarity is very slight. Macedonian firms maintain a double accounting system. One set of books is tax-driven. It is intended to show losses or profits at the whim of the management. An elaborate scheme of hidden reserves lies at the heart of the typical financial statements of the Macedonian firm. Another set of books - if they are kept at all - reflects reality. This is an enormous barrier to foreign investment - and foreign investors are the driving force in every modern stock exchange.

The trust of investors in the stock exchange is based on legislation to protect their property rights against the firm’s management’ against the authorities and against other investors who might wish to rig the market or manipulate the prices of stocks.

But legislation without an effective judicial and law enforcement systems is like a stock exchange without money. To enforce property rights in Macedonia takes ages and even then the outcome is not certain. Laws, regulations are in their embryonic stage and some of them seem to have had an abortion: they were hastily and unwisely copied verbatim from legal codices of other countries (Germany, Britain).

Last - but definitely not least - is the existence of a fair, transparent and non-corrupt marketplace. The stock exchange, the banks, the regulatory authorities, the police and the courts have to be above suspicion. For the market to be utterly efficient - it must be utterly free of any ulterior considerations and motives. Corruption distorts the market’s allocative mechanisms and powers. It is easily discernible in dealings in the stock exchange for all to see. A stock exchange is, after all, the showcase of the local economy.

But there is a problem which towers above all other problems and it is almost endemic to Macedonia. It helps to explain much of the predicament of the stock exchange in Skopje. It is the fact that the market is missing its most important player: the Government.

Investors - both foreign and domestic - look for the Government to be active in the local stock exchange. Governments throughout the world use their stock exchanges to sell shares of state-owned enterprises to their populace. The stock exchange becomes a mechanism for the distribution of the national wealth - as embodied by the state owned enterprises - to all the citizens. As we said before, governments also use the stock exchange to borrow money from their citizens.

The Government of Macedonia does neither. It totally ignores the MSE. Not one company was privatized through the MSE. Not one Denar was borrowed from a Macedonian citizen through it. A government’s activity in the stock exchange is proof that the government believes in it. Therefore, if it does not operate in the stock exchange - it proves that it does not believe in it. If the government does not believe in the stock exchange in its own country - why should the investors believe in it?

There are a few additional structural characteristics which are considered to be the hallmarks of a healthy stock exchange. But those are the by-products of all the above mentioned conditions.

A stock exchange must be liquid so that investors would be able to convert their shares into cash easily and expediently. It must include many investment options - professionally put, it must be diversified. This will allow the investors to choose from a variety of investments and also to reduce their risks by dividing their money among a few types of investments.

The management of the stock exchange can help it by introducing efficient trading techniques, computerized trading and settlement systems and so on. The faster investors meet their money when they sell their shares - the more they will be inclined to operate in the stock exchange that allows them that. The easier it is for them to liquidate their assets by meeting buyers - the more they will prefer to work in that stock exchange.

Investing in the stock exchanges in the markets of the emerging economies has been an unfortunate decision in the last three years. Stock exchanges from Russia to Hungary and from Lithuania to Poland have jeered wildly since the end of 1993.

They resembled a roller coaster in their performance, going up and down by tens of percents annually. There are exceptions to this rule. The Ljubljana Stock exchange, for instance. The trading volume there has gone up 10 times since December 1993 - and the market capitalization is up 30 times. But this is because of the performance of the general economy in Slovenia. In Croatia, the government is privatizing its holdings in state owned companies by auctioning shares to the public through the Zagreb Stock Exchange. This has helped it a lot.

Newly-established stock exchanges are highly volatile and very dangerous. Volatility goes hand in hand with risk. They are long term investments. Since 1988, they outperformed the more established stock exchanges in the world, like Wall Street.

But these stock exchanges are growing fast, they are cheap by any measure and they are the best investment that a country can make in its own future.

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: http://samvak.tripod.com

So you’re started trading, you bought some positions with your online broker, you’ve set some reasonable stop-losses to protect your account and all of a sudden one of your positions move strongly in your favor – so what do you do now? This my friend, is probably the hardest situation to deal with in trading the market – believe it or not.

Do you take profits? Do you hold on for more profits? Do you take partial profits? There is no textbook answer to these questions as it depends on your trading objective. That’s why you need to determine your objective BEFORE you start trading. No matter what you do, there will be regrets if you trade long enough. If you decide to take profits, there will be times when the market makes a huge move without you, if you decide to hold on for more profits, there will be times when you’ll lose the profits you had. However, the important thing is that you decide on your objective and stick to it no matter what happens.

With that said, let’s discuss some profit taking options that you might consider.

When you’ve bought your stock, option or commodity and then placed your stop, you must first try to prevent that position from losing money. We recommend that you move your stop right along with the price movement. In other words, if your stop is placed one point below your purchase price and your stock moves up one point, then we recommend you move your stop up to your purchase price. After doing this, you now have a scratch trade at the very least and the position poses virtually no risk to your account – only “gap downs” at market opens can hurt you. And of course, the golden rule with using stops is that they can only be moved up and must NEVER be moved down.

Chuck Cox is a Technical Writer and Industrial Scientist by professional with a background in statistics. He has used mathematical and statistical methods to invest and trade in the stock, futures, and options markets. Chuck has owned various businesses and presently operates several websites. To learn more about trading the markets, visit his website, http://www.earncashathometoday.com/trading-stocks.htm

Index Fund Trading can be one of the most profitable…or most costly exercises you will ever do.

While trading a basket of Stocks has it’s advantages, such as removing the risk of any single company you own Stock in going bust and taking all of your money with it, Indexes tend to be highly volatile, especially the smaller ones.

Using technical analysis and swing trading strategies for your index fund trading can vastly improve your results and profits if you know how to analyse Stock trends and patterns.

The S&P 500 is probably one of the Worlds best known indexes, and it has a long history of strong trends that have made and lost traders fortunes over the years.

By trading a managed fund that tracks the Index, we can participate in the movements of the market.

The easiest way to do this is to simply buy a managed fund like the Vanguard 500 Index fund. This works fine when the trend is up, but what about when the trend is heading in the other direction?

There are several funds that trade inversely to this index. One of these can be used to trade the downside when prices are falling, as they did for a long period of time as the market came off the 2000 top.

The problem with these funds is that you usually have no leverage. This is why many traders move on to Index Fund Trading through derivatives as an alternative to simply buying a Mutual fund.

If you and your adviser believe that some type if derivative is appropriate for you, then you will gain tremendous leverage to movements in the underlying market.

Of course, if you have no idea how to trade, this leverage is a two edged sword.

Index Fund Trading can be very profitable, but you have to do it right.

This is why learning how to trade profitably, using technical analysis, is far more important than the vehicle or fund you use.

Many investors believe that technical analysis is of no use to them. They consider it to be far too unreliable.

It can be for an inexperienced user, but a basic understanding of technical analysis principles would have saved many traders and investors many thousands or millions of dollars during the recent bear market.

The great trader WD Gann said it doesn’t take very long to make a lot of money trading Commodities (or Stocks for that matter), but it does take a long time to get ready to make a profit.

Getting ready involves study and a little bit of work - unfortunately, there is no other way if you want to make significant profits trading Indexes or Stocks.

So, lets have a look at an index and how we would trade it.

I have used the S&P 500 in this example, as it is a big liquid market with lots of participants, however this trading method applies equally to any other Index or Stock.

Please Click Here to go to the chart for this article. Once you have it printed out or studied it and have it open in a new window, please come back here and we will get underway.

Index Fund trading for investors is best carried out using weekly charts and swing trading strategies as these tend to show strong, consistent trends, minimizing switching fees and/or Brokerage expenses.

For an in depth discussion of swing trading strategies go to StockTradingreview.com

By placing two simple moving averages on this weekly chart, Index fund traders are given clear buy and sell signals for their entries and exits into the S&P 500 Index Fund of their choice, or some other form of leveraged exposure to the Index.

After a short period of indecision at the start of this chart, the short term moving average crossed down through the longer term one, indicating a switch out of any S&P Index funds was warranted, and for more aggressive investors, possibly a move into one of the many funds that trades inversely to this Index - I.E. a fund that makes a profit when the Index falls.

A two bar reaction against the new downtrend quickly failed and a new low in price was made within 2 weeks, forming a lower swing high on the weekly chart - this is a very good indication that the fast move down will continue - 7 weeks down, followed by 2 weeks up, then quickly to a new low tells us that the trend is now down.

Just above the swing high of the two bar reaction is also a great place to place a stop loss order in case we are wrong and the market starts to rally.

Note that nearly all the weekly closes were below the short term moving average during this period - this is also a sign that a strong, fast move down is taking place.

The Index traded lower for 9 weeks, baring 1 week when it traded slightly above the previous weeks high, giving another lower weekly swing high, ending in a panic selloff on heavy volume.

This small 1 week reaction is a sign that the sellers are in complete control, and this pattern often leads to a panic in the market just like what happened on this occasion. If a market can only rally 1 week, it is in a very weak technical position.

This high volume selloff ending in a panic was followed by a sharp 4 week rally, then a move to a slightly lower low that quickly reversed.

It is interesting to note that the price of the low was 775 points - exactly half the 1550 high made by this Index at the top of the Bull market - 50% is a powerful support level, according to WD Gann, and many traders were watching this price to see how the market reacted.

In all this time, our longer term moving average was trending lower, telling us that it was not yet time to buy this Index. Note however that at 4 weeks, the next rally was the longest in time for several months - a sign that the downtrend may be tiring.

The Index rallied again, and the shorter term moving average did in fact cross over the longer term one, however the longer term moving average was still falling - no entry was signalled here.

This rally at 8 weeks was twice as long as the previous one, indicating that there were many buyers in the market.

The Index then sold off again, however it took 14 weeks to go down to near the same level as the previous low, indicating the buyers were indeed putting up a fight - just take a look at the difference in trend angle from the first panic selloff to the trend down into the March low - this is a sign that the buyers may be finally able to take control and the sellers are just about worn out.

Finally, after the March low, the longer term moving average changed direction and started to rally - then the shorter term moving average crossed up through it, giving us a buy signal at the end of April.

An entry here would have provided a very profitable outcome, giving investors the majority of the recent rise in this index while preserving capital during the preceding downtrend or Bear Market.

Knowing what you are doing is a very important factor you will require to trade Indexes successfully, or to trade anything else for that matter, and the other articles on this site are designed to show you how you can profitably trade just about any market.

You must possess the skills of profitable trading before entering the market if you are going to create wealth. This is especially true when the concept of leverage is introduced.

By studying the stories and articles available here free at our Stock Trading Review website, you will be in a position to trade profitably, because you will know, with a high degree of certainty, the position of the market, what the current trend is and how to trade it.

The trading strategies in the articles apply equally to both Stocks and Indexes, and will give you a good grounding in how to trade trending markets.

By understanding how markets trend, you will be in a position to enter and exit trades with a high probability of success in any market or Stock you choose.

Some of the common mistakes and attitudes that uneducated traders and investors make are:

-Not knowing where to start in trading or investing - this can be disastrous.

-Holding losing stocks, hoping they will go back up so they can get out without a loss - some will never recover. Buying on rumour, tips or gut feel…always a great way to the poor house.

-Continually trying to land a ‘home run’ to make back their previous loses.

-Selling stocks early as they start to rise - of course YOU won’t do this, due to your understanding of trends, will you?

-A feeling that the market is against you. The market has no memory, it doesn’t know or care about you, it just ‘is’.

-Buying expensive software programs that don’t work - these just make the vendors rich and can be counter productive. All too often, people jump into trading head first without a thorough understanding of exactly how they are going to approach the market. The result is usually nothing short of disastrous.

A successful trader treats trading as a business. The first step in the process of becoming a profitable trader is to construct a business plan, much like one that you would use for a conventional business.

A business plan to a trader is known as a trading system, and like a business plan it is used to define the exact strategy of actions that are used to create a profit.

The key to successful trading is a properly implemented strategy, not subjective decisions based on your opinion of the market or the news of the day. The three key ingredients to becoming a successful trader are:

1) A proven trading system, either one you create and perfect yourself or someone else’s

2) The tools to implement the system - adequate capital, access to market information, etc.

3) The ability to implement the system, including the mental toughness to trade the market again after a series of losses These three steps to becoming a successful Stock trader are discussed in detail through articles and charts on this website -StockTradingReview.com.

If you would like to learn more about how to trade profitably, please feel free to read the articles on our site.

I hope this lesson helps you in your understanding of how to trade Indexes. If you have any questions, please email us by using this contact form and we will do our best to answer them for you.

We sincerely hope that our website helps you to improve your trading results and build your wealth - that is our wish for you.

To Your Trading Success,

Tony Spann and Stock Trading Review Team

Stock Trading Review is dedicated to helping you succeed as a trader by sharing with you simple and easy to follow tips and techniques.

Discover more insider secrets and the exact proven strategies to trade stocks profitably: http://www.stocktradingreview.com

Copyright(C)2005 Stock Trading Review

Suppose your position has made a big move and you moved your stop to your purchase price as recommended. Then let’s say your stock continues to make a big move and now we’re asking again the questions we asked back in the first paragraph. The first profit taking technique you can use is a trailing stop. If you moved your stop to your purchase price, then you’ve already used a trailing stop. Now you can continue to move your stop up as the price rises until the market “stops” you out of the position. So in essence, what you’re doing is letting the market decide when to take profits.

Bear in mind that you don’t have to use the same price gap that was used when you first set your stop. That initial move was done to protect your account – once you’ve taken the threat of a losing trade away from your account, you can do most anything with your stop after that. One approach that some traders use is to place their stop at the half way point between their purchase price and the present price. This approach is giving half of your profits back to the markets, but it’ll keep you in the market longer giving the stock plenty of room to move. A variation of this approach is to move up your stop to the 75% profit level after a period of time has elapsed.

Another profit taking technique for traders is to use a reward/risk ratio. This is a sound approach that is used more often in short term trading. The way it works is that you determine what amount you are going to risk on a given trade and then set a profit objective expressed a multiple of that risk amount. For instance, suppose you’ve bought 100 shares of IBM at $50 per share and you’ve determined that your stop will be placed at $47.50. This position has a total risk level of $250 to your account. If you’ve set your reward/risk ratio at 4:1, then this means that when the price reaches $60 and your profit is $1000 (4 x $250), you will take profits. Note that using this approach with a 4:1 ratio would only require you to hit one trade in five to break even – a 20% winning percentage.

One last profit taking approach you may want to consider is taking partial profits on that first strong move. In other words, when you get that first move in your favor and you move your stop up to your purchase price, you may want to sell half of your position and take some profits early. You then let the remaining position run using trailing stops until the market stops you out. This approach is used by many swing traders and will result in more winners, but the profits will be smaller. But remember, smaller profits mean that you need more winners.

Chuck Cox is a Technical Writer and Industrial Scientist by professional with a background in statistics. He has used mathematical and statistical methods to invest and trade in the stock, futures, and options markets. Chuck has owned various businesses and presently operates several websites. To learn more about trading the markets, visit his website, http://www.earncashathometoday.com/trading-stocks.htm

Regardless of the fact that the world’s stock markets have shown absolutely no growth between the date of writing this article (Late April 2005) and the late 1990s, they should still be looked at with more than just a sideways glance.

Speak gently to them, speak well of them to your friends, learn to trust them, cuddle up close and get to know them - and they will reward you in a way that the banks, mutual funds (Unit Trusts in the UK), pension funds and insurance companies never can or will.

The Personal Stock Market Revolution is here, and it’s here right now - on a computer screen near you.

You see, thanks to the internet and the "information super highway" (now there’s a phrase that’s disappeared in the last few years) anybody and everybody can easily beat the Wall Street professionals at their own game.

And it’s so simple, even a child could do it.

Seriously, even a child could do it.

Everything you need to trade or invest on your own account is just a click of a mouse button away and it’s online right now waiting your command - in fact there’s so much information, there may even be too much.

This is the first in a series of articles about the Stock Market and what it can do for you - if you learn to love it allow it to be your friend.

So stop being afraid and jump on in - you’ll never regret it.

But before we progress, let’s put some semi-negative thoughts into your head and then in the next article we’ll try and expel those thoughts and get you thinking positively.

For example, the world and his dog knows…

Over the past few years the world’s stock markets have been in a "slump".

OK, ok - you’ve got me there. Yes its true (after a fashion). Here are the facts:

At the time of writing the US Dow Jones Industrial Average (the Dow) closed last evening at 10198 - more or less exactly the same as it’s close on the 5th April 1999 (10174) - That’s what appears to be 6 whole years with no growth.

At first sight your probable first reaction is; that looks awful, and I’d be inclined to agree.

But as with all "bareboard figures", the truth is often concealed behind the headline.

Here’s the truth behind the figures you see in the media…

You may or may not know that when looking at the stock markets with a view to profiting from them, you can take almost any time frame you wish - the markets are in a constant dynamic state of change.

It moves by the second, the minute, the hour, the day, the week, the month and the year and whenever it moves there is money to be made (and lost by some - ask the Enron investors, including a lot of very large pension funds in America).

But for the sake of convenience and space in this article, we’ll just look at the weekly time frame over the year (59 weeks) from April 1999.

The Bare "Headline" Facts:

However, during that 14 months…

So, althought the Dow only "officially" moved 125 points during that 14 month period, there were at least 6 potential trades for a total of 7851 points.

Put another way, the Dow during that 14 month period acually moved up and down for a total of 77% of it’s starting points total.

Quite staggering.

And each one of those points could have been dollars in your pocket (or any other currency, because wherever you live in the world you can trade any stock market you wish - and profit from all of them)

Sounds weird?

I’m sure it does, but you’ll soon get the hang of it.

Remember what I said earlier?

"It’s so simple, even a child could do it"

So maybe it’s time to re-discover the child in you and profit accordingly.

In the next article, we’ll compare the performances of the highly paid Wall Street fund managers and analysts.

But make sure you sit down before reading it - you’ll be shocked at just how bad they are!

More next week…

Geoffrey Cummins is a full time stock market trader and has spent the last 12 years developing what he calls his "weedy little spreadsheet trading system", giving him some unique insights into the working of the world’s stock markets.

Under pressure from friends and family, Geoffrey is now making his unique insights and trading signals available to a worldwide audience.

No wild claims, just common sense advice and the best Risk Free Trial (a full 90 days for less than $5 a week) on the internet all backed up by his unique 3 part / 300% guarantee.

If he doesn’t provide you with a minimum return on your investment of 300% (the banks best offer is 3%. Not guaranteed) - he’ll give you your money back. No questions asked

The TriggerSystem®

©Geoffrey Cummins 2005

Outlined below are some of the advantages and disadvantages of mutual funds. Every investment has advantages and disadvantages. But it’s important to remember that features that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances.

For some investors, mutual funds provide an attractive investment choice because they generally offer the following features:

Professional Management:

Professional money managers research, select, and monitor the performance of the securities the fund purchases.

Diversification:

Diversification is an investing strategy that can be neatly summed up as "Don’t put all your eggs in one basket." Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds.

Affordability:

Some mutual funds accommodate investors who don’t have a lot of money to invest by setting relatively low pound amounts for initial purchases, subsequent monthly purchases, or both.

Liquidity:

Mutual fund investors can readily redeem their shares plus any fees and charges assessed on redemption at any time.

But mutual funds also have features that some investors might view as disadvantages, such as:

Costs despite Negative Returns:

Investors must pay sales charges, annual fees, and other expenses regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive - even if the fund went on to perform poorly after they bought shares.

Lack of Control:

Investors typically cannot ascertain the exact make-up of a fund’s portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.

Price Uncertainty:

With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock’s price changes from hour to hour - or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund’s net asset value, which the fund might not calculate until many hours after you’ve placed your order.

Making any sort of investment involved a certain amount of risk so it is always wise to seek the advice of a professional before making any decisions.

You may freely reprint this article provided the author’s biography remains intact:

John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the http://www.directonlineloans.co.uk website.

Sidney felt sick as she looked at her latest OptionsXpress trading statement. In just 8 months, she had managed to turn her $120,000 account balance into less than $70,000.

Tears welled up in her eyes as she realized that the financial freedom she so desperately sought was slipping uncontrollably out of her grasp. For the first time since the accident, she felt desperately fearful of the future.

How would she be able to keep custody of her two young children, Paul and Sara, without an income once the money was gone? She just knew her violent ex-husband, Tom, would file for custody as soon as he discovered that she had no way of providing for her children, and then she would be on her own. Her situation seemed hopeless…

12 months earlier, she had received a compensation payment for a work related accident and at the time had no idea of what to do with the money.

Her injuries were so severe that the likelihood of her working again in the near future was slim at best. She needed financial advice, but who to turn to, she had no idea.

A well meaning friend had mentioned an options trading course he had attended and suggested that trading might be a way for Sidney to earn above average returns on her compensation payment money, as interest and dividends would not be able to provide enough income for the family to live on.

She thought about it for several weeks, $5000 was a lot of money to put up to learn something that seemed totally foreign to her. Her other friends, when asked for their advice, warned her not to even consider options trading - it was a casino and everyone who ventured there lost their shirt.

The thought of extra returns however was too much for her, so she signed up for an upcoming course and hoped she could learn enough to succeed where so many others had failed.

The weekend course came and went in a blinding flash of trendlines, moving averages, support and resistance and Bollinger bands. She didn’t know what had hit her.

At home the following day, she sat and stared at the course materials and was more confused than ever about options and spreads, puts and calls.

She looked at her two young children as they slept peacefully and decided that she simply HAD to get this right - she could see the potential - the course presenter had shown them trading statements showing profits of up to $25000 on a single trade, and no losses, so it was possible.

For the next two weeks, she read and re-read the course notes and listened to the CD’s of the event she had received in the post after shelling out another $1400 at the seminar for them.

It finally started to make some sense for her one Saturday afternoon when her seven year old daughter looked at the chart she had on her computer screen and said, "That line is going up, Mommy, what is it?"

She looked into her young child’s eyes and smiled, thinking "How simple was that?" She had just written out a trading plan for a put option trade based on her analysis of that very chart - she thought the price would go down; how wrong would she have been?

She stared at the chart for several long minutes and then she saw it.

She had been told that the safest place to buy put options was on the first lower top - at the start of a downtrend. However, she also had been told to place a 30 day simple moving average on the chart and never to trade against the direction of that indicator. The Stock had made a lower top, but the trend was still up.

These two conflicting filters had confused her until now. She re-read her notes and found that she must never trade against the direction of the 30 day moving average.

She felt like she had discovered the Holy Grail of trading.

She went back over her charts and looked at the 30 day moving average on each one - in all cases, that had been the trend direction and it just kept going - she had been trading against the trend! If she went with it she would be raking in the profits in no time.

Armed with this new insight, she decided that she would take the next trade that presented itself with real money and she was sure she was on her way.

The opportunity duly presented itself. She bought 10 (no use starting small) MSFT (Microsoft Corp) July Calls for $1.12, a total outlay of $11,200 plus commission.

The Stock promptly fell for three days straight. She panicked and sold the options at what turned out to be the low of the third day for $0.38 cents - a loss on her first trade of $7500! She was shattered. The next day, the Stock rallied and within two days it was at a new high for the move.

What had happened? She had sold at the very low of a reaction to the main trend. How could she have been so stupid?

She watched as the option premium quickly rose to $2.14 without her. This movement consumed her completely and she didn’t even bother looking at her other watchlist Stocks - she was mesmerized by the one that got away.

The Stock continued to climb, as did the option premium - $2.85, $3.41, $3.82. Each day she watched as it doubled, then tripled her original stake. She cried - why?

It seemed the trend was going to continue forever, so she decided to get over it and buy some calls at the bottom of the next 3 day reaction - yes, that was it.

The Stock was having reactions of 2 and 3 days, so at the end of the next one, she would buy calls and make her lost money back.

That week, the price of MSFT started to come off a little, and had three big days down.

She bought 20 MSFT calls (well she had to get her money back, didn’t she?) at a much higher strike price than the last ones and paid $1.31 for them, expecting the rally to come the next day.

Overnight, the US market fell 4% after terrorists attacked a Government building and threatened more similar attacks in the weeks and months that followed.

Sidney woke up to see the carnage in the US Stockmarket and just knew it was going to be a bad day.

MSFT opened down $1.30 along with the general market. Her call options were bid at $0.40 cents.

She remembered the last time this happened - she had sold in a panic. This time, she decided to hold on for a better price. The Stock continued to fall. The rally never came this time - the season had changed in the Stock Market.

Sidney held those options all the way to expiry - to zero, because she didn’t have the stomach to take another loss like the last one. In two trades, she had lost over a quarter of her compensation payment. Things looked grim.

Her trading continued on for the next few months in much the same way. Small profits, large losses.

She frequented the trading forum of the group that had held the seminar but couldn’t find any answers there either - most of the traders who posted comments were in the same boat.

Her friends kept saying "I told you so!" so she stopped hanging around with them. She was consumed with getting this thing right and nobody was going to stop her.

Then came that fateful day when she opened her monthly Options Account statement and saw the account balance had dipped below $70,000.

She wept uncontrollably for hours that day. She had failed. Her kids would be taken away by her ex husband and there was nothing but black for as far as she could see into the future - her life looked bleak.

In the midst of this horrible experience, her 12 year old daughter came home from School and found her mother in tears. "What’s wrong mom?" her daughter asked. "Oh, this option trading will be the death of me darling," Sidney sobbed.

"Why, what’s happened?" Sara asked. "Every time I buy an option, it goes down in value," her mother answered. "Who do you buy the options from, mum?" Sara asked after some thought. "Other traders," Sidney answered.

Then Sara said the most profound thing Sidney had ever heard a child say, "Mom, it sounds like those other traders are getting the best deal, and you are getting ripped off. Why don’t you do what they do?"

Sidney was about to explain why she was an option buyer instead of a seller, but stopped mid thought when she realized the power of what her daughter had just said.

Of course, every option that she had ever bought and then sold at a loss had made a profit for the seller, at her expense. She was speechless…

She had to change her strategy - immediately! She would become a writer of covered calls and sell options to others.

The next day, she went to the library and found three books on option writing and studied them cover to cover. It was simple…she would become an option writer and take the profits from the punters expecting extraordinary profits that rarely came.

To do this, she would start buying Stocks and writing covered calls over them. But which ones. She studied the pages of Investors Business Daily, looking for the options with the highest volatility, because she knew from her studies that she had to sell high volatility options to get good premiums.

She also wanted a low Stock price so she could buy more than a couple of thousand of them to minimise the effects of Brokerage fees on her profits.

The US options market appeared to be a goldmine for sellers because so many Stocks tended to hold strong trends, while still offering good premiums for their options - apparently many traders expected the trend to change every day, therefore bidding up the prices of options that were clearly not going to make them a profit if the trend continued - Sidney would use this to her advantage.

After careful study and several weeks of research on the Internet, Sidney chose one Stock to focus her initial attention and looked for a buy point.

Please Note - the following example is for illustration purposes only and does not constitute a recommendation to buy the Stock mentioned or any other Stock for that matter - please do your own research before undertaking any investment strategy mentioned - we cannot give you investment advice.

She waited for the trend to turn up, and bought 2000 Airtran Holdings (AAI) at $4.30 in January 2003 as the Stock had appeared to start a strong rally. The charts below show the trades Sidney took in this Stock. (Charts available at StockTradingReview.com)

She wrote (sold) 20 January $5.50 strike call options (one option contract covers 100 Shares) and received $440 after Brokerage.

Three weeks later, the Stock was trading at $6.00 (point 2). The options were exercised, as they were in-the-money at expiry and Sidney was forced to sell her Stock at the strike price of $5.50, netting herself a capital profit of $2400 plus the option premium of $440, a total of $2840 for three weeks or around 33% on her invested capital for the period!

She was hooked. "That was more like it," she thought.

She immediately bought 3000 more AAI and wrote 30 February call options with a strike price of $7.00. She received a total premium of $670.

The Stock price basically tracked sideways for that month, and the options expired worthless (point 3). "AHA," the light was coming on for her.

"That used to be me," she thought to herself, as she called the Broker and sold another batch of $7.00 strike price options, this time for March expiry. Another $680 was deposited into Sidney’s trading account. "Every little bit helps," she thought.

The Share price rallied during March, but come expiration day, AAI again failed to close above $7.00. The options expired worthless and Sidney again kept the premium (point 4).

Sidney’s total profit so far was $4190. And it had only taken her a few minutes a month to earn this income. "How long had this been going on," she thought to herself.

The buyers of all those options had to sweat out weeks of time decay only to receive a small profit in one case or a loss at the end of the time. "That used to be me!"

She decided to increase her stake, and purchased an additional 3000 AAI Shares at $6.85 at the beginning of April (for a total of 6000 shares). She then wrote 60, $8.00 strike price call options for a total premium of $1240, and then just waited for expiry.

On the day of expiry, the Stock price closed at $7.85 (point 5) - she again kept the all the premium and the buyers of those options lost all of their stake.

For May, Sidney sold 60 more call options at a strike price of $9.00 as the Stock continued to rally.

Her premium income was $1195. The Stock price moved sideways for the month and the options again expired worthless. (Charts available at StockTradingReview.com)

Sidney bought another 2000 AAI in June and wrote 80 $9.00 call options. Her premium income was $1585. She sold her call options a long way above the market because it looked like the trend was accelerating and she didn’t want to leave too much profit on the table by selling them too low.

During the month, the Stock did indeed rally strongly and closed on the day of expiry at $10.47 (point 6). Her call options were exercised and she received a total of $72000 from the sale of her Stock.

For July, she immediately reinvested this amount plus a little of her own funds and again bought 8000 AAI and wrote 80 call options with a strike price of $12.00.

She wrote a higher strike price this time around because the trend appeared to be accelerating and she didn’t want to miss out on too much capital growth if it continued to rally.

Her premium income was much less this month, due to the options being further out-of-the-money than previously.

She only received $650, but with the trend accelerating, she was confident that she would be exercised and stood to make a good capital gain if she was right. The price didn’t quite make it, closing at $11.83 on the day of expiry (point 7)…

She continued to buy more AAI Stock and write call options during August and September. Her total profits and premium income from trading this one Stock and strategy have made back nearly three quarters of her losses from the previous 8 months. Plus, she now had a good income to live on. Her children would be able to stay with her and the future looked much brighter.

The Stock continued to climb in price to above $20 and Sidney rode it all the way, writing call options over her ever increasing portfolio. When the trend eventually changed, she sold this Stock and moved on.

Sidney can now confidently continue to build on this initial success using other Stocks that are rising in price. There is a large universe of Stocks that are both optionable and often trend strongly, which give traders huge opportunities to profit from this strategy.

There are of course some ground rules to follow, but the fact that 85% or more of out-of-the-money options expire worthless puts the balance of probability on the side of the writer rather than the purchaser in most instances.

Some things to consider are -

1) When considering writing covered calls, always buy Stocks that are trending higher - if the 30 day moving average is rising and the price bars are above it, the trend is currently up - that doesn’t mean it’s going to continue in that direction but you will be trading with the balance of probability.

2) Always have a stop loss order in the market in case the trend reverses and you have to exit the Stock. You will have to buy back your sold call options prior to selling the Stock as the Shares are held as security by your Broker.

3) Start off slowly and build your position over time. Continue to look for covered call writing candidates and switch Stocks if you find something better than the ones you are currently trading.

I trust this example has given you an insight into writing covered calls. It is often a lower risk strategy than straight buying Stocks or options. It can provide a great income stream for people to live on or to build wealth for the future.

To Your Trading Success,

Tony Spann and the Stock Trading Review Team

Stock Trading Review is dedicated to helping you succeed as a trader by sharing with you simple and easy to follow tips and techniques.

Discover more insider secrets and the exact proven strategies to trade stocks profitably: http://www.stocktradingreview.com

Copyright(C)2005 Stock Trading Review

This is a guide to the different types of mutual funds. When it comes to investing in mutual funds, investors have literally thousands of choices.

Before you invest in any given fund, decide whether the investment strategy and risks of the fund are a good fit for you. The first step to successful investing is figuring out your financial goals and risk tolerance - either on your own or with the help of a financial professional. Once you know what you’re saving for, when you’ll need the money, and how much risk you can tolerate, you can more easily narrow your choices.

Most mutual funds fall into one of three main categories - money market funds, bond funds (also called "fixed income" funds), and stock funds (also called "equity" funds). Each type has different features and different risks and rewards. Generally, the higher the potential return, the higher the risk of loss.

Money Market Funds:

Money market funds have relatively low risks, compared to other mutual funds. Investor losses have been rare, but they are possible. Money market funds pay dividends that generally reflect short-term interest rates, and historically the returns for money market funds have been lower than for either bond or stock funds.

Bond Funds:

Bond funds generally have higher risks than money market funds, largely because they typically pursue strategies aimed at producing higher yields. Because there are many different types of bonds, bond funds can vary dramatically in their risks and rewards.

Stock Funds:

Although a stock fund’s value can rise and fall quickly (and dramatically) over the short term, historically stocks have performed better over the long term than other types of investments - including corporate bonds and government bonds.

You can purchase shares in some mutual funds by contacting the fund directly. Other mutual fund shares are sold mainly through brokers, banks, financial planners, or insurance agents. All mutual funds will redeem (buy back) your shares on any business day.

Making any sort of investment involved a certain amount of risk so it is always wise to seek the advice of a professional before making any decisions.

You may freely reprint this article provided the author’s biography remains intact:

John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the http://www.directonlineloans.co.uk website.

04/28/2005

NASDAQ dropped -12.5% year to date in 2005. S&P500 index suffered -5.7% this year. US stock market has been terrible over past few months.

Not only general market is down, oil stocks recently had a significant correction as well. It is easy to be nervous because of the short term setback. However, to succeed with long term oriented value investing, we can not be distracted by the volatile short term market movement. It is time to step back and look at the big picture of the current stock market and review investment strategy to profit in this kind of tough environment.

Stocks in General and Oil Stocks

Below chart is past 1 year performance chart between Energy Index ETF (ticker: XLE) and S&P500 index (ticker: SPY). By looking at the chart, even a fool will know that oil market is booming while US stock market in general is struggling.

Simply put, the current US stock market is not in bull market. The heydays of 1980’s and 1990’s when anyone can simply put some money in S&P500 index fund or a decent US mutual fund to earn 10% to 20% plus annual performance is long gone. I expect for the next 8 to 10 years, the US stock market in general will be stagnant.

If you have believed that 20 years of stock market performance between 1980 and 2000 is stock market average performance, then you will be shocked to know that just before that period in 1960’s and in 1970’s, US stock market went nowhere. Dow hit 995.15 in 1966 and Dow was back to 800 in 1982. If you were the long term investor who invested in Dow index fund between 1966 and 1982, you got a negative -20% return overall for your 16 years of loyalty, how would you feel about that ?

Still remember the NASDAQ peak of 5000? In my opinion, NASDAQ is screwed up index with full of expensive stocks even today. I predict that we may have to wait another decade to revisit NASDAQ 5000.

Current Stock Market Average Valuation is Not Cheap

Currently SP&500 index trades at about 17x average PE today. Although this valuation is not terribly expensive, it is not that cheap either.

Over past 100 years of US stock market history, market usually bottomed at average PE of 10. That happened in 1974 or 1929 or 1980. We are not there yet, not even close over past 5 years even though the technology stock bubble bursted in 2000. In a major stock market bottom, we should see plenty of big cap stable companies trading at PE of low teens. Now look at this: Coca-Cola (KO) PE 20, Walt Disney (DIS) PE 24. Even worse, a no-growth stock like Sun Microsystems (SUNW) is still trading at premium PE of 19.

What is the Overall Earning Outlook of US Stock Market?

Even though the current stock market valuation is not that cheap, if earning is good, market should do fine.

Are we going to get excellent overall earning outlook in the next few years for the US stock market in general? Unfortunately, my answer is no. My take is that US stock market earning overall is decent, but not good enough to trigger a bull market. This market is still digesting the past bubble over-valuation coupled with poor earning outlook.

Here is one reason of my not-so-enthusiastic earning outlook: the rising oil and commodity prices.

The Booming Commodity price

Commodity and oil market has been booming since 1999 and the high commodity price is taking toll on overall stock market earnings. Companies need to pay more for the things needed in business: steel, copper, oil, natural gas etc. Historically, when commodity market was shining, stock market did not do very well, and vice versa. In 1960’s and 1970’s, oil and commodity had bull market run for nearly 20 years while Dow Jone index had horrible performance for nearly 20 years. From 1980 to 2000, the stock market soared while oil hit as low as $15.

The Bull Oil and Commodity Cycle Could be Very Long

Jimmy Rogers is famous investor who co-founded Quantum Fund together with George Soros. In his recent book titled "Hot Commodities", he is predicting that the current commodity bull market can last until 2013 strictly due to supply and demand.

In one chapter of the book titled "Goodbye, Cheap Oil", he clearly lays out the reasons why oil and natural gas bull market can last until next decade. This is as simple as supply and demand: rising demand coupled with declining supply.

The supply of oil and natural gas was diminished partly due to extremely low oil and gas price in 1990’s. Over past 35 years, there was no major oil discovery in the world while the old oil fields deplete. Oil and natural gas production level of a well does not stay flat over the life of a well reserve. The production level of a well actually declines gradually due to geophysics of oil well until the reserve is fully depleted. Even there is new oil field discovered, it will take a decade after the discovery to actually produce oil! Increasing supply to meet demand is a very difficult and slow process.

Coupled with declining supply, the demand of energy from China doubled since 1990 consuming 8 percent of world’s oil in 2004. US economy is growing with increasing oil demand year over year while US oil production has seen sharp decline over past 50 years.

Still the oil price is not that high on historical basis. Even with today’s oil price of $50 a barrel, the oil price is still significantly lower than the inflation adjusted peak price of $90 a barrel in 1970’s.

Value Investors Do Not Need a Bull Market to Make Money

As scary as the potential trouble in stock market, this kind of tough environment is great money-making time for value investors to pick up cheap shares.

Warren Buffet is the greatest value investor in the world. He averaged 20% annual investment performance over past 50 years. However, Mr. Buffet’s performance in bear market of 1960’s and 1970’s was actually 30% per year return, much higher than his average performance.

Focus on Dirt Cheap Stocks and Booming Commodities Market

Stocks do not go straight up or go straight down. There will be huge run up or sharp sell off in short term. While market is not in good shape, this is and will be wonderful time for long term oriented value investors.

Commodity price is volatile. Just like stock market, commodity price does not go straight up or straight down. Although oil price weakened recently, I firmly believe that oil price is not going back to cheap oil price below $40 a barrel. As long as oil and natural gas prices stay high, oil stocks will do fine in its business. As painful as the recent sharp sell off in energy stocks, energy stocks in general are still very cheap and my investment strategy is to continue to stay long term oriented in them.

In the short term, it is very hard to know when a stock will go up or go down. But I do know that valuation and earning matters and investing in cheap stocks trading significantly below market average will be rewarding in the long run.

Article by Henry Lu of BlastInvest LLC, a premium investment newsletter publisher in Connecticut. Visit http://www.BlastInvest.com for FREE "how-to" investing assistance, web services and more.