I love roller coasters. The steeper the better. High and fast and curvy. Yahoo! Let’s go again. But to get to the drop off point you have a slow grind up.

Kinda reminds me of the stock market for the past 3 years. From 1982 to 2000 it was 18 years of up, up and away with very little down. From 2000 it was over the edge, down, down, down with few hints that we are going up. Recently, since October, there has been a respite and we have seen an advance of about 25%. Can we get back to the top? Gosh I hope so, but I have to remember this is a roller coast and it goes back to where it started. Oh, NO! That is OK for amusement rides, but in the stock market that is not amusing.

In the roller coaster I expect to be let off where I got on, but in the stock market I want to stay up near the top because if I don’t I will lose my money and that is no fun at all. Is there any way I can protect my money when I am near the top and not give it back to go to the bottom where I have to start all over again?

The first thing you need to know is whether the stock market is going up or down. Despite what Wall Street tells you this is relatively easy to do. I know because I have been doing it for years. Here is one simple way and won’t require any work on your part. In the Investor’s Business Daily newspaper there is a Mutual Fund Index. When the price of the index is above the 200-day moving average the market is going up and you will want to be a buyer of stocks and mutual funds. What you buy is up to you. When the price of the index is below the 200-day line you should sell out of everything and be in cash, money market account or bonds. That simple. Anyone can do it.

One of the big Wall Street lies is that you cannot time the market. Wrong. If you don’t believe it you can prove it to yourself by doing a historical study of what I have just said. Buy as many shares of the S&P500 Index as you can with $10,000 starting back in 1998 and sell the shares each time you have a penetration of the IBD Index. Buy and sell going back as many years as you like. Now compare the amount you have using this method with that same amount if you had just bought it and held it continuously.

I won’t tell you, but you will be in for a shock. Buy and hold will show a loss while getting off the down roller coaster each time weakness occurred you would have protected your investments.

Roller coasters can be fun, but not in the stock market.

Al Thomas

Author of "If It Doesn’t Go Up, Don’t Buy It!"

Never lose money in the stock market again.

http://www.mutualfundmagic.com

I go to the Money Show every year to visit with friends who have booths and are speakers. Then when folks are filing out of lectures I listen to their comments on what I know the speaker has been saying.

The Money Show is for investors from all walks of life; however, my guess is the median age is close to 60. Those who go have accumulated a nest egg and now are retired or very close to retirement. They came to learn more about how to make their money grow.

Last year there were 256 separate events not counting what was given in the Exhibition Hall. Almost without exception speakers were showing how cash can accumulate faster if the listener bought his product whether it was a mutual fund, stock, bond, partnership or who knows what. Are there that many money makers out there?

One speaker had an hour telling the market was due to crash and the thing to do was buy long term put options. He also said if you would not do that to buy some government bonds which were paying about 2 to 3%. The exit comments I heard were pretty well summed up by one lady who said, “Is he nuts. How can we live off 2%?”

When you are in a bear market the old saying is, “He who loses the least is a winner”. No, you can’t live on that small a return, but you can lose large sums by trying to be invested at all times. There have been many years in the past where cash with no percent return beat the heck out of the stock market.

Go back to 2000 and remember the NASDAQ lost 78% of it value in 3 years. Since March 2000 investors in the 50 hottest-selling mutual funds have lost an average of 42% according to the Lipper Analyst. Fidelity Magellan, the largest fund at that time remains a loser of 23% and Janus, 4th largest, is down 45%.The Buy N Holders have still not recovered their investments.

If you had sold out near (I did not say at) the top, say within about 10 or 15% your account would have been pretty darn healthy when it finally did start back up. You would not have lost 30 to 40% or more of your hard-earned money. That is what I refer to as a “reverse profit”.

If you had put a loss limit on your portfolio of 10% on each position and taken out just enough to live on it probably would that have been less than letting it stay invested in the market? You can easily check that.

Putting 100% of your money in a money market while the market is declining does not mean you are not invested. You are invested – in cash. This protects your savings from huge losses that can and do occur regularly in market cycles. I have written about those 16-year cycles previously.

The smartest investors set a limit from where they bought from the highest price their equity has reached as to where they will sell if it starts going down. Usually 10% is the rule of thumb, but it can be 5% or 20%. That is your choice.

All investors must learn that cash is a position or they are sure to lose their money.

Copyright 2005

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

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

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

How many times have you said to yourself, “I’d like to quit this job and just make a living trading in the stock market”? Well, maybe you can, BUT…

There a few things to consider.

First, you have to have enough money to generate the income you need for your daily expenses and that amount is going to vary considerably depending upon the trading system. Shorter term methods will require less starting capital than longer term trend following or momentum systems. I am not an advocate of day trading. It takes a certain type of a very disciplined personality. Even though I was an exchange member I did not stand in the pit and makes scores of trades each day. The long term worked for me.

How much income do you need? $50,000, $100,000, more? Based on your starting capital what kind of profits can you expect?

Once you have decided on any system you must get to know it and should paper trade it for 6 months before putting real money on the line. Assuming you have a successful method you then must have the discipline to follow its rules even when you think they are wrong. You must take every trade. There are hundreds of systems and the magazine Futures Truth follows about 300 and prints their returns every 2 months.

The easiest method is a momentum system with stop-losses built in to reduce your draw down during a bad trade. Even the best system only wins 50% of the time or less. The closer (more frequent trades) you get to the market the more random it seems. That is called noise and it can drown you out.

You won’t need expensive overhead as you can work from home, but you will need a high speed computer, maybe more than one, with good software. In some places brokerage companies will provide a workstation for active traders.

The most important thing about trading is having a good exit strategy. Staying with a losing position will break you every time. You must keep losses to a minimum.

The size of the position you take is another factor. If you decide never to risk more than one or 2% of your total assets on any trade that will determine the number of shares you can buy. If you have $100,000 and limit your risk to 2% ($2,000) using a 10% stop loss then you can buy 10,000 shares of a $2.00 stock or 200 shares of a $10 stock as your 10% loss will come to $2,000 (2%) in each trade.

There are many other considerations to trading for a living and one of the most important is your emotional stability. How will you handle those losses? Can you stand 5 or 6 losing trades in a row? Or more?

I know the answers to all these questions because I have been there and done that and I do not recommend you quit your job to do it.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

1-888-345-7870; al@mutualfundstrategy.com

That sounds like good advice doesn’t it? Don’t lose all your money.

After all what is an investor without funds in the brokerage account? Hint: BROKE!

On the subject of investing, this means getting out of a trade when it goes against you. Don’t lose all your money. This is the MOST important thing any investor can do. Cut your losses before you’re broke. It’s easy to do, but some investors find it hard to implement. Don’t become so attached to your buying decision that you ignore this advice.

Set a stop loss figure on every stock or investment you have. Decide on how much you are willing to lose before you buy. All brokerage accounts have a way to set a stop loss. You can do this right in your account so that it’s triggered automatically.

Use an actual price or a percentage. Take the time to learn how to set up a stop loss order or trailing stop in your particular brokerage account. Or if you have the time and stick-with-it-ness to monitor your account on a regular basis (like all the time), keep track of where prices are mentally.

Here is an interesting chart that shows how much an investment has to go BACK up for you to get all your money out.

Take a look at this…

If the price per share goes down 10% - the stock has to go back up 11% for you to get back to even. Not convinced yet?

…down 20% - the stock has to go back up 25%.
…down 25% - the stock has to go back up 33%.
…down 50% - the stock has to go back up 100%.
…down 75% - the stock has to go back up 300%.
…down 90% - the stock has to go back up 900%.

Looking at this would suggest you are gambling if you set a stop loss at more than 25%.

Bottom line is, don’t fight the trend and the hard reality of numbers - Use a stop loss to get out of any investment that goes bad. Don’t lose all your money!

Tom Donaldson shares his investing experiences on his Panglossian Investor Blog and invites you to join the Panglossian Investor discussion group.

Stock trading remains a very competitive field and the stock market doesn’t care if you are an experienced stock trader or an aspiring one. The rules and the trading opportunities are the same for all of us, so either youre going to make money when you pick a stock and make a trade, or you are going to lose some of it in favor of the more seasoned traders.

As an online stock trader your homework is all about studying and testing different online trading strategies that can help you take advantage of stocks and at the same time protect your profits. Just always keep in mind that a good stock trading strategy is simple and practical. Complicated stock systems will always make you slow in your decision making process or confuse you from the start.

There are some very good sites on the web where you can access practical stock trading strategies that are easy to implement. One of those sites is Stress Free Traders http://www.stressfreetraders.com

They focus on momentum stock trading strategies that can help you identify and handle hot stocks while reducing your trading risk.

All in all, online stock trading is all about picking the best stock opportunities and following your buy and sell signals with ease and simplicity. Once you learn to master your trading decisions, you can aspire to produce consistent profitable results.

Learn how to stock trade in a practical way at Stress Free Traders http://www.stressfreetraders.com

StressFreeTraders.com helps day traders from any part of the world how to pick and trade stocks to maximize profits.

It is called "dividend capture". This strategy is executed when a trader buys a stock just before the ex-dividend date, so that he or she will be a shareholder of record on the record date, and will receive the dividend. Because the stock falls by the amount of the dividend on the ex-dividend date, the strategy calls for the trader to then wait for the stock to move back to the price where he or she bought it before the ex-dividend date. At this point, the stock is sold for a break even trade. Thus the dividend is received, or captured by the trader with no further exposure to the movement in the stock price after it is sold for a break even.

When attempting to execute this short term trading strategy, look for stocks with high volume, and a relatively large dividend payment. Higher volume facilitates exiting the position without affecting the stock price. The high dividend allows for more profit potential. Use of a discount broker is also beneficial as it will reduce the overall cost of the trade, and increase the return of implementing the strategy. Please note that this is an aggressive trading strategy, and not appropriate for everyone. Study the concept. "Paper trading", or practicing the strategy before using actual money is always a prudent step when implementing new strategies into your portfolio of trading tools.

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Then visit our sister site for even more great trading tips at: http://fastprofits.blogspot.com

The sentiment indicators in mid-October suggested most investors were expecting the market to fall further. However, sentiment is a contrarian indicator. Currently, many sentiment indicators are far less bearish. For example, the latest American Association of Individual Investors data showed 43% are bullish and 28% are bearish. Last week, 32% were bullish and 46% were bearish.

The chart below is an SPX daily year-to-date chart. The current SPX pattern is similar to the late May pattern (see vertical line). The similarities extend to indicators within, above, and below the price chart, and many exogenous technical indicators. One notable difference is the current rally is about two weeks ahead of the previous rally.

The steep rally suggests consolidation next week and the following week, until options expiration in two weeks. SPX closed at just over 1,220 Friday. Short-term resistance is at the extended Price-by-Volume bar at 1,220 to 1,230. Short-term support is at the 50 day MA, currently at 1,210. So, SPX may trade in a narrow, and volatile, 1,210 to 1,230 range over the next two weeks.

November Max Pain expirations also support a consolidation. Some November Max Pain points and values are: SPX 1,205 with the value of puts over six times greater than the value of calls (which is bullish, since the put/call is a contrarian indicator). OEX (S&P 100) 555 with the value of puts roughly 50% more than the value of calls. OEX closed at just over 562. QQQQ 39 with the value of puts over 100% greater than the value of calls. QQQQ closed at just over 40. The bullish put/call values suggest these Max Pain points will rise over the next two weeks.

The economic data last week revealed above trend output growth, a better than expected rise in personal income, slow employment growth, and weak factory orders. However, the 4.1% rise in productivity, last quarter, calmed the market. High productivity helps dampen inflation and contributes to profit growth. Inflation and profits have been the two most important factors concerning the market.

Normally, I wouldn’t make a comparison between only two periods. However, the market sometimes creates a self-fulfilling prophesy that works well for a while. Also, the intermediate-term technical indicators are bullish enough for SPX to at least test multi-year resistance at around 1,250 by the end of the year. Moreover, economic growth has slowed and inflation has increased (stagflation may be inevitable). However, over the next few months, the economy will continue to maintain above trend growth, while inflation is generally under control.

Charts available at PeakTrader.com Forum Index Market Overview section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

To find the fair value of a common stock, we need to determine the net profit generated by a firm. Dissecting income statement will give us the steps required to find net profit. One of the critical component of income statement is gross profit.

What is gross profit? Gross profit is the profit obtained after subtracting all variable costs with revenue. For a retail firm, it is the difference between the selling price of an item and the price the firm bought the item. In other words, the difference between what it sells and what it bought.

Gross profit itself does not give us a lot of information about the strength of a firm. Gross profit is frequently expressed in term of percentage. This is called gross profit margin (GPM). Gross profit margin varies among industries. Retailers normally have a slimmer gross profit margin than a software company.

So, how can investors use gross profit margin to analyze a company? Investors can use this tool to explain the competitive strength of a company. By analyzing gross profit margin trend, the health of a specific company can be determined. There are only three trends in gross profit margin. Gross profit margin can go up, down or stay the same. I will explain the implication two of those trends.

Increasing Gross Profit Margin. It is never a bad thing when a firm can increase its gross profit margin. Increasing gross profit margin can mean two things for the company. First, the company has a favorable pricing power. When a firm raise price due to overwhelming demand, gross profit margin will increase. Of course, this assumes that variable costs do not increase. Secondly, increasing gross profit margin may mean that a firm is getting more efficient in production. When price per unit stays the same while the cost of variable unit drops, gross profit margin will increase.

Decreasing Gross Profit Margin. Deteriorating gross profit margin is not favorable to a firm. This normally means two things. First, it may mean that the variable cost has risen due to the change in commodity prices. When selling price stays constant while variable cost increases, gross profit margin will drop. Second, decreasing gross profit margin also implies that a firm has no pricing power. When a firm has to cut price to generate sales, this is not a good thing. When selling price per unit decreases while variable cost stays constant, gross profit margin will decrease.

When estimating gross profit margin for fair value calculation, we need to look at other things such as the industry competitiveness, the firm’s inventory level, new products that are coming out and so forth.

For example, when a firm has a high inventory level, there is a good chance that gross profit margin will eventually suffer. The reasoning is that when you have too much of unsold items, you have to sell it at a lower price (price cut) to clear your inventory. Meanwhile, variable cost stays constant since the item has been produced a while ago.

Estimating a reasonable gross profit margin is crucial in determining the fair value of your investment. If company A historically possess a 20% gross profit margin, you better have a pretty good explanation if you estimate next year’s gross profit margin to be in the range of 60%. Perhaps, a new patented product will be released. Or, its largest competitors may just shut its door, therefore allowing the firm to raise price. Whatever it is, it is important for investors to know what causes gross profit margin to change.

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