In this issue: • Trading to make money vs. being right
• Stop loss orders: more than just taking a loss
• How to properly use moving averages
• How to choose which stocks to trade
Trading to make money vs. trading to be right.
One of the most common problems new traders’ face is truly understanding the fact that losses are a part of the business. Trades that don’t make money are as inevitable as needing air to breath. Here is the key that new traders fail to grasp:
A losing trade isn’t necessarily a bad trade. Trades entered based on a well thought out and written trading plan are good trades, no matter the outcome. Often we ask traders on our trading floor “Would you make the same trade again?” after they exit a trade that was not profitable. If the answer comes back yes we know the trader is on the right track.
A trader who can answer yes to this question is trading to make money. They understand this is just one trade of maybe hundreds they will make this month. A trader who has attained this important mindset will move effortlessly from one trade to the next. Ask yourself if that is how you react from trade to trade.
The trader who gets frustrated and yells at the screen or pounds a keyboard is trading with his ego. He is trading to prove his brilliant analysis correct. The easiest way to monitor if you are trading to be right: pay attention to how flawlessly you exit a losing trade. If you hesitate at all, you have some mental work to do.
Another important question to ask yourself while in a trade: “If I did not have this position, would I want it?” If the first answer comes back NO, and you don’t get out of the trade, you are trading from your ego.
A trader’s maxim: Assess probabilities, put the trade on, let the trade unfold, do what you planned to do.
Stop loss orders: more than just taking a loss
If I had to put a percentage on the time spent on entry signals vs. time spent on exit techniques, I would say its 90-10 entry signals. Learning how to manage a position properly will ultimately be the reason you take home a check every month. Your ultimate goal is to “make what you should” on your trades. Obviously its not possible to get out at the extreme of a move on a consistent basis, but there are some techniques you should use to maximize profits and minimize losses.
Before we discuss specific stop loss techniques we should cover the proper trader psychology for this topic. • The stop loss must be a dollar amount you accept before you place the trade. This small distinction will be a huge shift in your thinking about a trade. Once you have “accepted” the risk, this will ensure flawless execution. If a trade moves against you, it will be easy to exit because you have already accepted the dollar amount risk and were comfortable with taking the loss on that amount.
Initial Stop Loss: Risk point as defined by your original entry.
Break Even Stop Loss: When a position moves in your favor, you move the stop loss point from the original spot to your break even area.
Trailing Stop Loss (profit taking): Used to protect significant profits on a winning position. Objective is to lock in some profits.
The buy stop limit and sell stop limit, important orders to learn.
• Typically used in place of market orders.
• Intention is to take advantage of liquidity and get price improvement.
• Helps get filled in “fast” market conditions, but cannot get a worse fill (as with a market order) than the limit price entered.
• A buy stop limit is an order to buy placed above the current best offer to sell.
• A sell stop limit is an order to sell below the current bid to buy.
How to properly use moving averages
Let’s keep things simple, we are here to make money. It is very easy to get sucked into the myriad of fancy indicators and over use them. The original use of moving averages by floor traders was not very complex.
There are 20 trading days in an average month. “Is today’s price action above or below the average?” Based on the answer to the question, floor traders would have a bias to the long or short side. It was very simple how it was used; it was not a magic tool.
The last thing you want to be doing when you are trading is thinking too hard, you want to be listening to what the market is telling you. Proper use of moving averages in today’s technologically advanced market is to us them as a filter.
Here is the best and most profitable way of using them:
1. As a trend filter. Use it a method quickly identifying a bias; should I be long or short. Use it to filter out the noise so that you are not placing too much emphasis on every blip and print. We recommend using a 20 period simple moving average
2. Use it to determine strength of trend. If the 20sma is sideways, there is no bias, don’t trade you are guessing. If it has a nice upward or downwards slope, you should be trading aggressively in that direction.
3. Use a second moving average to determine momentum. We teach to use a 5sma to determine the momentum on all time frames we monitor. The method a great tool to help hold good trades. If momentum remains above the trend, stick with the trade until you see exhaustion in the move or when the momentum crosses the trend. There are more techniques we teach in the Equity Trader 101 course but you get the idea. Use moving averages as a filter, not as magic points.
How to choose which stocks to trade
The objective in short term trading is to make a consistent living. Far too many traders decide to trade stocks that are too illiquid or too volatile to manage risk. An illiquid stock is one that does not have sufficient bids and offers to get out of a trade easily where you want to. If you were to place a sell order and it would knock the stock down .10, it is not liquid. The trading of stocks that are volatile sounds exciting, and would appear to provide the most profit potential. On the surface this sounds great, but remember why you decided to become a professional trader, to pay your bills every month, trading maximum volatility everyday is a quick way to the poor house.
Money making stocks should have two characteristics if they are to be a part of your daily business: liquid enough to manage risk and active enough to provide money making opportunities.
We recommend you pick one of two groups of stocks:
1. A basket of non correlated stock that you trade every day
2. A sector or industry that you learn like the back of our hand. You can find a breakdown of sectors and industries here to get ideas.
By Pete Renzulli
Thursday, May 3, 2007
The "Sail-Boat" Trading Strategy
There are two traps that I have fallen into in the past and refuse to do it again. The first is becoming seduced by a statement such as the following: if you had invested $10,000 in XYZ Company X years ago it would be worth $500,000 today. The second is XYZ Company dominates its industry. There is no reason why it will not continue to dominate, so I am going to buy it and hold it for the long run. Then in X years I can sell it and live happily ever after. I call these traps, because they entice one to adopt a buy and hold or sail boat (if it hits I will be able to sail off into the sunset) mentality. This mentality has cost me more money than I care to admit.
Both scenarios seem logical, but logic and Wall Street don’t always go hand in hand. In the late 90s I had stocks that increased 10, 15, and as much as 20 times. Go back and look at a chart of CMGI (I started purchasing it in 1998). In 2000, I was hoping for a 20% return on my account - this should have been a piece of cake based on the previous couple of years. The plan was to then sell in January 2001. That way I wouldn’t have to worry about taxes until 2002. Well, this wacked-out strategy forced me to work harder on my 9 to 5 as the market imploded in 2000.
The bottom line is that market could care less about my sail-boat strategy. It is going to do what it is going to do and we must react. Whenever, I enter a trade now I have a price in mind where if it is breached I will close the trade. No more of this pie-in-the-sky stuff for me.
About the Author
Michael Dawson recently said goodbye to a 20 year career in Engineering, Marketing and Sales to focus on living his dream of financial independence as a full-time trader on his on account. He has also established a financial education company, The Time & Money Group, to encourage others to pursue financial freedom and is publisher of the company's blog "Breaking the Shackles of the 9 to 5." His mantra is "Why trade time for money ... when you can have both."
By Michael Dawson
Both scenarios seem logical, but logic and Wall Street don’t always go hand in hand. In the late 90s I had stocks that increased 10, 15, and as much as 20 times. Go back and look at a chart of CMGI (I started purchasing it in 1998). In 2000, I was hoping for a 20% return on my account - this should have been a piece of cake based on the previous couple of years. The plan was to then sell in January 2001. That way I wouldn’t have to worry about taxes until 2002. Well, this wacked-out strategy forced me to work harder on my 9 to 5 as the market imploded in 2000.
The bottom line is that market could care less about my sail-boat strategy. It is going to do what it is going to do and we must react. Whenever, I enter a trade now I have a price in mind where if it is breached I will close the trade. No more of this pie-in-the-sky stuff for me.
About the Author
Michael Dawson recently said goodbye to a 20 year career in Engineering, Marketing and Sales to focus on living his dream of financial independence as a full-time trader on his on account. He has also established a financial education company, The Time & Money Group, to encourage others to pursue financial freedom and is publisher of the company's blog "Breaking the Shackles of the 9 to 5." His mantra is "Why trade time for money ... when you can have both."
By Michael Dawson
Global Forex Trading - Lesser Known Facts That Can Lead To Your Personal Wealth
Global forex trading is a lesser known facet of money making or wealth creation among the general population. You will no doubt hear about stock markets and share prices daily and also about oil prices and other commodities, but when it comes to forex trading, there is much less publicity on this compared to stock market trading and futures. However, it is a fact that the global forex trading market actually dwarfs the stock markets and even the commodities market.
At any one time, more than $2 trillion of currencies are transacted every day on the global forex market.
What is helping forex market to reach that distinction of being the largest tradeable market is that forex is tradeable at any time of the day for every day- 24/7 ! Compared to stocks and shares or commodity markets that have specific opening and ending trading times. By necessity, forex markets are available for trading anytime since price of currencies changes and fluctuates everytime. This makes it possible for the trader who has the acumen to profit from these price fluctuations.
Another characteristic of forex trading that can catapult you into wealth is the application of the system of leverage. In wealth creation, leverage accelerates your ability to create wealth from a small amount. Many people are attracted to trading stocks and shares on margin because they can get leverage on a margin account. For example, by margining your stocks and shares, you can get a leverage of 50% to 75% of your stocks so that if you have $100,000 worth of stocks and shares, you may be able to get additional margin to trade worth $50,000 to $75,000. But compared to forex margin accounts where you can get leverage of 20 times to 50 times, which is common and even up to 100% margin in some special cases.
Leverage is a main key to forex trading wealth, and is a powerful tool that can cuts both ways. You will need a good education in forex trading to gain the edge and be profitable consistently. Otherwise this immense leverage can work against you and gets you wiped off and even move into bankruptcy even faster than it can help you become a millionaire.
It is this leverage that draws people to forex trading, giving it a tint of speculative activity. While one cannot deny that there are many speculators in the forex market, there are many traders who are able to extract continuous and consistent profits trading the forex market for a living. This group of people constitute 10% of the forex traders, and the key element with them is their ability to take advantage of the price movements either as day traders, swing traders or position traders.
By Peter Lim
At any one time, more than $2 trillion of currencies are transacted every day on the global forex market.
What is helping forex market to reach that distinction of being the largest tradeable market is that forex is tradeable at any time of the day for every day- 24/7 ! Compared to stocks and shares or commodity markets that have specific opening and ending trading times. By necessity, forex markets are available for trading anytime since price of currencies changes and fluctuates everytime. This makes it possible for the trader who has the acumen to profit from these price fluctuations.
Another characteristic of forex trading that can catapult you into wealth is the application of the system of leverage. In wealth creation, leverage accelerates your ability to create wealth from a small amount. Many people are attracted to trading stocks and shares on margin because they can get leverage on a margin account. For example, by margining your stocks and shares, you can get a leverage of 50% to 75% of your stocks so that if you have $100,000 worth of stocks and shares, you may be able to get additional margin to trade worth $50,000 to $75,000. But compared to forex margin accounts where you can get leverage of 20 times to 50 times, which is common and even up to 100% margin in some special cases.
Leverage is a main key to forex trading wealth, and is a powerful tool that can cuts both ways. You will need a good education in forex trading to gain the edge and be profitable consistently. Otherwise this immense leverage can work against you and gets you wiped off and even move into bankruptcy even faster than it can help you become a millionaire.
It is this leverage that draws people to forex trading, giving it a tint of speculative activity. While one cannot deny that there are many speculators in the forex market, there are many traders who are able to extract continuous and consistent profits trading the forex market for a living. This group of people constitute 10% of the forex traders, and the key element with them is their ability to take advantage of the price movements either as day traders, swing traders or position traders.
By Peter Lim
If You are Serious About Building Wealth, Follow the Behavior of the Ultra-Rich, Not the Rich
The Myths of the Wealthy Spread by the Mass Media
Recently, there was an article on CNNMoney that spoke about the “secrets” of the elite rich in the United States. In turn, several articles were written about this article, including one that stated that the richest of Americans “built their wealth with diversification, wealth preservation and strategic growth.” That is a ridiculous statement in itself because two of those strategies, diversification and preservation don’t help build wealth. Perhaps the richest of Americans use these two strategies to maintain an even keel AFTER they have accumulated great wealth, but certainly they didn’t use them during the accumulation phase. According to this article, a survey of Northern Trust uncovered that the “richest Americans do not heavily rely on high-risk investment vehicles like hedge funds to make money, but are moderate risk takers who put more than half of their asset allocation into U.S. stocks and cash.”
Again, just as former hedge fund manager and multi-millionaire Jim Cramer said that he used certain financial journalists, including ones employed by the Wall Street Journal, as pawns to spread misinformation far and wide to benefit himself, again this is an example of investment institutions using the media as pawns to spread their myths to keep the masses of retail investors ignorant. The CNNMoney article made it appear that the richest of Americans built their wealth by being conservative and slowly growing their money over time. That’s an oxymoron right there. To state that the rich became rich by slowly growing their money over time. Well, if they are slowly growing their money and becoming even richer, then this implies that they were rich to begin with. So how did they accumulate wealth? Surely not by “slowly growing” their money.
Sure, some of the “richest Americans do not heavily rely on high-risk investments” because they ARE ALREADY EXTREMELY RICH. The majority of ultra-rich do NOT build their fortunes by speculating on high-risk investments as is commonly believed. Often they build fortunes utilizing volatile assets and investments but that does not mean they were engaging in risky behavior. Many times, investing in a hedge fund can be much riskier than investing in some of the assets that your investment firm will tell you is “risky”. But investment firms will gladly place a portion of your money in hedge funds because the fees they earn from hedge funds are so high even as they advise you not to put your money in a much less risky investment with much greater earning potential. And this is the secret that investment firms never tell you. Volatile assets that often can be used to build great wealth are NOT RISKY if they are purchased at entry points that are extremely favorable and provide a low-risk point of entry. 99% of investors don’t understand what high-risk investments truly are because they have been misinformed by their advisors and their firms for the past half of a century. Purchasing volatile assets at low risk-high reward entry points greatly mitigates and neutralizes the great majority of risk of volatile assets. If you don’t understand this concept then you need to.
Replace Investment Firm’s Dumb Asset Gathering Sales Strategies with Intelligent Asset Growing Strategies
Many millionaires that are wealthy but that could be extremely wealthy fail to build enormous wealth because investment and financial institutions mislead them about certain asset classes and describe them as complex and risky and are able to convince their clients of this belief because they never properly explain risk-reward scenarios to their clients. However, those investors that are extremely wealthy are the rare breed that understand this concept. If investors had a choice between allocating $1,000,000 in a historically volatile Investment A that has a 78% chance of returning a 250% gain versus an Investment B that has a 95% chance of earning 9%, most investors would choose Investment A. However, because Investment A may exhibit 50% more volatility than Investment B, the great majority of advisors would steer their client away from the former investment into the latter one. In fact, this is exactly what even “prestigious” firms that cater to ultra high net-worth clients do because they allow misinformed, uneducated investors dictate the rules of engagement to them, and they would much rather appease such powerful, important people with slow,minimal gains rather than empower and enlighten them and boost their returns like never before. They would choose to steer them away because they present the investment opportunities incorrectly, merely telling their client that while they could earn 350% from Investment A there was also a very realistic probability that they could lose $300,000, and that shooting for the slow but steady $90,000 a year is much better for them.
If you are thinking to yourself, “That makes absolutely no sense?” Why would firms not earn 20% a year for their clients if they could instead of 8% a year? The answer is because the overwhelming majority of investment firms, no matter how prestigious their brand, are merely highly glorified sales machines. They fail to convince clients to invest in phenomenal investment opportunities that sometimes arise like Investment A because in order for Investment A to be a moderate risk, very high reward investment, it must be entered at a low risk entry point so that the probability of being down $300,000 at any give time would be reduced from perhaps 50% to 20%. And that even if their timing is not optimal, then a firm must educate the client that as long as they don’t panic when they are down, the odds are still extremely high that they will earn a 250% or better gain. However, the greatest factor that determines why firms will not seek this strategy is time. Engaging in much better strategies such as these for their clients would take massive amounts of time in client education and enough time in research that the amount of assets gathered would take a serious hit.
So because it is not in a firm’s interest to engage in activities that maximize portfolio returns (unless it is their own institutional portfolio), instead, we have Chief Investment Officers at top investment firms making statements like, “"Generally they [the richest of Americans] want to see prudently managed growth without a lot of surprises, which is why we emphasize diversification." Again, this is a sales & marketing campaign statement, not an aboveboard statement about how to make money for clients. If clients are uncomfortable with strategies that would actually built great wealth for them instead of producing mediocre or subpar returns, their discomfort only originates from the fact that the largest investment firms have been deceiving their clients, just as Jim Cramer had deceived the thundering sheep herd for years, about the realities of building wealth. This discomfort originates solely from the fact that he or she has been kept in the dark for so long.
Despite What Investment Firms Tell You, Myopia and a Concentration in U.S. Stock Markets Will NOT Optimize Your Portfolio Returns
Thus, we have a misinformation-driven cauldron of bad investment decisions that exist today. In 2007, you’ll still find Chief Investment Officers of very well known firms making ridiculous statement that investors need to invest at least 50% of their stock portfolio in U.S. stocks if they wish to grow their portfolios exponentially. How are they going to grow their portfolios exponentially with more than half of their stocks in a stock market (the U.S.) that has NEVER been the best performing market in the past 25 years (even among developed stock markets)? How will they grow their portfolios exponentially by buying stocks in market that trades in what is quite possibly the worst currency on earth among developed markets (the U.S. dollar)? Yes I know that when the U.S. dollar shows a brief spike in strength as is likely to happen soon (I’m writing this article in April, 2007), that many people will question what I am saying, but this is only again because they are victims to the mass deception mind-games of the investment industry. I suppose if planning to earn better than subpar returns in your stock portfolio is engaging in risky behavior as Chief Investment Officers of various firms claim, then yes, I whole-heartedly endorse engaging in risky behavior.
And because so many people, yes even those considered quite wealthy, fall victim to the preaching of investment industry demagogues, there is a second mistake that many rich investors will soon make. Another survey of wealthy U.S. investors uncovered that a large percentage of investors with investment assets of over a million do not employ any type of investment advisor but plan to do so soon giving the increasingly gloomy nature of the U.S. stock markets. To that, this is what I have to say. Making money in difficult markets is ten times more difficult than making money in bull markets. If investors believe that it will be increasingly more difficult to make money in U.S. stock markets, but yet top investment firms in the U.S. continue to preach that more than half of your portfolio should be in U.S. stocks (mostly to cover their respective firm’s inadequate coverage of emerging markets), how is the hiring one of these men possibly going to improve these investors’ future performance outlook?
But there is an EXTREMELY important distinction to be made here. What I’ve written above applies to the behavior and mindset of some of the richest people in America, but not THE very richest people in America. The very richest people in America, those you might categorize as the world’s ultra-rich, possess a very different mindset and behavior set than those that are just rich. The ultra-rich have positioned their portfolios extremely differently from how the rich people discussed above have positioned their portfolios. The reason why articles regarding their behavior and investment decisions are virtually non-existent is because they don’t grant interviews and they don’t want people to know what they are doing. But I’ve investigated what they are doing, and trust me, it is nothing remotely similar to the behavior of wealthy investors described by Northern Trust and other investment firms.
If you would like to find out why the ultra-rich always manage their own money or are able to find the 1 in a million consultant truly capable of providing them the returns they desire, consult our resource of “101 Reasons Why Managing Your Own Money is the Only Way to Build Wealth.” Even if the ultra-wealthy have someone managing their money for them, the only way they were capable of finding this 1 in a million financial consultant was due to the fact that if they had to, they could manage their own money successfully as well. Only by first fully understanding the most successful investment strategies themselves were they able to identify an advisor capable of employing similar strategies. However, a great majority of ultra-wealthy continue to handle and make their own investment decisions. And that is precisely why they are among the elite.
This article may be freely reprinted on another website as long as it is not modified, changed, or altered in any way and as long as the below author byline is included along with the active hyperlink exactly as is.
J.S. Kim is the Managing Director of SmartKnowledgeU™. He has over thirteen years of experience in finance and financial services, and has earned a BA in Neurobiology from the University of Pennsylvania, a Master in Public Affairs from the University of Texas at Austin, and an MBA with a concentration in finance from the McCombs Business School, University of Texas at Austin. He is the inventor of the revolutionary MoneyPing™ investment strategies, a novel approach to learn how to build wealth, not just dreams.
By J.S. Kim
Recently, there was an article on CNNMoney that spoke about the “secrets” of the elite rich in the United States. In turn, several articles were written about this article, including one that stated that the richest of Americans “built their wealth with diversification, wealth preservation and strategic growth.” That is a ridiculous statement in itself because two of those strategies, diversification and preservation don’t help build wealth. Perhaps the richest of Americans use these two strategies to maintain an even keel AFTER they have accumulated great wealth, but certainly they didn’t use them during the accumulation phase. According to this article, a survey of Northern Trust uncovered that the “richest Americans do not heavily rely on high-risk investment vehicles like hedge funds to make money, but are moderate risk takers who put more than half of their asset allocation into U.S. stocks and cash.”
Again, just as former hedge fund manager and multi-millionaire Jim Cramer said that he used certain financial journalists, including ones employed by the Wall Street Journal, as pawns to spread misinformation far and wide to benefit himself, again this is an example of investment institutions using the media as pawns to spread their myths to keep the masses of retail investors ignorant. The CNNMoney article made it appear that the richest of Americans built their wealth by being conservative and slowly growing their money over time. That’s an oxymoron right there. To state that the rich became rich by slowly growing their money over time. Well, if they are slowly growing their money and becoming even richer, then this implies that they were rich to begin with. So how did they accumulate wealth? Surely not by “slowly growing” their money.
Sure, some of the “richest Americans do not heavily rely on high-risk investments” because they ARE ALREADY EXTREMELY RICH. The majority of ultra-rich do NOT build their fortunes by speculating on high-risk investments as is commonly believed. Often they build fortunes utilizing volatile assets and investments but that does not mean they were engaging in risky behavior. Many times, investing in a hedge fund can be much riskier than investing in some of the assets that your investment firm will tell you is “risky”. But investment firms will gladly place a portion of your money in hedge funds because the fees they earn from hedge funds are so high even as they advise you not to put your money in a much less risky investment with much greater earning potential. And this is the secret that investment firms never tell you. Volatile assets that often can be used to build great wealth are NOT RISKY if they are purchased at entry points that are extremely favorable and provide a low-risk point of entry. 99% of investors don’t understand what high-risk investments truly are because they have been misinformed by their advisors and their firms for the past half of a century. Purchasing volatile assets at low risk-high reward entry points greatly mitigates and neutralizes the great majority of risk of volatile assets. If you don’t understand this concept then you need to.
Replace Investment Firm’s Dumb Asset Gathering Sales Strategies with Intelligent Asset Growing Strategies
Many millionaires that are wealthy but that could be extremely wealthy fail to build enormous wealth because investment and financial institutions mislead them about certain asset classes and describe them as complex and risky and are able to convince their clients of this belief because they never properly explain risk-reward scenarios to their clients. However, those investors that are extremely wealthy are the rare breed that understand this concept. If investors had a choice between allocating $1,000,000 in a historically volatile Investment A that has a 78% chance of returning a 250% gain versus an Investment B that has a 95% chance of earning 9%, most investors would choose Investment A. However, because Investment A may exhibit 50% more volatility than Investment B, the great majority of advisors would steer their client away from the former investment into the latter one. In fact, this is exactly what even “prestigious” firms that cater to ultra high net-worth clients do because they allow misinformed, uneducated investors dictate the rules of engagement to them, and they would much rather appease such powerful, important people with slow,minimal gains rather than empower and enlighten them and boost their returns like never before. They would choose to steer them away because they present the investment opportunities incorrectly, merely telling their client that while they could earn 350% from Investment A there was also a very realistic probability that they could lose $300,000, and that shooting for the slow but steady $90,000 a year is much better for them.
If you are thinking to yourself, “That makes absolutely no sense?” Why would firms not earn 20% a year for their clients if they could instead of 8% a year? The answer is because the overwhelming majority of investment firms, no matter how prestigious their brand, are merely highly glorified sales machines. They fail to convince clients to invest in phenomenal investment opportunities that sometimes arise like Investment A because in order for Investment A to be a moderate risk, very high reward investment, it must be entered at a low risk entry point so that the probability of being down $300,000 at any give time would be reduced from perhaps 50% to 20%. And that even if their timing is not optimal, then a firm must educate the client that as long as they don’t panic when they are down, the odds are still extremely high that they will earn a 250% or better gain. However, the greatest factor that determines why firms will not seek this strategy is time. Engaging in much better strategies such as these for their clients would take massive amounts of time in client education and enough time in research that the amount of assets gathered would take a serious hit.
So because it is not in a firm’s interest to engage in activities that maximize portfolio returns (unless it is their own institutional portfolio), instead, we have Chief Investment Officers at top investment firms making statements like, “"Generally they [the richest of Americans] want to see prudently managed growth without a lot of surprises, which is why we emphasize diversification." Again, this is a sales & marketing campaign statement, not an aboveboard statement about how to make money for clients. If clients are uncomfortable with strategies that would actually built great wealth for them instead of producing mediocre or subpar returns, their discomfort only originates from the fact that the largest investment firms have been deceiving their clients, just as Jim Cramer had deceived the thundering sheep herd for years, about the realities of building wealth. This discomfort originates solely from the fact that he or she has been kept in the dark for so long.
Despite What Investment Firms Tell You, Myopia and a Concentration in U.S. Stock Markets Will NOT Optimize Your Portfolio Returns
Thus, we have a misinformation-driven cauldron of bad investment decisions that exist today. In 2007, you’ll still find Chief Investment Officers of very well known firms making ridiculous statement that investors need to invest at least 50% of their stock portfolio in U.S. stocks if they wish to grow their portfolios exponentially. How are they going to grow their portfolios exponentially with more than half of their stocks in a stock market (the U.S.) that has NEVER been the best performing market in the past 25 years (even among developed stock markets)? How will they grow their portfolios exponentially by buying stocks in market that trades in what is quite possibly the worst currency on earth among developed markets (the U.S. dollar)? Yes I know that when the U.S. dollar shows a brief spike in strength as is likely to happen soon (I’m writing this article in April, 2007), that many people will question what I am saying, but this is only again because they are victims to the mass deception mind-games of the investment industry. I suppose if planning to earn better than subpar returns in your stock portfolio is engaging in risky behavior as Chief Investment Officers of various firms claim, then yes, I whole-heartedly endorse engaging in risky behavior.
And because so many people, yes even those considered quite wealthy, fall victim to the preaching of investment industry demagogues, there is a second mistake that many rich investors will soon make. Another survey of wealthy U.S. investors uncovered that a large percentage of investors with investment assets of over a million do not employ any type of investment advisor but plan to do so soon giving the increasingly gloomy nature of the U.S. stock markets. To that, this is what I have to say. Making money in difficult markets is ten times more difficult than making money in bull markets. If investors believe that it will be increasingly more difficult to make money in U.S. stock markets, but yet top investment firms in the U.S. continue to preach that more than half of your portfolio should be in U.S. stocks (mostly to cover their respective firm’s inadequate coverage of emerging markets), how is the hiring one of these men possibly going to improve these investors’ future performance outlook?
But there is an EXTREMELY important distinction to be made here. What I’ve written above applies to the behavior and mindset of some of the richest people in America, but not THE very richest people in America. The very richest people in America, those you might categorize as the world’s ultra-rich, possess a very different mindset and behavior set than those that are just rich. The ultra-rich have positioned their portfolios extremely differently from how the rich people discussed above have positioned their portfolios. The reason why articles regarding their behavior and investment decisions are virtually non-existent is because they don’t grant interviews and they don’t want people to know what they are doing. But I’ve investigated what they are doing, and trust me, it is nothing remotely similar to the behavior of wealthy investors described by Northern Trust and other investment firms.
If you would like to find out why the ultra-rich always manage their own money or are able to find the 1 in a million consultant truly capable of providing them the returns they desire, consult our resource of “101 Reasons Why Managing Your Own Money is the Only Way to Build Wealth.” Even if the ultra-wealthy have someone managing their money for them, the only way they were capable of finding this 1 in a million financial consultant was due to the fact that if they had to, they could manage their own money successfully as well. Only by first fully understanding the most successful investment strategies themselves were they able to identify an advisor capable of employing similar strategies. However, a great majority of ultra-wealthy continue to handle and make their own investment decisions. And that is precisely why they are among the elite.
This article may be freely reprinted on another website as long as it is not modified, changed, or altered in any way and as long as the below author byline is included along with the active hyperlink exactly as is.
J.S. Kim is the Managing Director of SmartKnowledgeU™. He has over thirteen years of experience in finance and financial services, and has earned a BA in Neurobiology from the University of Pennsylvania, a Master in Public Affairs from the University of Texas at Austin, and an MBA with a concentration in finance from the McCombs Business School, University of Texas at Austin. He is the inventor of the revolutionary MoneyPing™ investment strategies, a novel approach to learn how to build wealth, not just dreams.
By J.S. Kim
Day Trading Forex - 4 Reasons For A Stock And Shares Trader To Migrate Over To Day Trading Forex
If I am day trading the stock and futures market, why would I want to move into day trading the forex as another additional trading avenue? Are there any special features of day trading the forex market that appear more appealing to stock traders to attract them to trade the forex as well?
In the pursuit of prosperity, we are always looking for ways to create personal wealth, and day trading forex offers much more opportunities to create wealth than say trading stocks and shares and commodities. Why is this so?
Forex Markets open 24/7
The stock markets and the commodity markets have set times that they are open for trading. In contrast, the forex markets are open 24hours a day, seven days in the week, giving much more trading opportunities to the day trader to trade. At the same time, convenience is a key factor, as anyone can trade at any convenient time with a web based trading platform provided free by his forex broker.
Higher Liquidity
The day trader is always conscious of liquidity. It is liquidity that allows a day trader to move smoothly into a day trade instantaneously at the best identified price without lag which will lead to a poor executed price. When he wants to buy, the day forex trader is able to get into that trade almost instantaneously due to the higher liquidity in the forex market and when a day trader wants to sell, he can get out of the currency at his price without delay. Where the difference in a fraction of a cent is important, this characteristic of very high liquidity makes forex trading very attractive. More so, it has been proven that there are trading systems that allow day traders to trade for only an hour or two, freeing them to do whatever they like for the rest of the day after pocketing profits. These are day traders who professionally trade for a living.
Lower Trading Costs
Forex trading seems like a dream to many day traders because there are no exchange fees, no commissions paid to brokers, and low transaction fees. In contrast, the day traders in stocks and shares and futures market all incur fees and commissions paid to licensed dealers and brokers, all of which will result in less profits.
Ability To Earn From Referrals
The active day trader can enter into arrangements with some forex brokers to earn a referral commission from the trades of people he introduces to the forex broker. Now while this is another separate activity, it cannot be denied that this is an added advantage for a day trader to earn something extra from his efforts in introducing or recommending friends to trade as well.
All these features make day trading the forex an attractive and possible replacement income source for those who work from home trading for a living.
By Peter Lim
In the pursuit of prosperity, we are always looking for ways to create personal wealth, and day trading forex offers much more opportunities to create wealth than say trading stocks and shares and commodities. Why is this so?
Forex Markets open 24/7
The stock markets and the commodity markets have set times that they are open for trading. In contrast, the forex markets are open 24hours a day, seven days in the week, giving much more trading opportunities to the day trader to trade. At the same time, convenience is a key factor, as anyone can trade at any convenient time with a web based trading platform provided free by his forex broker.
Higher Liquidity
The day trader is always conscious of liquidity. It is liquidity that allows a day trader to move smoothly into a day trade instantaneously at the best identified price without lag which will lead to a poor executed price. When he wants to buy, the day forex trader is able to get into that trade almost instantaneously due to the higher liquidity in the forex market and when a day trader wants to sell, he can get out of the currency at his price without delay. Where the difference in a fraction of a cent is important, this characteristic of very high liquidity makes forex trading very attractive. More so, it has been proven that there are trading systems that allow day traders to trade for only an hour or two, freeing them to do whatever they like for the rest of the day after pocketing profits. These are day traders who professionally trade for a living.
Lower Trading Costs
Forex trading seems like a dream to many day traders because there are no exchange fees, no commissions paid to brokers, and low transaction fees. In contrast, the day traders in stocks and shares and futures market all incur fees and commissions paid to licensed dealers and brokers, all of which will result in less profits.
Ability To Earn From Referrals
The active day trader can enter into arrangements with some forex brokers to earn a referral commission from the trades of people he introduces to the forex broker. Now while this is another separate activity, it cannot be denied that this is an added advantage for a day trader to earn something extra from his efforts in introducing or recommending friends to trade as well.
All these features make day trading the forex an attractive and possible replacement income source for those who work from home trading for a living.
By Peter Lim
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