Some folks are naturals at making money at investing in the stock market. Some people have a stock market trading system built into their soul, but they are extraordinary. However, most of us mortals, don't have this gift. Most of us fumble and make a little money here and there and then lose a large amount of money on one or two trades.
After licking our wounds , we kick off again with our cramped account. This time, we are going to be more safe. We will hold-up until the market is really boiling. We get in, inopportunely, at the highest point of the move, and we get handed our hat - again.
Investing is counter-intuitive. You cannot win at trading the stock market, based on your emotions. That is how most people trade. The professional traders know that you are trading emotionally, and they take advantage of that information. Believe me, they aren't trading emotionally.
So what is the average person, with retirement not too many years away, supposed to do?
Principle #1: Safety & Diversity Trading individual stocks can be risky. There are so many factors that can disturb the performance of an individual stock, people shouldn't be trading them. You wonder why?
Here are just some of the factors that can provoke a stock to move swiftly:
+ Earnings are announced below the expected number + The chief executive of your high-flying tech company is diagnosed with pancreatic cancer + Your company announces that the financial statements are going to be delayed this quarter + Another dominant company in the same business, not your company, reports bad earnings + The government decides not to approve your company's drug + There is a catastrophic chance event such as what happened to BP
As a result, you need to invest in indexes that represent a broad number of stocks: for example, the S&P 500, the Russell 2000, or others of that type. That way, the individual stocks can "stub their toes", or do whatever else. It won't influence the index much. The broad-based indexes are affected by broad-based factors such as the general national economy, financial trends, the government, inflation, armed conflict, 911 and other such incidents. You must diversify your risk over a huge number of stocks; diversification leads to security.
Principal #2: Simplicity of trading Let's face it. Unless the task is easy to do, you won't do it. You are employed trying to make a living. If you are retired, you have a list as long as your arm of tasks your spouse says are important for you to do. You might have children and grand-children situated across the country, or around the world, that you like to haunt.
If you think you have the time to analyze each company's balance sheet and income statements, look at the various pundit's ratings, listen to the company's statements when they announce earnings, look at the competition in the sector, and subscribe to a service that advertises a stock that they have already bought, then you need to get a better life.
On the other hand, if you buy an ETF (Exchange Traded Fund), such as SSO, that's simple. SSO is the Exchange Traded Fund that acts as a leveraged proxy for the S&P 500. It trades like a stock. When you buy SSO, you have acquired a proxy for the S&P 500. Oh, did I forget to mention: an one-percent move in the S&P 500 is close to a two-percent move in SSO. That means if the S&P 500 goes up 1% your holdings in SSO go up 2%. SSO is a leveraged ETF. It is leveraged 2X or 2 times. In my opinion, you need leverage to make any money trading the broad-based indexes - otherwise, you will find that the broad-based indexes don't move fast enough to make any significant amount of money in a reasonable amount of time. Does the market always go up? Hell no! Wouldn't you like to make money when the market is tanking? By the way, when a market moves down, it does so very rapidly, usually. A market retracement can eliminate the gains that you have accumulated over a large period of time. If you want to make money, you can't do it by standing on the sidelines in cruddy markets.
Therefore, You buy SDS. As the market retreats, your SDS's value goes up. It is an inverse-ETF. You have been notified that you should sell your holdings during times of declining markets. In fact, many years ago, I subscribed to a financial journal, with the initials IBD, that uncovered stocks that were showing a "cup with handle" formation. Cup with Handle worked! The problem was that IBD continued to promote "cup with handle" formations at the same time as the market crash of 2003. They never suggested that you should get out of the market or heaven forbid, go short the market. Now you have an answer to that predicament. Simply buy SDS and gain as your friends are bellyaching about a crappy stock market.
In summary: You wish to gain safety by diversification. You have to have an easy to understand stock market trading system that doesn't take a great deal of your time. You have to have a way of discerning whether the market is bullish, bearish, or should you sell and be out of the market for a while. You need to be familiar with when and how to take profits as they present themselves. And, finally, you have to know what techniques don't succeed.
After licking our wounds , we kick off again with our cramped account. This time, we are going to be more safe. We will hold-up until the market is really boiling. We get in, inopportunely, at the highest point of the move, and we get handed our hat - again.
Investing is counter-intuitive. You cannot win at trading the stock market, based on your emotions. That is how most people trade. The professional traders know that you are trading emotionally, and they take advantage of that information. Believe me, they aren't trading emotionally.
So what is the average person, with retirement not too many years away, supposed to do?
Principle #1: Safety & Diversity Trading individual stocks can be risky. There are so many factors that can disturb the performance of an individual stock, people shouldn't be trading them. You wonder why?
Here are just some of the factors that can provoke a stock to move swiftly:
+ Earnings are announced below the expected number + The chief executive of your high-flying tech company is diagnosed with pancreatic cancer + Your company announces that the financial statements are going to be delayed this quarter + Another dominant company in the same business, not your company, reports bad earnings + The government decides not to approve your company's drug + There is a catastrophic chance event such as what happened to BP
As a result, you need to invest in indexes that represent a broad number of stocks: for example, the S&P 500, the Russell 2000, or others of that type. That way, the individual stocks can "stub their toes", or do whatever else. It won't influence the index much. The broad-based indexes are affected by broad-based factors such as the general national economy, financial trends, the government, inflation, armed conflict, 911 and other such incidents. You must diversify your risk over a huge number of stocks; diversification leads to security.
Principal #2: Simplicity of trading Let's face it. Unless the task is easy to do, you won't do it. You are employed trying to make a living. If you are retired, you have a list as long as your arm of tasks your spouse says are important for you to do. You might have children and grand-children situated across the country, or around the world, that you like to haunt.
If you think you have the time to analyze each company's balance sheet and income statements, look at the various pundit's ratings, listen to the company's statements when they announce earnings, look at the competition in the sector, and subscribe to a service that advertises a stock that they have already bought, then you need to get a better life.
On the other hand, if you buy an ETF (Exchange Traded Fund), such as SSO, that's simple. SSO is the Exchange Traded Fund that acts as a leveraged proxy for the S&P 500. It trades like a stock. When you buy SSO, you have acquired a proxy for the S&P 500. Oh, did I forget to mention: an one-percent move in the S&P 500 is close to a two-percent move in SSO. That means if the S&P 500 goes up 1% your holdings in SSO go up 2%. SSO is a leveraged ETF. It is leveraged 2X or 2 times. In my opinion, you need leverage to make any money trading the broad-based indexes - otherwise, you will find that the broad-based indexes don't move fast enough to make any significant amount of money in a reasonable amount of time. Does the market always go up? Hell no! Wouldn't you like to make money when the market is tanking? By the way, when a market moves down, it does so very rapidly, usually. A market retracement can eliminate the gains that you have accumulated over a large period of time. If you want to make money, you can't do it by standing on the sidelines in cruddy markets.
Therefore, You buy SDS. As the market retreats, your SDS's value goes up. It is an inverse-ETF. You have been notified that you should sell your holdings during times of declining markets. In fact, many years ago, I subscribed to a financial journal, with the initials IBD, that uncovered stocks that were showing a "cup with handle" formation. Cup with Handle worked! The problem was that IBD continued to promote "cup with handle" formations at the same time as the market crash of 2003. They never suggested that you should get out of the market or heaven forbid, go short the market. Now you have an answer to that predicament. Simply buy SDS and gain as your friends are bellyaching about a crappy stock market.
In summary: You wish to gain safety by diversification. You have to have an easy to understand stock market trading system that doesn't take a great deal of your time. You have to have a way of discerning whether the market is bullish, bearish, or should you sell and be out of the market for a while. You need to be familiar with when and how to take profits as they present themselves. And, finally, you have to know what techniques don't succeed.
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