Profitable stock market trading need not be difficult

Profitable stock market trading need not be difficult. Indeed, profitable trading of

the QQQQ can be fun. If your experience in trading the stock market has not been profitable, then you are probably also hurt by the number of missed opportunities or incorrect timing of your trades. What you need, then, is some guidance. You need to learn about the trading mistakes you make. Whether you trade the QQQQ, NASDAQ stocks, or qqqq options, you need to know ahead of time certain key market indicators in order to trade profitably. This is true irrespective of whether you are into day trading, or holding your stocks for longer periods. There is lots of money to be made in online trading, provided you have a trading strategy. But first, we'd like you to answer these questions:

Do you wish you could change your trading style to become more profitable, but by taking only low risks?

Do you wish you could trade more sensibly whereby you knew before hand the risk/reward trade off?

Do you wish that you had more leisure time to spend with your family or friends instead of worrying about your recent trades in the stock market?

Do you wish you could trade fewer times yet make a whole lot more money in the stock market?

Then read on…

In order to make money in the stock markets, you need to have BALANCE!

A fine balance between risk and reward that gives YOU the advantage.

A balance that gives you the means to achieve your profit GOALS.

Trading stocks without using Technical Analysis is like driving a car without a map. You will go wherever the road takes you, getting off and on randomly. You will certainly arrive some place, but probably not at your desired destination. Profitable QQQQ trading, for example, is possible if you follow a "method". We have advised hundreds of traders all over the world, including some of the richest people in the world. These traders are professional traders. A few of them own their private jets. They would not enter into a single deal without first checking what the technical indicators say. Why do you think they do this? They realize that no matter what their personal opinion is about the value of technical analysis, the market as a whole relies on this key factor. They know that ignoring chart points will cost them dearly. They know that with the help of technical analysis, they can enter into and out of trades at precise levels that allow them to control risk, and enables them to ride a good trade to its fullest potential. DO YOU WANT TO JOIN THEIR RANK? Then read on..

Let us first dispel some myths about trading in the stock market:

Myth Number 1:

"You have to trade many different stocks in order to make money, because you win in some and lose in some."

Nothing can be farther from the truth. Investing is different from trading. If you are an investor, then yes, you need to have a diversified portfolio to reduce your risks. Even then, you are only diversifying the so-called "systematic" or company-specific risk.

The truth about trading is this. What you need to make money is to concentrate, and gain experience in one or two instruments. That way, you would know the past behavior, and key levels that were significant. You can be profitable by trading just one stock, the QQQQ for example. Profitable trading of QQQQ is easier because it is a very liquid market.

Myth Number 2:

"It is easier to make money by buying dips and selling rallies."

Indeed, you will make money if you had bought the dip prior to the rally, and vice-versa. But consider what would happen if the market continues to go lower after you had bought a stock. When would you know you made an incorrect trading decision? Many traders see a stock declining by a few dollars and think it is time to buy because they have seen a dip. This approach could work some of the times, but most of the time one would end up losing.

Myth Number 3:

"If the economic news is good, it is time to buy."

This is a short cut to disaster. Professional traders often buy in anticipation of news, and when the news is actually out, they get out of that trade, exactly when the novice wants to buy!

Myth Number 4:

"Averaging a position is a good way to reduce your holding cost."

Sure, if you are an investor who is committed to a position, then averaging is a great way to be ahead. But if you are a trader, then you are in an entirely different ball game. You can't keep adding to a losing position and hope it will turn out to be ok in a few days. The question is when will I know if a trade is bad? Technical analysis will give you some good clues.

Myth Number 5:

"You have to be trading daily, or regularly to make money."

This is another big mistake. You don't have to be in the market all the time to make money. Trading should not be an obsession for you. You should be patient for the right level to get into a trade. Otherwise, you will end up trading your emotions. In these pages, CraftyStox will give you invaluable clues. In the examples you see in these pages you will learn about timing your trade in the market, how to place your stop-loss order and what your exit strategy should be. Thus, you will be able to assess if the risk-reward trade off is good for you. And the best news is that this intelligence is available for you for free.

craftystox.com

Strange options prices

Respect. I do somthing here:

QQQQ (Nasdaq 100 index tracker) Aug $40 options calls are trading at $0.80/$0.85 and puts are trading at $0.70/$0.75. What makes it strange, is QQQQ price. QQQQ is trading below $40 ($39.50$39.95). Puts should be more expensive than calls in this situation, does everyone see the market in too positive light (and too less fear for correction)? If so, it might go just the opposite way than the market expects.

Update (August 3, 2005 11:56 AM):
In reply to the comments I'll add a chart to show some warning signs:

I am definitely not saying that QQQQ will go down (I would buy puts myself, if I was so sure), just pointing out that the rise is not so easycoming as the market predicts (according to the prices of QQQQ Aug $40 calls and puts).

Correction (August 3, 2005 12:34 AM):
Of course, QQQQ was trading at $39.95, not $39.50 as I wrote. Sorry for the typo!

trading-online

Portfolio method of risks management Fixed Ratio

Method Fixed Ratio developed by Ryan Jones, means that the ratio of number traded contracts, to an increment of the capital, should be to constants. It is the basic concept of a method! Thus, at use of a method, risks increase only due to the received profit, allowing effectively reinvestment the earned profit.

Such approach, first of all, is interesting to aggressive speculators who use buy-power and perform inreaday trading on sevral stocks.
This method has been modified and generalized up to a portfolio which is presented in Fixed Ratio Calculator.

How to use the calculator? First it is necessary to initialize initial data on which the method leans:

1. init asset – a seed capital. This value remains to constants during all time work of a method and never change.
2. leverage – a leverage of your broker
3. DD – maximal drawdown in percentage which you are ready to suffer on a portfolio.
4. ticker – the stock’s name.
5. price – the current price of stock, may be change a few.
6. dd– drawdown used strategy for a year, or critical stop-loss, may be change a few, in points.
7. shares – number of shares in conreact specification.
8. part – a portion of stock of money eauation in a portfolio, in percentage.

http://www.pitbear.com/eng-fixed-ratio-method.php

CMRA Surveys Market Risk Reporting Techniques

Last year, the Securities and Exchange Commission announced it would allow companies to choose between three different methods to fulfill market risk disclosure requirements. Derivatives users could choose between tables of individual risk factor data, sensitivity analyses or value-at-risk-type information.

Which method will companies be using to fulfill these requirements? According to a January 1998 survey of some 30 financial firms and corporations by Capital Market Risk Advisors, 80 percent of the respondents indicated their disclosure methods would involve techniques similar to those they already use for internal risk measurement and reporting.

Most banks and broker-dealers already use value-at-risk internally to measure the risk of their trading activities, and most of these plan to use VAR to disclose the market risk of trading activities to the SEC, though they may not use VAR in disclosing nontrading activities.

The majority of insurance companies surveyed, meanwhile, use sensitivity analysis to meet regulatory reporting requirements, and most of these plan to use the technique to meet SEC requirements.

By contrast, most of the smaller firms that do not currently use VAR plan to use tables of individual risk factor data to comply with the SEC requirements.

The survey discovered a number of interesting VAR-related factoids:

• The length of the observation period used in the calculations will range from less than one year to more than three years.
• The amount of VAR generally represented less than 1 percent of the respondents’ book values among broker-dealers and banks that offered their 1997 statistics.
• More than 90 percent of these plan to use VAR calculations for pricing models rather than for concrete changes in earnings, values or cash flows.
• The most common model is the analytic variance-covariance VAR, with aproximately 50 percent selecting this method by itself. Most cited the less computationally intensive nature of this calculation relative to historical VAR (20 percent of respondents), Monte Carlo-based VAR (25 percent) or other stimulation methods (5 percent).
• Twenty percent of the VAR-using firms ignore nonlinearity positions altogether, while 25 percent of the respondents made adjustments for option holdings by measuring the delta of their positions. Another 30 percent made adjustments using both delta and gamma.
• In general, those firms using VAR take into account the correlation effects across risk exposures both within and across instrument types. For about 90 percent of the respondents, use of empirical correlations is the preferred methodology.
• All of the bank and broker-dealer respondents plan to use a one-day holding period, while insurance companies and corporates plan to use periods of two weeks to one year.
• Of the firms that plan to use sensitivity analysis, all plan to use actual, observed fair values rather than pricing model computations. Unlike the VAR-using firms that account for volatility and correlation, sensitivity analysis-using firms plan to show the sensitivity only to price changes and market factors such as currency rate or interest rate changes.

CMRA Surveys Market Risk Reporting Techniques

Rogue Trading Insurance

The Titanic, Bruce Springsteen’s voice, NASA satellites and countless other odd and famous objects have been insured by Lloyds of London contracts over the years. Now, in an effort to protect customers from the Nick Leesons of the world, the venerable institution has begun offering insurance against rogue traders.

While other insurers offer policies to cover trading, they define fraudulent trading as breaking rules either to cause losses or for personal financial gain—in other words, stealing. In Leeson’s case, however, Barings was not protected by its fidelity trading insurance because Leeson exceeded position limits not to bolster his commissions but to cover his earlier losses. The new Lloyds policies also cover unauthorized trading undertaken merely to get out of trading holes.

The policies, written by SVB Syndicates, a Lloyds subsidiary dedicated to specialty coverage of financial institutions, provide up to $300 million to cover direct financial loss caused by unauthorized, concealed or falsely recorded trading by any person trading for the insured institution.

“What we found when we looked at the losses in unauthorized trading was that quite typically they did not include dishonesty,” says Steven Burnhope, director of SVB. “It was often an action taken [simply] to make a profit. Our customers said to us that, with the emergence of trading as a major component of their earnings these days, the traditional products didn’t address the risks that were emerging in those areas.”

While SVB’s new policies cover only proprietary trading activities, another Lloyds subsidiary, Stone Financial Risks, is now offering policies geared toward securities brokers as well, offering protection for losses caused by dealers’ clients.

The annual premiums for the rogue trading policies will range between $2 million and $10 million, with annual deductibles of between $10 million and $25 million, to be determined on a case-by-case basis. SBC and Stone will examine each firm’s internal risk management framework, making sure that solid trading controls are in place. Neither plans to issue policies to firms that fail to meet the basic requirements. In January, Chase purchased the first policy, and some 40 other financial institutions have asked for quotations thus far. Since Lloyds represents 60 of the world’s 100 largest banks, it hopes that the policies will take off.

“We didn’t know at the beginning if we would be able to provide cover in this area,” says Burnhope, “because it is one that insurers have found quite difficult to assimilate.” It is clear now, however, that with these policies another level of risk management tool has emerged. Is reinsurance of rogue trading policies far off?

Rogue Trading Insurance