Bigger Fund Managers Are Not Necessarily Better

When it comes to selecting top-performing investment funds and unit trusts the bigger brand is not necessarily better. Choosing the wrong fund by investing with big brand fund managers could cost investors dearly.

Many investors are deluded into thinking that buying from a big brand fund manager will in some way protect them against selecting a poorly performing fund. The big brand managers offer many great funds, but they're also marketing plenty of duds. Just because one fund is a top performer, doesn't mean it applies across that fund manager's range. Investors need to look beyond the brand and more closely at the underlying fund.

Over recent years, the UK market has seen a rise in popularity for boutique investment houses, and, given their track record of consistent positive performance, it's hardly surprising. There are many ways to classify a boutique, but generally speaking, boutique fund managers are independently-owned or employee-owned, and relatively small in size. They often invest in specialist areas of expertise, rather than attempt to be all things to all men and run funds across each and every sector.

Recently, boutiques have even been stepping on large firms' toes when it comes to servicing retail clients. Last year boutiques outshone their larger counterparts in the UK, taking the top four places in the ‘best overall fund manager rankings'. Big brands such as UBS and Standard Life slipped down the rankings, while boutiques Rathbone, Neptune, Dalton and Artemis took the top spots.

The last quarter of 2006 was hair-raising for investors, as millions were wiped off share prices and markets. However, the boutique fund management houses continued to outperform their larger rivals.

The disappointing reality for most private investors is that neither they, nor in some cases their financial advisers, would have heard of some of these relatively unknown smaller investment houses, and are therefore missing out on great investment opportunities.

The same caution applied to big brands should also be applied to big names - or the so called ‘star fund managers'. Is it wise to stake your money on the reputation of an individual big-name fund manager when there's no guarantee they will stick around?

Research shows that just 15% of managers have run the same fund for over six years, 43% for four to six years, and 39% for two to four years. Similarly, 80% of fund managers at the top 50 UK fund providers have left their funds in the last three years. Around 60% of managers move because of offers from competitors.

In investment terms, familiarity doesn't always necessarily breed content. Investors should monitor their investments very closely and ensure that they have the tools to hand to spot strong investment opportunities that would otherwise pass them by.

Better Trades Momentum Part 2

In Part I of this article, I taught you to trade momentum that occurs after an earnings announcement. In this article, I am going to go into some of the chart patterns we can use to trade momentum that is unrelated to earnings or news. And in Momentum Part III, I will show you how to combine news and chart patterns to trade momentum. But, before I get too far ahead of myself, let me recap what momentum is and why I trade it.

I love to trade options on stocks with a lot of momentum. What this means is that I want to trade those stocks, Exchange Traded Funds or Indexes that are moving fast and far. The way I see it, if I am going to put my money in the market, I want to place it where it will work as hard as possible for me. You may have attended my free webshop on Monster Momentum plays during which I introduced a couple of the technical tools that I use to find and trade this strategy, but let me show you today some other pieces to this strategy and how this can be a boost to your trading account.

The first step to trading momentum is that you need to find a stock that has the capability to move fast and far. These stocks generally have a dollar to two dollar average daily range during normal trading. Once the momentum picks up, they can trend twenty to thirty points or so in a matter of a few months. Sometimes this momentum is sparked by news announcements such as earnings or a new drug approval and sometimes it is just a stock that becomes heavily bought or sold by institutions. Whatever the case, once you learn to read technicals, you will be able to spot the building momentum in time to profit from the big move.

Many of my most profitable momentum trades took place not because of any news but just because the chart began to show signs of big buying pressure or big selling pressure. I look for things like breakouts, long candle bodies, and various candle patterns combined with the six indicators I use to signal a momentum trade. The best way I can teach you to trade momentum is to show you some of the patterns that I and others in my Traders’ Talks have recently traded.

The first thing to keep in mind with momentum is that once a stock has made a big momentum move, you know it has the ability to do it again in the future. It will probably take a breather for a while and it may not move in the same direction, but the momentum will almost always pick up once again.

Take Goldman Sachs (GS) for instance. This stock ran with a lot of momentum from $155 to about $205 before it started trading sideways.

If you had been to my Technically Speaking classes or in my Traders’ Talks you would have traded GS all the way up through that run. But at the end of the run, Goldman took a breather for almost a month while it traded in a sideways range between $198 and $203. During this sideways movement, I put my money in other stocks and ETF’s that were moving with more momentum. Don’t forget what I mentioned earlier, that stocks that have moved with momentum in the past will almost always move with momentum again. So when a momentum stock slows down make sure you are ready to trade it once it begins to move again.

I find momentum trades from my Momentum Scans (you can learn more about these in the Ultimate Scans free webshop), and on January 8th GS showed up on my Momentum Scan as the stock started moving toward that resistance level. By the time it had rallied through the $203 resistance level I had entered a bullish trade. There is no trade that is more fun than a momentum trade. When all the technicals are bullish and my momentum entry was hit, all I had to do was kick back and watch the buying pressure drive this stock up to almost $214 where it sits at the time I write this article. You can see how profitable these breakouts can be on momentum stocks. Goldman has run more than $11 in only five days!

Intercontinental Exchange (ICE) is another momentum stock that we traded in the past as it ran from $68 to $113. That move took nearly three months and then ICE began to slow down and consolidate. The stock was not attracting enough buying pressure to push it through $110. That resistance became an important price target for the stock. If buyers came back willing to pay higher prices for ICE the stock would rally above the $110 resistance and mark our next momentum entry.

You can see below that ICE broke out on January 3rd , prompting a bullish momentum entry. The stock then rallied to a high of $137 giving us a gain of 27 points in seven days.

ICE and GS are just two examples of the many momentum trades out there. I have shown you a couple important technicals pieces that need to be present to make this strategy work. Make sure the stock has the ability to move at least a dollar or two every day and then look at the price chart to see if the stock has moved with momentum before. Then wait for a breakout from a consolidation area to give you one of the safest, easiest and most profitable entries into the momentum trade. And remember, you may have missed these trades, but there are plenty more momentum trades to come. Learn to read momentum signals in a price chart with my six indicators adding confirmation and you will be prepared to catch the next big momentum trade

Hope to see you soon!

Markay Latimer with Better Trades

Better Trades Momentum Part 1

I love to trade options on stocks with a lot of momentum. What this means is that I want to trade those stocks, Exchange Traded Funds or Indexes, that are moving fast and far. The way I see it, if I am going to put my money in the market, I want to place it where it will work as hard as possible for me. You may have attended my free webshop on Monster Momentum plays during which I introduce a couple of the technical tools that I use to find and trade this strategy, but let me show you today some other pieces to this strategy, and how this can be a boost to your trading account.

The first step to trading momentum is that you need to find a stock that has the capability to move fast and far. These stocks generally have a dollar to two dollar average daily range during normal trading. Once the momentum picks up they can trend twenty to thirty points or so in a matter of a few months. Sometimes this momentum is sparked by news announcements such as earnings or a new drug approval, and sometimes it is just a stock that becomes heavily bought or sold by institutions. Whatever the case, once you learn to read technicals, you will be able to spot the building momentum in time to profit from the big move. As we are heading into the thick of earnings season, this article will show you some ways to trade the post earnings momentum. Watch for part II of this article to learn more about other technical momentum plays.

Holding a directional trade over earnings can be risky, but after the release the uncertainty of what direction the stock will move is gone. I like to trade after earnings because we often have an unusually large amount of trading activity that moves many stocks faster and further than they would normally go. It may be that earnings numbers were a big surprise, (they might be much stronger or weaker than expected) or it may be that traders were waiting to see what the quarter was like before they put more money into or took money out of the stock. It truly does not matter what the actual number are, mind you, because we are not trading the numbers, we are trading the reaction to the numbers. Checking a chart the evening after a company announces will show us if we have tradable momentum. If there is a great amount of buying pressure, I trade it up and if I see a lot of selling pressure, I trade it down.

One of my more favorite post earnings plays is Goldman Sachs (GS). In fact, this trade has worked out extremely well on Goldman a couple times already this year. HINT: this is a stock to watch the next time they release earnings!

Goldman Sachs announced earnings in September and gapped up above resistance. In my Technically Speaking workshops, I will show you how to use an intraday chart to trade on the first day after news is released, but for the purposes of this article I would like to teach you how to make money on this strategy even if you do not have the time to watch the intraday chart. To do this, you need to recognize momentum as it develops on a daily chart. Many momentum plays begin like GS did, as a breakout. Goldman formed a bullish Opening Marubozu candle September 19th after the earnings release. The stock closed that day above a previous $155 resistance level. A close above resistance should be viewed as a strong signal for the stock. After such a signal, I confirm with my indicators (for more information on the technicals I use, join me in one of my live Technically Speaking workshops or watch the class on DVD). I am trying to find any excuse to stay out of the trade. Any bearish indicator or bearish price pattern will prevent me from entering the trade. But, if all technicals confirm a bullish trade I enter the following day. One note of caution here: news may only have enough influence to move the stock for one day. Because of this, I prefer to enter my trades above the high (or the low if it dropped) of the day the news is announced.

Using this technique, Goldman got us into a post earnings momentum trade around $159.75. The price graph and the indicators I teach you to use were all bullish so we had the OK to enter a trade that day. Once our entry in this type of trade is triggered, you want to stay in as long as there is continued buying pressure. Often the buying pressure and momentum will move a stock for only three to five days. In the case of Goldman, the stock had post earnings momentum for three days but it barely took a breather on days four thru six before gapping up and taking off once again. The technicals have remained strong enough to keep providing bullish trades for the past couple months for a run from $159.75 to $186 where the stock is currently trading at the time this article was written. These momentum plays can be traded as one trade that you will stay in as long as you have enough time in your option or as something you can position in and out of to pull profits out along the trend.

The entry on this type of trade can feel risky because of the gap. The danger with gaps is that all the trade may be taken in the gap and there may not be enough buying or selling pressure to move the stock further. For example, when the Chicago Mercantile Exchange (CME) announced they were buying CBOT Holdings (BOT), the CME gapped to an all time high. The opening price was over ten points above the long day candle you see earlier that month.

After the open, no one was willing to pay a higher price for the CME and the stock dropped like a rock. When a stock gaps beyond a price at which it was comfortable trading, you can rest assured that much of that play was taken in the gap and the safest way to trade it may be to trade the retracement. One thing you can do to make trading a gap on news more safe is to avoid the trade unless the gap puts the stock near its recent trading range. In the case of CME, the stock was so far above where traders were comfortable buying it that people took profits out very quickly. With Goldman, just the opposite was true. Because it gapped to $155, a price that people had paid for the stock many times in August, traders were much more comfortable piling in at that price after earnings. All the buyers willing to pay $155 or more for GS helped push it much higher.

A news announcement such as earnings can present wonderful trades. The momentum associated with the news may create a lot of buzz around the stock and draw more buyers into the stock, or motivate people to sell the stock in droves. Either way we can trade it. Check the technicals first to make sure everything is bullish before buying calls or that everything is bearish before buying puts. And remember that as long as the stock gaps to a price that is has traded recently, there may be plenty of room left for the stock to move. Enter the trade and manage your risk by placing your stop. This is one easy way to build your account up trading momentum during earnings season.

Hope to see you soon!

by Markay Latimer with Better Trades

Be Cautious When Studying Mutual Fund Ratings

Wherever you look, you will find various rating systems on mutual funds, each of which uses a different approach. All of them are designed to weed through the thousands of funds to get to the best ones. But is there really such a thing? Does a high rating really mean a fund will do better in the future? Many people seem to think so. A recent study showed that Morningstar, North America's most recognized rating system for funds, has a tremendous influence on fund sales. If Morningstar gives a five-star rating, those funds typically enjoy increased sales as a result.

While ranking providers are careful to warn investors that their ratings don't foretell the future, the star system is, unfortunately, used by some investors as if they were reading Consumer Reports to purchase a new drill. Supporters of the ranking approach argue that there's no subjective component to the star rating. It isn't determined by an analyst's review, and can't change simply because the service dislikes the fund's manager or its investment strategy. And that's good.

Performance will vary. Fund performance often falls off and risk levels rise during the subsequent three years after a fund is given an initial five-star Morningstar rating, suggests another recent study by Matthew Morey, a professor at Pace University. One reason for this is that after receiving a five-star rating the size of the fund grows dramatically, which then makes the fund unwieldy to manage, he suggests. Since Morey's study was completed, Morningstar also has changed the way it doles out top rankings to make them more precise. One of the biggest problems with all rating systems is that they are not necessarily predictive in nature. This means they're not really set up to tell you whether certain funds will necessarily do better in the future. For the most part, the ratings indicate how much you might have made and how much aggravation you faced in the process.

Combining risk and return. For example, one five-star fund might post moderate return scores, but incredibly low risk scores. Another five-star fund might have much higher-risk scores, but its return score could be strong enough to help it still rank in the top 10% of the pack.

In some cases, in fact, it's not even the same fund to begin with. Remember, after a management change, the rating stays with the fund, not the portfolio manager. Therefore, a fund's rating might be based almost entirely on the track record of a manager who is no longer with the fund.

Understand how the ratings were developed. Too many people put emphasis on the results without knowing how the results were achieved. If you are going to use ratings, take the time to understand how they were developed and what they really mean. It is not the destination but the journey that counts.

Past performance is no guarantee of the future. You have probably heard this disclaimer a thousand times before, but it is really important to understand. Most rating systems have little to no predictive element in them. It's natural to think that the best performer of the past will be the best performer in the future. Unfortunately, it's not that simple. Just think about it; if it were that easy, investors would just continue to buy last year's winners knowing that they will be this year's winners. And that seldom works.

Ratings are a very important element in trying to distinguish between good and bad funds. Good research, however, goes far beyond just looking for five stars or an A+. When evaluating funds, look at the quantitative, measurable characteristics of a fund: returns up against the benchmark, costs, risks, taxes and manager tenure. Use rating systems as part of your research, but remember: just because the analysts give them top marks, it does not mean they will be the best investment in the future, and doesn’t it mean that they'll be the best investment for you in particular. Take the time to understand how the ratings were achieved. This will be the first step to educating yourself about funds.

Basic Investing Rules

Investing your money can be a great way to ensure your financial future. With the right investment choices, you can be sure to have money for emergencies, to put towards the education of your children, and to have available when the time comes for you to retire. There is a key word in the preceding phrase however- “right”. If you make the wrong investment choices, you may just end up where you started or worse, flat broke. Most people who invest wisely by making the right decisions with their money follow the same basic investment pattern, although they may define it by another name. It might be that you are the cynical type who chooses to believe that the basic rules could not possibly be as easy as they seem, in an area that seems so complex. It is true. However, that these rules have withstood the test of time.

First of all, make sure that the money you choose to invest is indeed earmarked for the purpose. As in any form of gambling, there is nothing to be gained and everything to be lost when it comes to investing. Do not put up money that you cannot afford to lose should the market take a downturn.

One rule that people seem to refuse to apply in any area of their lives, including the world of investing, is lean not on your own understanding. Most of the time, this is the result of people balking at entrusting another person with their money, believing that with a little understanding they can work the market themselves. This reasoning is fundamentally flawed. In the first place, most people will not be able to begin to unravel the complicated graphs, pie charts, and statistics by which the investment world relates its information. In order to understand what the numbers mean, you will need to have some basic training. There may come a time after you have had some experience in the market that you will be able to make sound decisions on your own, but the initial get-your-feet-wet phase is not the time to attempt it. Check the background of the advisor you choose, as there are a lot of brokers out there looking for a quick fleece. The best brokers will have years of experience, a variety of investment backgrounds, and will probably cost you much less than you might think.

Think long term. Unless you invest millions of dollars initially, it will take time for your investments to mature and begin to accumulate substantial gains. The best investments are proven over time, and thus it is best to place your funds in long term choices. The details of this are plain- it is best to forget about this money in terms of a cash fall back, at least for a number of years.

Diversification is an oft-flogged truism of the investment world. A good portfolio will include cash and cash equivalents (GICs, fixed annuities), growth investments (stocks), and growth and income investments such as mutual funds. Diversification ensures that you do not have all your eggs in one basket should any part of the market experience a downturn. Note that diversification means not only investing in several areas, but also making sure that no one area contains a disproportionate percentage of your funds.

Computer Insurance

Investing in a personal computer is not less an amount. It is next only to investing in a house or a car. So, it’s not unwise an idea to insure your computer and its allied accessories like peripherals and software. However, how much coverage you get for what accessory depends on individual market offer. There are several threats your computer might face. Such as virus attack, data corruption, system crashing down, peripheral malfunctioning and many more. Thus, it is important for you to protect your investment by proper insurance coverage. There are certain aspects of computer insurance you must know.

<b>Coverage under homeowner or renter’s policy</b>

In most of the cases if you have homeowner or renter’s policy your home accessories and assets are also covered in that and so is your computer. It is covered against all the threats and disasters listed in the policy. Thus, if your computer gets stolen or gutted in fire you can claim for the damages. However, your computer gets covered only for the amount listed in your policy.

<b>Replacement cost and actual cash value</b>

Though replacement cost is 10 percent more expensive as compared to Actual cash value, keeping in mind that things depreciate fast, this is a very wise move. The reimbursement you get on replacement cost is the same as the current cost of your computer and not the petty depreciated cost you would get with actual cash value policy.

<b>Coverage for Laptop and portable computer</b>

Laptop and portable computers are considered personal possessions away from home under the homeowners or renter’s policy. Thus, they are also covered under this policy. However, there is a dollar limit on personal possession that are stolen or damaged away from home.

Computers don’t only get covered under the homeowners or renter’s policy. A number of insurance companies offer individual insurance policies for computers as well. It is important to remember that when you buy a computer insurance policy you must retain the receipt of the policy as well as that of the computer and its peripherals very carefully.

Computer insurance is vital for students, business professionals, small business owners, schools, home users with heavy usage and many more people who use computers for their critical applications. Computer insurance does not cover certain items such as maintenance costs, electrical or mechanical breakdown, wear and tear, fraud and dishonesty, consequential loss, and loss or damage caused by sonic bangs. However, they are well covered under the warranty/extended warranty of the equipment.

A Murky Crystal Ball

While the early results of earnings season may not be giving investors much to cheer about, it is a nice diversion to the stock market's May-June sell-off. 

And like a much needed summer holiday, it may be just the break penny stock investor's need before heading into the autumn trading season.  But until then, we must weather a turbulent earnings season. 

Now, I'm not sure if your favorite penny stock company has announced their quarterly results yet, but I have noticed that there seems to be something missing at the end of (some of) the reports.  And it's making my ability to predict the future that much more difficult.

Typically, at the end of an earnings report, a company will finish off teasingly with a "forecast" or an "outlook" for the next quarter and sometimes the remainder of the year.  Something that will make us stick by their side through thick and thin.

Unfortunately, market volatility and ever growing geopolitical tensions are making it tougher for companies to predict what's going on quarter-to-quarter.

Lebanon may not be an economic powerhouse that's part of your water cooler banter...but last week's Israeli bombing was enough to shake global markets.  In addition, oil prices hit a new record and the Vix index of U.S. stock-market volatility shot up 29% in a week.

It's tough enough trying to accurately predict how well your company is going to do quarter-to-quarter when times are good.  Throw in rising tensions in the Middle East, a depressed market, and an all too present hurricane season, and you've got a murky crystal ball.

Why?  When consumers get strained by higher prices and pay more to borrow, investors are worried that they'll have less to spend; lowering overall demand for good and services.  In return, some businesses need to absorb higher costs without scaring away customers.  And customers like you and me are the ones that impact a company's earnings.

Still, penny stock investors ought not be too nervous about market jitters.  Penny stock companies, by their very nature, can take advantage of changing economic conditions and opportunities better than big companies.

And a jittery market means there are still lots of good buying opportunities out there.  There is obvious strength in oil and gas and precious metals.  But for penny stock investors, you want to find something that isn’t obvious.  Or at least isn't obvious to the rest of the investing herd.

Predicting the future of the stock market day-to-day is difficult enough, let alone trying to guess what you're going to do quarter-to-quarter; unless your name is Marty McFly, you own a De Lorean, and have a flux capacitor.  In which case, we need to talk.

7 Things You Need to Know Before You Start Investing...

Copyright 2006 Jason Chew

1. Know your current financial situation. Know you debts level. Calculate your income and expenses by taking into account the following:

Mortgage repayments
Personal tax
Loans and overdrafts
Living expenses
Emergency funds
Car expenses
Entertainment
Holidays
School fees
Credit card debts
Family commitments

Before you start investing your money on any investment products, you should know how much you could spare each month for investment. General rule is that, you should clear your debts first, then save and invest later. That is to say the more money you put aside now, the better it will be for your future. I would say put aside 10% of your income for rainny days. 10% is a small amount that you won't feel a pinch. Save it until you have managed to build a "dam management funds".

2. Prepare funds for dam management. This goes in line with point 1. You need to keep at least 3 to 6 months ofyou income as dam management. After you have managed to do that then additional money that you saved can be used to invest.

3. Protect yourself and your family first. By this point, I mean you should have the basic life insurance that insure you and your family against terminal diseases and accident. This is very important as even though you might loose all your money through investment and if you or your family members need medical attention, it will be well taken care of.

4. Know your risk level. If you are not able to take big risks, short term investment and swing trading is notfor you. It's better to invest in mutual or trusts funds which will give a steady payout and have lower risk.If you are a high risk or medium risk taker, you can try invest in stocks, growth and hedge funds.

5. Diversify your investment. Expert would tell you it is a must to diversify your investment. Your investments needto have a steady mix of stocks, mutual funds and/or bonds. Beside that, your should invest in different industryand/or different regions. This will help you minimize your risk as fluctuations in the markets will not have a big impact on your investments. Your ideal mix will be 20-40% stock and the rest mutual funds and bonds.

6. Do your homework before you invest. It is good to seek expert advice. But, the money is ultimately yours. So you need to do some research and make a sound decision on what to invest even though your financial advisors might have already worked it out all for you. This is to make sure you know what you are investing and able to keep track of them. If your investments suffer loses you will be able to make a right decision whether to sell or hold if you know your stuff well.

7. Do stock take yearly if not frequently. Your investment might already be reaping in profits. But, it is good to know how well you fare at the end of the day. Reinvest the profits and celebrate if you have success. This will serve as motivations for you and will make you more determined to acheive your financial goals.

7 Common Mistakes of Estate Planning

Even though planning your estate isn’t an enjoyable job it’s necessary so that you can efficiently and successfully transfer all of your assets to those you leave behind.  With a bit of careful planning, your heirs can avoid having to pay estate taxes and federal taxes on your assets.  As well, a well planned estate avoids confusion for your loved ones.

Still, with all the advantages of estate planning, many people make a great many mistakes in the process.  The most common mistake when it comes to estate planning is not getting around to doing it at all.  Make sure that you take the time to plan at least the financial portion of your estate so that you leave your loved ones behind with some amount of security. The following seven mistakes often put families into great difficulty after a loved one’s passing.

1. Don’t fall into the trap of thinking that estate planning is just for the rich.  This is completely false as planning your estate is essential for anyone who has any amount of assets to leave behind.  Many people don’t realize that their estate is as large as it really is, especially when they fail to take into account the assets from their home. 

2. Remember to update your will and to review it at least once every two years.  Factors that can change information about your beneficiaries include deaths, divorce, birth, and adoption.  As your family structure changes so does the change in your assets and who you want to leave them to.

3. Don’t assume that taxes paid on your assets are set in stone.  Talk to your financial planner about ways that your beneficiaries can avoid paying taxes on your assets.  There are several strategies for tax planning so that you can minimize taxes or avoid them altogether. 

4. All of your financial papers should be in order so that it’s easy for someone to find them.  Make sure that one of your loved ones has information on where to find the papers necessary for planning after your death.

5. Don’t leave everything to your partner.  When you leave all of your assets to your spouse you are in reality sacrificing their portion of the benefit.  You’ll get an estate tax credit but will forfeit part of this if your spouse is your only beneficiary.

6. Ensure that your children are well planned for.  Many people take a lot of time deciding what to do with their assets and forget that they need to appoint guardianship for their children.  There are many details to take into consideration when it comes to guardianship.

7. If you don’t have a financial advisor, get one. Financial Planners and Advisors are trained intimately in these matters and can provide asset protection well above whatever fees they may charge. If you need help selecting the right financial advisor, get the Financial Advisor Report.

The above mistakes are common when people are planning their estate.  Take the time to plan for your death even though you think that you have years before it becomes an issue.  The key to successful estate planning is being prepared.

"If it ain't broke, don't fix it"

I like maxims and quips. Little phrases that tell a big story. I like the parables in the Bible because a child can say "I get it," and an aged student can say "Oh… now I get it." The principle of keeping it simple is a good one for most of life's situations including trading. And while trading skills are not easy to master, they involve simple principles.

Mastery in most areas of life includes learning to conserve extraneous movement and effort. When it is done right it looks simple and onlookers often say "Well, I could do that." But the "wanna be" soon finds that it is not as easy as it seems. Trading can be frustrating and discouraging, but when the market seems to get you down and you feel like you will never get it, remember Sean Connery's famous line, "Impossible, but doable."

Too often, traders experience real highs and real lows. While the give and take is normal and expected, big swings are usually the result of changing stride or technique inappropriately. Finding your stride or niche can really make the trading life a lot more consistent and smooth and therefore, profitable. Getting to know a few terrific trading stocks rather than collecting all the potential candidates from recommendations and scans begins to overwhelm a trader and changes the rifle shot accuracy to a shotgun splatter.

So, a while back in a Trader Talk Live training a student wrote "- the past 7 days of trading have been absolutely fantastic. I have confirmed again the value of following just a few stocks and getting to learn (as much as possible) their behavior. PD is one of my all time favorites". She was referring to a principle that is trained in the Trader's Forge two day trading camp that I conduct once a month. I advise students to build a stable of good trading stocks and get to know them. Pick your favorite 6-10 and back trade them repeatedly. Learn to recognize the patterns of behavior. Does it behave in similar ways around earnings? Does it make clean or sloppy turns? Does it have a tendency to throw certain chart patterns? In doing so, you get a feel for the traders who influence the stock and improve your chances to repeatedly tap that stock for pattern trades.

The patterns we observe are the behavior of people. Key Traders are interacting with various levels of traders, brokers, fund managers and the public. This cast of players is unique in each stock or group of stocks, bonds, commodities etc. Hence, unique patterns develop and that is the key. Instead of flitting around like a butterfly from bush to bush looking for a new flower, you can find certain flowers that keep producing on a regular cycle. You develop a routine and learn the cycle so that you can just stick around and harvest over and over again.

I have a friend who taught me this principle in a dramatic way. He had a very narrow group of stocks that he got to know and not only did he learn the patterns, but he also studied the company's behavior. He knew how they acted around earnings, what products they were releasing, and how their stock responded to economic news and events. One year alone, he made over $750,000 trading one company. It was interesting to note that others seeing his success always wanted to know, "What's it going to do next?" Like the children's story of the Little Red Hen, most fellow traders wanted to cash in on his valuable insight and very few asked him to teach them how to trade like he traded. It was folly to think that if he gave them the information, they would also gain the skill it took to glean the information. That, however, is human nature.

It is the nature of most folks to want to find the easiest way. Most want to find a secret or a magic strategy. A good deal of the GDP of this country is based on selling the sizzle, not the steak. We search for the fountain of youth, the short cut, and the edge so to speak, but in the end one universal constant remains. Working smart is better than working hard. And in the end, the magic is usually finding the key or core of the matter and developing some simple and specialized skills.

If you can find a piece of good ground that can be cultivated and harvested over and over again, you find one of the jewels of trading. The secret of most millionaires is finding a stream of residual income. Patterns are there because people are creatures of habit and the market is just people. With six to ten good pattern trading stocks in the price range you like, there will always be something ready to trade. When you run across a great stock, you can replace the weakest one in your stable and place it on the bench until it warrants taking a position on the starting lineup.


The problems come when a trader chases the latest hot stock or lets their field of vision widen too far. When you find an account size and a group of stocks and a few strategies that work, stick with it!!! And don't mess with it and Dance with what 'brung ya'.

I would love to have you spend a couple days with me in the Trader's Forge. As a trading coach, that is where I can do the most good for you. I train folks in the Trader Talk Live mentoring workshops each week but that training is most beneficial to the folks who have been to the two day training of the Forge. Last week was a terrific training in Tampa. This month is Denver and then on to Detroit.

I hope to see you in the online web training classes held throughout the week and soon in a two day FORGE Trading workshop.


Ryan with Better Trade