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TranceAddict Investors Club @ Marketocracy (pg. 17)
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| Krypton |
| quote: | Originally posted by Shakka
:haha: :stongue: :crazy: |
I'm just sayin. I got the basics down. I know how it works. I'm just trying to figure out how these futures, options, and forex markets work, because they seem to be a place where big huge banks go to trade, and I don't want to be clueless about it.
| quote: | | WTFFFFFSICLE...ZOMG....KRYPTON...Stay away from that crap!! Stick with stocks and ETF's. Don't even f*ck with that crazy stuff...It's an easy way to go bankrupt. You could make many gains over the years trading the market then lose everything in the blink of an eye with one wrong bet in the futures markets. It's not worth it. |
That's why I'de allocate only a very small amount of my portfolio to trade in these markets. I wouldn't expose my portfolio to that kind of risk, especially with a 50:1 leveraging ratio. It would basically be my poker gambling money, money to play with, and gamble with. It won't be money that I need. I'll call it my Chuckee-Cheese money.
It's so bloody confusing some of this stuff, but I'm gonna learn it. Maybe it'll be easier if I paper trade. |
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| Krypton |
My Fundamentals Fund looks to be an apparent success. I expect huge gains for this year, even if there is a recession in this country. I have large exposure to the international markets, and broad exposure across market sectors. A recession won't bother me at all. I'll just go on a buying spree.
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| atbell |
| quote: | Originally posted by Krypton
I've pretty much got the stock market down. What is getting me is the FOREX market and Options market. Anyone have any experience in these markets. I've been reading everything I can and writing out "what if" situations, but I still don't get it.
For example of one "what if" (purely theoretical) situation...
FOREX - Foreign Exchange
1. I have $1000 in initial capital. My broker lets me leverage it at a ratio of 50:1. So I have $50,000 in leveraged funds.
2. I buy €36,720 and sell $50,000. The currency rate is €0.7344/$1.00. I expect the Euro to rise against the dollar.
Now two things can happen. I can sell at a loss or I can sell at a gain.
Loss: I sell €40,005 and buy $50,000. The currency rate changed to €0.8001/$1.00 where the dollar gained in value. Now €36720 - €40,005 = -€3280 which is my loss. This would be around a $4,099 loss.
Gain: I sell €32,560 and buy $50,000. The currency rate changed to €0.6512/$1.00 so that the value in the dollar fell. Now €36,700 - €32,560 = €4160. This would be a $6,388 gain.
I'm not expecting much of a response from anyone, but if there are anyone who knows anything about FOREX, can that person provide any insight whatsoever? |
My international business prof. noted that FOREX speculating is gambling. This is comming from someone who does nothing but read about business all day every day, and has been for 30 years.
Yes you've got the theory down without a problem. The way to make money is to buy a foreign currency with money of your country of origin when you expect your own currency to drop relative to the other curency. And yes you do loose if it works the other way round.
The difficulty in curency speculation is that there are so many different factors to gauge that effect the way in which two currencies move.
For example, the recent addition of "liquidity" (money printing) by almost every central bank is going to have an effect on the currency markets but how much depends on many different factors. Which bank printed more currency? Which one printed more in realtive terms to the current supply of money? How are financial innovations going to affect the demand and velocity of money? Is the printing of money going to change the demand for money in each country? Could the intrest rates that are arbitrarily set by each central bank change the demand for each currency? ... and this is just scratching the surface. (I've been re-reading about money supply :toothless ) |
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| atbell |
| quote: | Originally posted by Krypton
It's so bloody confusing some of this stuff, but I'm gonna learn it. Maybe it'll be easier if I paper trade. |
Learning the higher level investing tools is difficult and it requires years of study and practice.
Courses and books in economics are good to start with but difficult to struggle through. Actually working in the business is good but stressful. There are lots of supper aggressive work-a-holics on wall street and the equivalent.
I've been reading about some of the fancy financial "innovations" recently too. Ones that are interesting to look into are credit derivatives as they are one of the newest things being traded.
Oh, I'd also suggest reading the economist and financial times as good places to get more familiar with financial terminology. The BBC business section isn't bad either. |
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| Krypton |
| quote: | Originally posted by atbell
Learning the higher level investing tools is difficult and it requires years of study and practice.
Courses and books in economics are good to start with but difficult to struggle through. Actually working in the business is good but stressful. There are lots of supper aggressive work-a-holics on wall street and the equivalent.
I've been reading about some of the fancy financial "innovations" recently too. Ones that are interesting to look into are credit derivatives as they are one of the newest things being traded.
Oh, I'd also suggest reading the economist and financial times as good places to get more familiar with financial terminology. The BBC business section isn't bad either. |
I love the economist. They really do pack that magazine with so much stuff its hard to read it all in one sitting. I'm certainly not interested in investing any real money in Forex, but options look very attractive. I know how they work, I just need to find out how the process of buying and selling them is done. As in, I need to search brokers, and find the right option, and actually trade one for the first time. |
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| Krypton |
I rebalanced my Fundamentals portfolio bringing all stocks that gained more than 10% back to their original allocation level. I took some pretty nice profits off the table.
I suggest everyone re-balance their portfolio back to their target allocation because buying a stock and watching it gain, and not doing anything to change the position actually cuts into potential returns, and increases the risk. Think about it. It's much easier for a stock to rise off a low, than for a stock to rise from highs. So sell the excess gains and buy the excess lows. Just make sure the stock you invest in has good fundamentals.
I know my companies have good fundamentals, so I concentrate on price entry's and exits. My current criteria for an addition to any current existing position I have is this...
Main trade rule: I only trade (buy/sell) at the beginning of each quarter, March, June, September, and December.
Buy: I buy any new stocks I have analyzed to have good fundamentals. I re-adjust my losing positions back to their original allocation but only if their fundamentals remain good.
Sell: I sell any stock whose fundamental grade falls below a C, which indicates weakness in quality compared to the market and industry. I also re-adjust my winning positions back to their original allocation.
With this trading strategy, you gain by...
1. Trades kept to minimum. This will bring your turnover rate down. The higher your turnover rate, the more your fund pays in taxes and commissions. Passive mechanical trading is much less risky than active emotional/speculative trading that most uninformed investors do.
2. Enables you to buy low, and sell high.
3. Again, TIMING. You only worry about buying and selling 4 days of the year, at the beginning of each quarter. If fundamentals change against you, then can a position be liquidated in the middle of a quarter.
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For more information on this important tenant of risk control, check out this PDF from Vanguard Group on portfolio rebalancing HERE. |
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| Capitalizt |
I think your rule #3 is a bit silly.. Sometimes the market gets very irrational and throws good companies out with the bad. You need to be ready to take advantage those opportunities, 365 days a year...not just on four pre-set "trade days".
I can't remember any specific names, but I remember when I used to follow the market closely, one company with a $1 billion market cap announced a sudden unexpected charge of $100 million due to some government regulation.. The stock sold off 40% over the next two days, rather than the more appropriate 10%, which would have made the market cap reflect the loss. Before the week was over, the stock had recovered and ended up around 85% of where it was before the announcement, so if you had bought during the bloodbath, you'd have a huge gain in only a few days..
People always panic and act stupid when unexpected things happen, and if you limit yourself to 4 trade days a year, you will miss all sorts of opportunities. |
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| Krypton |
| quote: | Originally posted by Capitalizt
I think your rule #3 is a bit silly.. Sometimes the market gets very irrational and throws good companies out the window with the bad. You need to be ready to take advantage those opportunities, 365 days a year...not just on four pre-set "trade days". |
At the heart of my strategy is dollar cost averaging. As soon as I find a great business with fundamentals, I buy it immediately, regardless of price. If the the stock price falls from what I paid, then I buy more shares at a lower price, and thus offset my losses. If the business is good, you should have the confidence to buy when the price falls, because the price will eventually recover and provide satisfactory returns that good companies bring to their shareholders.
Perhaps you would be right if in reference to a more active trading strategy. The Fundamentals Fund is run passively, with as few trades as possible, is long-term, and buys low, and sells high through the process of dollar cost averaging. Trust me, you'll see how well this method works with my fund. |
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| Shakka |
| One conflict I come upon with dollar cost averaging (at least as it pertains to my business) is that on the one hand I can see the benefit of helping your cost basis by picking up shares at lower cost if your conviction is high, however on the other hand it is very easy to violate a major rule in investing which is never to add to a losing position. But again, if your conviction level is that high, then by all means, yay risk/reward. |
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| Krypton |
| quote: | Originally posted by Shakka
One conflict I come upon with dollar cost averaging (at least as it pertains to my business) is that on the one hand I can see the benefit of helping your cost basis by picking up shares at lower cost if your conviction is high, however on the other hand it is very easy to violate a major rule in investing which is never to add to a losing position. But again, if your conviction level is that high, then by all means, yay risk/reward. |
I guess you could say my investment religion is in fundamentals. I place my whole-hearted faith in fundamentals that it can weed out the mediocre and bad companies from the gems that are out there. You just have dig for them like your digging for gold in a river, there's going to be a lot of rocks, but you'll find gold if you know how to. Which is why I've spent so much time on these spreadsheets.
Adding to a losing position does require utmost confidence in the future upward movement of that position, and so would require careful fundamental analysis, but if the fundamentals are great, the stock price is irrelevant. Stock price alone doesn't dictate the value of a company, but only the demand for that stock.
My convictions are high because the fundamentals tell me they should be. Passive, mechanical investing, to me, is the best way to go. |
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| Krypton |
People, it is a very good time to be a bear. The indicators seem to support this, and a potential Fed rate cut is sweeping Wall Street. I rebalanced my portfolio just in the nick of time. Now I have plenty of cash to add onto the 90 positions I already have at a discounted price.
Shorters are showing their confidence...
Prices are still expensive...
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| mndeg |
Am I the only person who uses technical analysis? I'm from the stockfetcher camp.
lol
www.stockfetcher.com
I'd like to infuse both TA and fundamental analysis for a more laid back strategy. There are services like vectorvest that screen for fundamental analysis but I've heard something as simple as msn moneycentral powersearches can do just about as well.
I can generally pinpoint the general trend in short term trades but as of right now I'd rather not devote the time to trading and worrying about trading.
btw if you are doing fundamental analysis I would highly advise against using options unless it's used as damage control. |
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