Myths In Trading World

Myth #1 – Trading System is mechanical and thus takes away your emotions and judgement

Trading System itself takes up only a percentage of trading. Joe started his trading career by attending a power trading system course and realized soon that no matter how good the system is, more than 90% of his course mates including himself cannot follow the system due to trading psychology. Those who succeeded immediately after the course are found out to be experienced and professional traders who already mastered trading psychology.
Besides trading system, the other 2 important components in trading are money management and trading psychology. Due to the fact that no trading system is perfect, the need for money management and trading psychology will never turn obsolete.

Myth #2 – Trading Psychology can only be acquired though actual trading

This myth used to be true until Joe made a break through and realised that trading psychology can be trained and conditioned using Neuro Linguistic Programming (NLP). However, it must be taken noted that NLP by itself will not turn a novice into an expert because the trading battlefield can never ever be simulated fully. What NLP can do is to bring a novice trader to a higher stage prior to entering the trading battlefield and drill the trader so well that regardless of fear, greed or impatience, the trader will relentlessly follow the planned strategy. Such drilling is similar to that of military drilling of soldiers so that they will attain braveness and courage and continue to act upon the command of the commander even in the bloody and merciless battlefield. NLP can also help experienced trader improve on his performance by deleting undesired traits and patterns in his trading and imprint desired patterns. As such, a main bulk of trading psychology can be acquired and trained with new science and training methodology such as NLP.

Myth #3 - Great Traders Can Predict the Market Direction

All traders can predict the market, but some will be correct half the time. In fact, traders who try and predict market direction are not termed as traders, but speculators or worse gamblers. All great traders understand that it is impossible to predict the market, so they do what is next best, prepare. Great traders are fully prepared for whichever condition the market goes and win trading in any circumstance. Do note that I am not speaking about analyst and have nothing against them. In fact most excellent analyst never predicts the market but speak of trends and probabilities which are different from prediction. Probably the best people to predict the market are people who can move the markets like terrorists or Guru Joe who holds the crystal ball.

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Safe Investment Practices

What are you exactly looking for: Huge profits or marginal profits? You have money to invest ; Investing wisely can make you rich.

The important things any investor needs to know are Risk, Duration, Returns and Liquidity. Risk Most people would like to get the best out of an investment. With every kind of investment there is some risk involved and knowing a few risks would help you manage the risks better.

• Inflation risk is your deposit keeping up with inflation. You may invest in a savings account, or certificate of deposit or bonds. When there is inflation in the economy your deposit is worth less than what you imagined it would be.
• Principal risk is a loss in the initial amount you invested. For example you buy stocks worth $5000 and the stock value has fallen and you find no other option but to sell rather than lose further. You sell all the stock at $2500. The principal you lost is $2500. If you retain the stock you may still lose if the stock value falls further.
• Interest Rate risk is the fluctuation of the price of stocks or bonds due to a fluctuation in the rates of interest.
• Market risk is the factors outside the control of companies like changes in the economy, government policy or market trade.
• Credit risk is when you invest in bonds and the company is unable to make interest. They return your entire principal. Then your investment has not yielded returns.
• Duration is as important a factor as risk in evaluating your investment. Duration is the time within which investors can get back their investments. Duration and risk determine the investment returns. Duration can be short term or long term and fixed or managed (by investor). Returns The Rate of Return (ROR), Return on investment (ROI) or simple return is the money earned or lost to the amount invested.

This is a very popular metric used in financial analysis. It is simple and versatile. If an investment does not have a positive ROI then it is not worth investing in it. If the investment has greater ROI then those investments are a better option. Generally investments that involve greater risks are those which promise a greater ROI. Liquidity Any asset that you own, be it property, stock, bonds etc… can be converted into cash. Money in the form of cash is the most liquid asset. In case you cannot convert your bond to cash within the term then your asset is illiquid.

• Tussle for returns: Over the long term property and stocks have out performed all the other assets. Real estate grants and real estate software could help you in real estate investments.
• Treasury bonds and other government related bonds are the safest investment for long term benefits.
• A diversified portfolio is a less risky than a concentrated portfolio in one or a few investments. The margin of profits you make will also be counter balanced.
• If you are not sure opt for managed investments instead of direct investments. You would have to pay costs for the management of your investments.
• A bank account is a safe place for cash in case you do not want to choose a high risk investment. Banking services could cost you and so the choice of services could be the best deal you make.
• Credit unions, mutual funds, money market funds, brokerage cash-management account and other options are also available.
• Invest in the energy sector stocks. Oil, natural gas and related stock have risen enormously over the past few years.
• Hotel and travel is another popular target for investment options.
• Mortgage companies are also in the fray for investing your cash. But make a wise choice as many have acquired a dubious distinction of cheating customers.
• Computer related stocks like software, hardware and internet have seen gainers and losers. Big cap stocks like eBay and Google are the best bet.
• Investing in gold, platinum or precious stones are also beneficial as these show signs of increase when the currency falls. Prudence in some investments is always advisable. Learn how the investment market works and then invest.

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Tips on How to pick the winning stocks

Investment can be one of the ways to be rich... Here investment mean picking the right stock.

Given below are some tips to help one pick the winning stocks:

Stock Research Report or Company Report Get the Revenue figure. What you want to know, is whether it has steady growth evidenced by sales figure on an upward climb. Understanding more about the Cost of Goods Sold figure. This tells you more about the costs of all materials and expenses incurred in making the product. Rental in keeping stocks is not accounted.

Financial Ratios' The few favourite ratios :

• P/E (Price to Earnings Ratio) , EPS (Earnings Per Share) and ROE (Return on Equity) This ratio reveals about the value of a stock. The price of a stock divided by the earning per share is called the p/e ratio. Every stock has a trailing p/e and a forward p/e. The trailing p/e uses earnings from the past 1 year while the forward p/e uses next year's projected earnings. Compare the current p/e with its historic p/e during its last 3 years. Try to "aim" for a stock with low p/e. If the p/e is high, its risky as it is more difficult to meet the high earning expectations of its shareholders. Companies with low p/e ratios usually operate in slow growth industries. Also mature companies with low p/e often pay dividends while high p/e ratios usually does not.
• EPS : This ratio reveals the growth of the stock. It takes what the company earned and divides it by the number of outstanding stock shares. This ratio is usually reported at the end of the year. But realise that this figure can be manipulated due to market pressure. Of course, the bigger this ratio is, the better.
• ROE: Some people consider this to be the "it" to measure the stock's success. This ratio shows you the rate of return to shareholders by dividing the net income by the total shareholders' equity. Big is good. Anything above 20 percent is good for me... 3. Sector Outlook A few things must be enquired before compiling a list of stock possiblities a) Does the company produce high end services/ products? b) Does the company management have experienced/ qualified personnels in the industry they are in? (For me personally, I believe that in highly specialised fields, higher value added performance is obtained from people who are "skilled specialist" : That explains why Google is superb in the things they do ) c) Is the stock reasonably priced? d) What about comparisons with the other stocks? e) Does a company have patents to keep potential rivals at bay? There you are.. good luck!

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