In the investing world, it's a fact that there are more men than women. But who has better chances of succeeding? What exactly, makes one more successful than others?
Find out in the latest interview Mirriam had with Channel News Asia on the AM Live show just yesterday. Fresh from the oven!
http://www1.channelnewsasia.com/amlive/2012/07/24/interviews-investing/
July 25, 2012
June 29, 2012
Bullish or Bearish?
If you're a beginner in the US Stock Market, you may be be confused with some terms frequently used in investors' interviews, news or the papers. So what exactly does bullish and bearish mean?
When the market is said to have a Bullish trend, it means the overall market direction is on the upside. This means investors have an increased confidence in the market and are more willing to top up investments in the market. This is also said to be the best market environment to be buying stocks.
A Bearish trend on the other hand means the market has been on a down trend. Using the rule of the thumb, bearish trends mean stock prices have been declining 20% or more over a two-month period of more. This usually happens during a transition from a period of high investor confidence to normalcy or market uncertainty.
An easy way to remember these terms is to imagine a fight between a bull and a bear. Bulls typically use their horns to attack and so it attacks with an upward movement. Bear use their claws and so it swings it’s paw with downward strokes. Hopefully this helps you remember better.
When the market is said to have a Bullish trend, it means the overall market direction is on the upside. This means investors have an increased confidence in the market and are more willing to top up investments in the market. This is also said to be the best market environment to be buying stocks.
A Bearish trend on the other hand means the market has been on a down trend. Using the rule of the thumb, bearish trends mean stock prices have been declining 20% or more over a two-month period of more. This usually happens during a transition from a period of high investor confidence to normalcy or market uncertainty.
An easy way to remember these terms is to imagine a fight between a bull and a bear. Bulls typically use their horns to attack and so it attacks with an upward movement. Bear use their claws and so it swings it’s paw with downward strokes. Hopefully this helps you remember better.
June 21, 2012
Trading Jargon
Before you dive into the trading world, you might want to get yourself familiarized with some of the common terms that explains what you are buying and how it affects your profits. They may seem puzzling at first but once you grasp the concept, it's easy peasy!
The first you will encounter is Strike Price.
This is the price the Option is bought or sold at. The Strike Price is dependent on the Stock Price. Say Apple's stock at this moment is 257.86, the Strike prices listed will be something like:
AAPL Jun 250 Call AAPL Jun 250 Put
AAPL Jun 255 Call AAPL Jun 255 Put
AAPL Jun 260 Call AAPL Jun 260 Put
Notice the prices are at $5 increments. This applies to most stocks.
The Strike price also helps to determine if the stock is In-the-Money, At-the-Money or Out-the-Money.
In-the-Money
When an Option is said to be ITM, it refers to Strike prices below for Call Options and Strike prices above for Put Options. ITM also means that this Option has Intrinsic Value. Take the Call Option for example, buying an ITM call for APPL would be the strike price of 255 or 250. Of course the higher the intrinsic value, the higher the price of the Option. Say we bought APPL Jun 250 Call, if you were to exercise the Option (buy the stock) immediately, you'd get it $7 below the market rate, so selling the stock immediately gives you a $7 profit per stock.
At-the-Money
An ATM Option means that the Strike Price is the same as the market price. But because this is seldom the case, this term usually refers to the Strike Price nearest to the Stock Price. Eg. Stock Price: 250.25 ATM Strike: 250
Out-the-Money
OTM is the exact opposite of ITM. It refers to Strike prices above for Call Options and Strike prices below for Put Options. Take the same Call Option example into perspective. If 255 Call and 250 Call is said to be ATM, an OTM Option would be 250 Put and 255 Put.
How about 260 Call & 260 Put? Which is ITM, which is OTM?
Answer: OTM: 260 Call / ITM: 260 Put
Also note that an OTM Option has no Intrinsic Value, thus it is cheaper than ITM and ATM Options because it only has Time Value.
Notice the Month is included when purchasing the Option. This month states how long till the Option expires. All Options listed in the US Stock Market expire on the third Friday of the Month. So AAPL JUN 260 PUT will expire on the third Friday of June.
The Smart Traders Mentorship Program teaches all these basics so literally any level of trader (even absolute beginners) are able to follow.
The first you will encounter is Strike Price.
This is the price the Option is bought or sold at. The Strike Price is dependent on the Stock Price. Say Apple's stock at this moment is 257.86, the Strike prices listed will be something like:
AAPL Jun 250 Call AAPL Jun 250 Put
AAPL Jun 255 Call AAPL Jun 255 Put
AAPL Jun 260 Call AAPL Jun 260 Put
Notice the prices are at $5 increments. This applies to most stocks.
The Strike price also helps to determine if the stock is In-the-Money, At-the-Money or Out-the-Money.
In-the-Money
When an Option is said to be ITM, it refers to Strike prices below for Call Options and Strike prices above for Put Options. ITM also means that this Option has Intrinsic Value. Take the Call Option for example, buying an ITM call for APPL would be the strike price of 255 or 250. Of course the higher the intrinsic value, the higher the price of the Option. Say we bought APPL Jun 250 Call, if you were to exercise the Option (buy the stock) immediately, you'd get it $7 below the market rate, so selling the stock immediately gives you a $7 profit per stock.
At-the-Money
An ATM Option means that the Strike Price is the same as the market price. But because this is seldom the case, this term usually refers to the Strike Price nearest to the Stock Price. Eg. Stock Price: 250.25 ATM Strike: 250
Out-the-Money
OTM is the exact opposite of ITM. It refers to Strike prices above for Call Options and Strike prices below for Put Options. Take the same Call Option example into perspective. If 255 Call and 250 Call is said to be ATM, an OTM Option would be 250 Put and 255 Put.
How about 260 Call & 260 Put? Which is ITM, which is OTM?
Answer: OTM: 260 Call / ITM: 260 Put
Also note that an OTM Option has no Intrinsic Value, thus it is cheaper than ITM and ATM Options because it only has Time Value.
Notice the Month is included when purchasing the Option. This month states how long till the Option expires. All Options listed in the US Stock Market expire on the third Friday of the Month. So AAPL JUN 260 PUT will expire on the third Friday of June.
The Smart Traders Mentorship Program teaches all these basics so literally any level of trader (even absolute beginners) are able to follow.
May 22, 2012
What is Options Trading all about Pt2
Earlier we talked about how Options allow us to participate in expensive stocks for a fraction of the price. Well, how? To find out how, we need to understand the purpose of Options.
Stocks are typically held over a long period of time, this is called investing. Like properties, you buy it and expect its value to increase in the future. Now, what if it's value does not go up in future?
Here's where Options come in. There are 2 types of Options: Call and Put Options
Call Options are purchased when the price of the stock is expected to go up in future. It gives you the right to buy the stock in future at the current price it's at.
If the stock did go up, the value of the option would also go up. The difference in price of the stock will translate into the Intrinsic value of the Option (read What is Options Trading All About Pt.1 if you're a bit lost here). This allows you to sell the Option at a nice profit! Great?
Here's the interesting part, Put Options on the other hand are purchased either as a protection in the event your stock drops in value or purchased on it's own (without the stock) if the stock is expected to drop in price. It gives you the right to sell the stock in future at the current price it's at.
Exercising the Option: Say you bought a stock at $100. But 3 months later, instead of going up, the stock dropped to $70. If you bought 10 shares that would result in a $300 loss. But if you had bought an Option with a strike price of say 115 (In the money), this allows you to sell the stock at $115, making a $50 profit from your 10 shares!
Selling the Option: What if you only bought the Option (and not the stock)? For Put Options, the intrinsic value increases when the stock drops in price (It is of value to people who bought the stock more than $115 because this give them the right to sell a $70 stock at $115. But since you did not buy the stock, you'd profit not from the stock but from the Option.)
Although Options have expiry dates, if you decide not to use the Option before it expires (sell the Option/ exercise the right to buy/sell the stock), all you can potentially lose is the price paid for the Option (called the premium).
*I'll elaborate more on Strike price, In the money, Out the money and At the money in another post!
Stocks are typically held over a long period of time, this is called investing. Like properties, you buy it and expect its value to increase in the future. Now, what if it's value does not go up in future?
Here's where Options come in. There are 2 types of Options: Call and Put Options
Call Options are purchased when the price of the stock is expected to go up in future. It gives you the right to buy the stock in future at the current price it's at.
If the stock did go up, the value of the option would also go up. The difference in price of the stock will translate into the Intrinsic value of the Option (read What is Options Trading All About Pt.1 if you're a bit lost here). This allows you to sell the Option at a nice profit! Great?
Here's the interesting part, Put Options on the other hand are purchased either as a protection in the event your stock drops in value or purchased on it's own (without the stock) if the stock is expected to drop in price. It gives you the right to sell the stock in future at the current price it's at.
Exercising the Option: Say you bought a stock at $100. But 3 months later, instead of going up, the stock dropped to $70. If you bought 10 shares that would result in a $300 loss. But if you had bought an Option with a strike price of say 115 (In the money), this allows you to sell the stock at $115, making a $50 profit from your 10 shares!
Selling the Option: What if you only bought the Option (and not the stock)? For Put Options, the intrinsic value increases when the stock drops in price (It is of value to people who bought the stock more than $115 because this give them the right to sell a $70 stock at $115. But since you did not buy the stock, you'd profit not from the stock but from the Option.)
Although Options have expiry dates, if you decide not to use the Option before it expires (sell the Option/ exercise the right to buy/sell the stock), all you can potentially lose is the price paid for the Option (called the premium).
*I'll elaborate more on Strike price, In the money, Out the money and At the money in another post!
April 16, 2012
How to be a good Investor
Anyone with a desire to master making money in the market, and has understood how the stock market works, all that’s left to do is follow a set of trading rules. It sounds simple, but it really is that easy.
The idea is not to look for 100% windfalls, but to look for consistency. What can you do consistently, that everytime it’s done, will yield a certain return. That's what you are after.
Common mistakes failed investors make
- Don’t have a good understanding of how the market works
Some people decide to buy a stock because they received a hot stock tip. It is risky to participate in a stock without even knowing what the company does, without understanding the numbers behind the company or knowing if the company is fundamentally strong or weak.
- Using your entire investment capital in one stock/sector
This is an obvious call for disaster. Stocks in similar sectors are usually affected by the same factors. Trading this way may earn you huge gains but remember that it could also result in huge losses.
- Letting your emotions take over
I know it’s hard when it involves your own money and there’s nothing bad about being protective of your capital but getting your emotions involved does more harm than good. To do this, you need to fully automate your trades, calculate your potential loss (make sure you are comfortable with losing that amount) and enter a stop loss into the system. This will take you out of the trade in the event it does not go your way.
- Spending too much time watching the market
It really only require 15 minutes. Anything more is too much. The beauty of this is that it's a fully hands off strategy. Once you've entered your trades, watch the market for 15 minutes, see if your stop loss needs to be adjusted and close the charts. Trading successfully in the stock market isn't going to be based on your ability to watch it.
- Violating the rules, cut corners when you start seeing sequential gains
After trading for a while and seeing sequential gains, there's a high tendency to try to cut corners to our trading plan, hoping to catch a higher profit and accepting higher risks. Try to manage this and stick to the plan.
Your trading plan should always look to lose small, win big.
The idea is not to look for 100% windfalls, but to look for consistency. What can you do consistently, that everytime it’s done, will yield a certain return. That's what you are after.
Common mistakes failed investors make
- Don’t have a good understanding of how the market works
Some people decide to buy a stock because they received a hot stock tip. It is risky to participate in a stock without even knowing what the company does, without understanding the numbers behind the company or knowing if the company is fundamentally strong or weak.
- Using your entire investment capital in one stock/sector
This is an obvious call for disaster. Stocks in similar sectors are usually affected by the same factors. Trading this way may earn you huge gains but remember that it could also result in huge losses.
- Letting your emotions take over
I know it’s hard when it involves your own money and there’s nothing bad about being protective of your capital but getting your emotions involved does more harm than good. To do this, you need to fully automate your trades, calculate your potential loss (make sure you are comfortable with losing that amount) and enter a stop loss into the system. This will take you out of the trade in the event it does not go your way.
- Spending too much time watching the market
It really only require 15 minutes. Anything more is too much. The beauty of this is that it's a fully hands off strategy. Once you've entered your trades, watch the market for 15 minutes, see if your stop loss needs to be adjusted and close the charts. Trading successfully in the stock market isn't going to be based on your ability to watch it.
- Violating the rules, cut corners when you start seeing sequential gains
After trading for a while and seeing sequential gains, there's a high tendency to try to cut corners to our trading plan, hoping to catch a higher profit and accepting higher risks. Try to manage this and stick to the plan.
Your trading plan should always look to lose small, win big.
April 11, 2012
What is Options Trading all about?
The great thing about Options is it allows me to participate in an expensive stock by paying just a fraction of the cost. When the stock makes a 10% move, my Option can increase to a 100%.
Say a stock costs $100, and the Option for that stock costs $3 per share. The next day the stock increases to $110. If I owned one of the stocks I would have made a profit of $10, which is a 10% return. Had I bought the option, the Option could now cost $6 per share. I would get a 100% return of investment! 1 Option controls 100 shares. If I bought 10 options, that would mean a $3000 profit from a start capital of $30.
Why is Options perceived as more risky?
The price of Options consists of 2 components: Time value and intrinsic value
Options are tied to an expiry date; the nearer the expiry date, the lower the time value. So say after 3 days, the stock has returned to the same price as the day you bought your option, the value of the Option will decrease although the stock price had not moved.
Always make sure you are aware of the risks so you can minimize or eliminate it. When looking for a trade, don’t enter just because you can profit 100%, also be sure to calculate how much you can lose. You want to stack the probability of success in your favor so that when you gain, you gain a lot but when you lose you only lose a small amount.
April 8, 2012
When to enter and when to exit a trade in the stock market
The most crucial part is knowing when to enter and exit a trade. But before that, you need to understand how the market works.
- What causes Share prices to go up?
Prices go up when shares are being bought. When the stock price hits a certain price, it can continue to go higher because more people are buying
- What causes Share prices to go down
The stock can also reach a price where selling begins. As soon as selling begins, the price starts to go down.
A common mistake is going in when the price is dropping with the belief: what goes down will come up. This is risky because you never know when the price has hit its lowest until later on. A $300 stock can drop to $2. It happens. In general, strong stocks get stronger and weak stocks get weaker. What I usually do is wait for the stock to go up, buy the stock at a high price and sell it at an even higher price. Once the stock starts to pull back, you know it’s time to sell.
Before entering your trades you should already know what price you want to exit. To do this you have to place a stop-loss. This means in the event the trade goes against you, the system will take you out of the trade; this minimizes your loss.
The trick on trading is taking out the emotion from it. There’s no point sitting in front of your computer all night breaking out in cold sweat. Fully automate your trades. Set aside 20 minutes when the market is closed to look for potential trades, calculate your risks (potential loss) and reward (target gains). Look to go in a trade where the potential gain is a lot more that what you can potentially lose.
- What causes Share prices to go up?
Prices go up when shares are being bought. When the stock price hits a certain price, it can continue to go higher because more people are buying
- What causes Share prices to go down
The stock can also reach a price where selling begins. As soon as selling begins, the price starts to go down.
A common mistake is going in when the price is dropping with the belief: what goes down will come up. This is risky because you never know when the price has hit its lowest until later on. A $300 stock can drop to $2. It happens. In general, strong stocks get stronger and weak stocks get weaker. What I usually do is wait for the stock to go up, buy the stock at a high price and sell it at an even higher price. Once the stock starts to pull back, you know it’s time to sell.
Before entering your trades you should already know what price you want to exit. To do this you have to place a stop-loss. This means in the event the trade goes against you, the system will take you out of the trade; this minimizes your loss.
The trick on trading is taking out the emotion from it. There’s no point sitting in front of your computer all night breaking out in cold sweat. Fully automate your trades. Set aside 20 minutes when the market is closed to look for potential trades, calculate your risks (potential loss) and reward (target gains). Look to go in a trade where the potential gain is a lot more that what you can potentially lose.
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