Profitable Trading Tips

How Does Carbon Trading Work?

Profitable Trading Tips — Sun, 29 Aug 2010 21:27:01 +0000

For the trader interested in carbon credits the question is how does carbon trading work? Carbon trading has to do with attempts to reduce greenhouse gas emissions, specifically carbon dioxide emissions. A number of schemes were put forward and the one that gathered a consensus was that of issuing carbon credits which have a monetary value. Carbon and other emissions trading takes place on futures markets on both the NYMEX and on the Chicago Climate Futures Exchange among others. In both cases traders buy and sell futures based upon the Regional Greenhouse Gas Initiative Cap and Trade program and others. RGGI is a consortium of ten eastern US states that use carbon credits to curb greenhouse gas emissions. Europe has been doing this for several years before the USA and Western US states and Canada also have a program. Basically companies such as power plants that produce less carbon dioxide emissions earn money by selling their carbon credits to other companies. How does carbon trading work for the trader? Because these credits are traded on futures exchanges they are available to buy and sell for any interested party. Technical analysis as well as a fundamental knowledge energy prices, weather patterns, and the market itself are important.

How does carbon trading work for the day trader? The trader will trade carbon credit futures on the NYMEX and the Chicago Climate Futures Exchange as well as the European Climate Exchange, Nord Pool, PowerNext and the European Energy Exchange. Trading futures involves buying or selling rights and obligations related to the future delivery or settlement on a contract. Whereas commodity futures typically carry the obligation to deliver or receive thousands of cattle, tons of grain, or kilograms of gold thee is no carbon to be delivered or sold in carbon trading. The traders will simply settle the contract with money at the end of the contract. As with all US futures trading a trader can execute the opposite trade and get out of a contract before the expiration date. In the case of a trader who correctly anticipated a rise or fall in the value of carbon credits this can lead to profits without having to stay in the contract until the settlement date. If the market in carbon credits becomes volatile the trader does not need to find himself trying to outguess the market. Options trading is an option.

How does carbon trading work with options? It is possible to trade options on carbon futures just as with any commodity or other futures contract. The trader who believes that carbon credits will go up in price can buy calls on carbon futures contracts. This gives the trader the right but not the obligation to purchase carbon futures in the event that credits do go up in price. Likewise, the trader who believes that carbon futures will go down in price will buy puts on carbon futures. If the price does go down he or she will profit by selling at the contract or strike price and buying at the new market or spot price. In either case if the anticipated carbon future price change does not take place the trader is only out the premium paid for the futures contract. Although carbon trading in not really trading a disaster like the current BP oil spill it is taking advantage of the potentially severe problem of climate change. In this regard how does carbon trading work. It seems to be effective in encouraging polluting companies to reduce emission so that they do not need to buy carbon credits!

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Trading High Volatility and Low Volume

Profitable Trading Tips — Mon, 16 Aug 2010 22:57:28 +0000

Trading high volatility and low volume in today’s stock market should come with a warning, “Kids, don’t try this at home.” Certainly many hedge funds are currently sitting out the market volatile moves. The sorts of economic and political indicators that the people who manage over a trillion and a half dollars in assets watch seem a bit crazy these days. Although leaders at the Canada summit agreed to austerity measures it is uncertain how soon and how much and where such fiscal cutbacks will occur. The final shape of financial services regulations is not yet clear. Although Asia seems to be leading the world out of the recession the exact size and shape China’s future growth prospects is also unclear. The fact that hedge funds as a group lost nearly twenty percent of their invested capital just two months ago has taken the edge off of many traders’ zeal. The fact that folks are trading high volatility and low volume is a function of few traders willing to commit their funds to the market and the lower liquidity that goes with low volume. Technical analysis can be more risky when numbers are smaller making the pure technical traders wary.

Trading high volatility and low volume can be very profitable but it is the risk of substantial losses that is keeping many traders on the sidelines these days. Trading options with a strategy such as using straddles in the recovery market may be a better choice than trading stocks directly in high volatility and low volume. In a very volatile market a long straddle is a common means of profiting from excessive volatility when the market does not seem to know, or want to show, where it is going. The risk of a long straddle strategy is that if the underlying stock does not move in price then the trader will lose the price of two premiums. If, however, the market volatility takes the stock high or low the trader will profit by the difference between strike price and spot price minus the two premiums. Another, direct trading, strategy in trading high volatility and low volume is that many traders are only committing small amounts to their trades. The thinking seems to be that if they lose they will only lose on a small amount of capital invested. If they win with extreme volatility then the profits may be substantial compared to the amount invested.

In a more normal market traders focus on a sector, an event, or a trend. Trading the GM IPO and GM’s recovery, trading Toyota and the brake problem, trading banks in light of the pending regulatory changes, or trading freight movement in light of the recovery all could make sense in a more normal market. However, with such small volume and with big jumps in stock prices traders are “staying home” until the market direction and technical analysis make more sense. When trading volume goes up again it will because traders have a sense that the market has become predictable and it will likely come with better liquidity. When the only option of trading high volatility and low volume goes away the chance for extreme profits will go too but so will the likelihood for extreme losses.

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Trading Against the Programs

Profitable Trading Tips — Thu, 29 Jul 2010 02:23:23 +0000

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Trading against the programs sounds like a grade B horror movie. This thought comes to mind after reading an announcement by UBS AG that they have hired someone away from a competitor in order to “manage electronic stock-trading products.” The press release goes on to say the employee will be global head of direct execution product management, be responsible for the broker’s platform for trade analytics, and be responsible for a customer centered order execution program. In this person’s previous work they specialized in “automated and high-volume electronic trading strategies.” This announcement is a reminder that whether individual traders are day trading the politics, trading catchups, or scalping versus momentum trading they are always, at some level or other, trading against the programs.

Programmed trading exists because e-trading exists. E-trading, or electronic trading, reduces the cost of transactions through automation, improve liquidity, increased competition in the brokerage industry, improved transparency, and made for tighter bid ask spreads. All of this helps the retail investor. However, the ability to trade electronically opens the door to programmed, or algorithmic, trading. While e trading can give the trader quicker access to trades with a greater chance of fast execution it can also leave the trader in the dust, by microseconds, in split second reaction and execution when trading against the programs. Algorithmic programs with their build in technical analysis are set to respond to market changes and react automatically. The signals may be the same that the trader sees on a trade station but when the trader is thinking for a second before executing the trade he or she is a second behind in trading against the programs. If the programmed trading is in small volume it may not make much of a difference. However, if very heavy programmed trading by one computer sets of a programmed response by another programmed computer it may change the dynamics entirely for trading an equity.

A trader may decide in trading Toyota that an announcement by the company does not go far enough and will lead to a consumer backlash. While the trader is analyzing the situation and planning the trade an algorithmic program may have already taken input from a program manager, finished its analysis, and executed the same trade but in huge volume. The market has now changed and the trader will need to re-analyze before trading. In the meantime, in the grade B movie nightmare programmed trading as taken the market either higher or lower than might have happened with trading at a more rational pace. Some have blamed the New York Stock Exchange 1,000 point drop in a day, “Flash Crash” of May 6, 2010, on programmed trading. When programmed trading goes crazy one is reminded of the old saying that programming a computer is like training a dog only that a dog is smarter! The advantage that the human trader has when trading against the programs is that he or she can get out and stay out of a trading situation if the situation seems crazy.

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Trading the Russell 2000

Profitable Trading Tips — Sat, 24 Jul 2010 01:42:21 +0000

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The New York Stock Exchange and the NASDAQ saw exceptional volume as speculators were trading the Russell 2000 during the one day a year when the medium and small cap fund rebalances. The Russell 2000 is a small and mid capitalization stock market index consisting of the bottom two thousand stocks in the Russell 3000 index. Although the Russell 3000 consists of roughly 98 percent of US stocks the Russell 2000 stocks have capitalizations of up to around $1.4 Billion USD and account for about ten percent of all capitalization in the Russell 3000. When the Russell 2000 rebalances it removes stocks whose capitalization has gone up above its upper cutoff and also removes stocks that have gone out of business or are not longer traded on the major stock exchanges. Trading the Russell 2000 when it rebalances is a means of trading the rallies and retreats of the stock market albeit a yearly opportunity.

When the Russell 2000 rebalances, a large number of funds that track the Russell 2000 also rebalance their portfolios. Exchange traded funds such as iShares, ProShares, Direxionshares, RydexShares and many others buy and sell large number of shares in order to rebalance their portfolios to stay in line with the Russell 2000. Trading the Russell 2000 during the once a year rebalancing lends itself to scalping versus momentum trading although throughout the year funds that track this index are a reasonable means of trading the fortunes and trends of the broad range of small and mid cap stocks.

The average market capitalization for stocks in the Russell 2000 is around $530 million and the median is around $410 million. Currently any stock at or above $1.4 billion in market capitalization is at risk of being sold in large volume as it is “balanced” out of the Russell 2000. Although the Russell 2000 only rebalances once a year it is a good example of where the trader does not need to be trying to outguess the market. The cutoffs are fairly clear for the stocks involved, especially for stocks that have prospered in the last year. They will likely be sold in high volume as they are removed from the Russell 2000. This year the volume was impressive with a Friday closing cross volume of 1.04 billion shares in 0.85 seconds!

While the trading the Russell 2000 in this way only works once a year the S&P 500 rebalances quarterly. This occasion also leads to heavy volume as the S&P rebalances its list of five hundred large capitalization stocks. In this case stocks obviously do not escape off the top end but do fall off the bottom if their earnings and stock values suffer sufficiently to be replaced by up and coming companies. Trading both the Russell 2000 and the S&P 500, as they rebalance, has less to do with technical analysis than it has to do with simply looking at each index’s criteria for inclusion and deciding who will likely be replaced in or added to the index in question. Once the trader has chosen his “targets” then a look at the technical aspects of the market and timing will come into play in trading the Russell 2000.

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The Evolution of a Trader

Profitable Trading Tips — Wed, 21 Jul 2010 18:57:33 +0000

If you take a look at just about any profession, you’ll find that people evolve through three stages: novice, competent and expert. Let’s take a look at how this works in the trading profession.

A novice trader is a one trick pony. They have one trading style they cling to for dear life. When they perceive that it no longer works, they’ll find a new system and believe with all their might that THIS is the way… until it too shows itself to be flawed. They are also inflexible and easily become confused when the unexpected happens. And, sooner or later, the unexpected will happen. They have lots of misconceptions, such as “shorting is bad.”

After the novice has been bloodied and bruised enough, he has a decision to make. Perhaps “trading is not for him.” If he sticks with it long enough, he eventually develops the experience to become competent.

A competent trader has “enough tricks in his bag” that he can adapt to a range of situations. However, he knows he needs to keep learning, and that there is always more to know. The overconfidence of the novice is replaced by the experience to know that uncertainty is a permanent fixture in his relationship with his chosen market.

As a trader matures, it gradually dawns on him that there is no “Holy Grail” of trading. There is no perfect indicator, system or money management approach that will GUARANTEE success. Usually, about the time the thankless search for the Holy Grail ends, a trader is competent enough to find his way without needing such an unrealistic psychological crutch.

A competent trader focuses on acquiring the right facts and making disciplined decisions based on these facts. He feels “safe” if he believes he “understands” the situation. For example, he may have a number of ways of picking stocks and a number of ways of playing his stock picks.

Eventually, a competent trader notices that he understands a situation even if the facts are not all in. This is because he can relate it to similar situations he has experienced in the past. He is then ready to graduate to expert.

An expert trader has enough tools, stock trading software and tactics under his belt that he can confidently take advantage of a trading situation without having to rely on detailed systems. In a sense, this is the opposite of the novice approach, because the expert knows what he is doing on an intuitive level. Getting to this point takes lots of hard work, and, as the saying goes, “many are called but few are chosen.”

However, the financial rewards for being an expert trader are greater than in most professions. Being able to pull money out of the market almost at will means you will make a very nice living. However, there is one last hurdle to overcome. It’s a battle that will last a lifetime: always be humble. No matter how good you are, the market is willing to take it all back if you ever forget that it will always be much bigger than you are.

Trade well, with earned confidence, and you will prosper.

Doug Newberry is the Director and Founder of Investing Systems Network. He builds very reliable stock trading software so tens of thousands of all kinds of investors can trade with confidence. Investors in more than 25 countries enjoy his newsletter and his weekly online radio show.

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7 Important Penny Stock Trading Lessons

Profitable Trading Tips — Sun, 18 Jul 2010 19:04:55 +0000

Today I’ve invited Tim Sykes to be a guest blogger on the site and help us understand penny stocks MUCH better!

He’s a powerful trader in this niche, and he’s actually got a new video series that you should check out here.

Free Penny Stocks Videos

Please enjoy the article and be sure and get these free video lessons before he pulls them:

Free Video Lessons

I have an entire category of blog posts with the basics of my proven trading strategy, but below I thought I’d list the top 7. Not necessarily the top 7 most important, as you know from this list of 94 PennyStocking lessons there’s a lot to consider, but the 7 lessons below are the ones I’ve found people have been having the most trouble with since I began teaching over the past 3 years or so:

1. Unlike other niches and due to a lack of liquidity and sometimes volatility, there are NOT great trades every day. It’s it CRUCIAL to learn to recognize these setups and then to wait for ideal setups before using your precious trading capital.

2. When short selling penny stocks, not every broker will have available shares to short. There is no one great broker that will always have available shares and sometimes none of my brokers have available shares to short (in which case no borrow no cry), but the 3 brokers I use and recommend are Thinkorswim, Sogotrade and Interactive Brokers

3. No matter how great a penny stock’s story is, I have learned to focus on chart patterns and price action first — there are a TON of penny stocks with “revolutionary” products, but if the stock isn’t moving in a way that is predictable, I don’t care.

4. NEVER trust any penny stock press release or penny stock CEO or penny stock newsletter. The entire niche is corrupt excluding yours truly and no matter how nice somebody is in person, if they are into penny stocks, there is a 99.99% likelihood that they are shady, unethical, incompetent or some mix of all of the above.

5. I will not trade stocks under 10 cents/share because the risk/reward simply is not worth it. Sure, sure, these low priced stocks can increase a large percent in a short period of time, but in 11 years of penny stock trading experience, I have not seen the predictability/reliability of any patterns to make buying or shorting these stocks worthwhile for me.

6. While I sometimes short sell a pumped up penny stock on its “first big up day”, I usually tend to wait until the 2nd or 3rd day as then my risk is much lower due to early wannabe short sellers having been squeezed and the logic that fewer people will want to buy a penny stock when it’s up 100, 200, 300% in a few days. The exception is when there are few shares to short and it will be unlikely to find available shares to short on those 3nd or 3rd up days so I will sometimes risk some pain and enter my short early, but NEVER a large position due to the risk of further spiking.

7. If the penny stock I am short selling or buying is not a pure pump & dump (which have the highest predictability), I will ALWAYS cut losses quickly because if a stock moves against me, even a little bit, I am probly wrong in my thesis. I am not a perfect trader by any means so if I don’t cut losses quickly, it means I have made a mistake. Yes it does happen. My substantial gains are not due to my being perfect, but as an academic study found, due in large part to my being right approximately 75% of the time with my gains being larger than my losses.

Free Penny Stocks Videos

Courtesy of Tim Sykes
www.timothysykes.com

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5 Reasons Penny Stock Trading Obliterates Forex Trading

Profitable Trading Tips — Fri, 16 Jul 2010 23:59:03 +0000

The unlimited profit potential in the hugely liquid and leveraged Forex market is pure marketing and deception, designed to lure the most desperate and greediest people into playing a game where the odds of success are very low similar to playing the lottery. If you look at the actual statistics, they point to the vast majority of traders not just blowing up their entire account within a few months, but also owing money due to the easy-to-use leverage. Unless you are illiterate and a complete moron, it is extremely difficult to blow up a penny stock trading account, mainly because the trading rules I teach are very conservative, designed to keep traders learning and earning gradually over time.
Because Forex is so liquid and leveraged, those who succeed are the smartest, richest and most well informed people on the planet, aka George Soros and his friends. You simply do not have the intelligence, wealth or access to quality information and analysis that they do so why try to compete against them? As evidenced by the recent fraud case against SpongeTech and PennyStockChaser, those promoters and management have the intelligence level of Forrest Gump. I can make a thousand analogies explaining why it’s SO much easier to trade against these morons, but after you try out my free video lessons and begin to see it all yourself, you won’t need me to teach you anymore, you’ll be self-sufficient which is my entire goal!
Forex prices move very quickly and the reaction to breaking news happens within seconds and minutes. Because penny stock manipulation takes time to plan and enact and the people trading the stocks are practically illiterate, it takes hours and days for price to fulfill their predictable patterns giving you plenty of time to prepare and participate in each trade. The best analogy is penny stocks are like Little League whereas Forex is the Major Leagues. When you’re coming up to bat would you like a 100mph fastball or a floater thrown by a nine-year old?
Penny stocks are simpler. While Forex prices gyrate wildly due to rumors, news and those anticipating the rumors and news, volatile penny stock chart patterns are truly straight up and then straight down with very little variation. That is the beauty of trading pump and dumps, the chart patterns are like pendulums and you just need to learn how to buy on the way up and short sell on the way down. Or choose one side and specialize in that.
Penny stocks have greater odds of success. Sure, sure, it’s far less money and you don’t get the gambling thrill you do with Forex since down here in the gutter it’s more like taking candy from babies (or those who are have the intelligence of babies), but we are winning approximately 75% of the time.

I’ve put together an in-depth (and free) video lesson series that will teach you everything I know about Pennystocks. Rather than just hearing me talk about my strategy and my thoughts, signup to my free video lesson series so you can learn from the specific trades and patterns themselves.

Free Penny Stocks Video

Courtesy of Tim Sykes
www.timothysykes.com

Trading a Disaster

Profitable Trading Tips — Tue, 22 Jun 2010 02:29:59 +0000

Trading a disaster like the historic BP oil spill can mean more than just shorting BP stock ahead of the next piece of really bad news. And, this does not mean buying call options in case BP creates a miracle and comes back from the near dead. There are lots of companies in the energy business and lots of companies selling necessary services that will profit from a second look at drilling in the deep water of the Gulf of Mexico. Trying to outguess the market with BP may or may not be profitable but investing in onshore North American energy production from coal mines and oil shale deposits could be profitable if deep wells are shut down. If the reports that many other deep wells may be at risk are true then the folks who make those deep sea robots may have a hay day making more and more submersibles to inspect for signs of danger on the ocean floor.

Every time there is news of a hurricane approaching the Gulf of Mexico the stock prices of companies that make under sea robots and in other ways support the infrastructure of drilling and extracting oil go up. Trading a disaster can mean trading these stocks every hurricane season. Now that the nightmare of a major leak has occurred the folks that make the tools to protect and service wells may go up and stay there. Knowing who has the best technology and who will prosper in a more safety conscious world may be a good way of trading a disaster or at least its aftermath. At some level this is day trading the politics of the oil spill and the likelihood of new, stronger federal regulations on offshore drilling and oil extraction.

Looking beyond the immediate issue of stopping the leak in the Gulf of Mexico it would seem than two things will happen. One is the safety issue mentioned above. The other is an end run around deep water drilling. It is to go back to land based energy sources. A set of stocks that go up every time there is trouble in the Gulf of Mexico is the companies that extract oil from oil shale deposits. The Green River Formation under lands in Wyoming, Colorado, and Utah and other US deposits hold sixty-two percent of the world’s potentially recoverable oil from shale deposits. Known world deposits of potentially usable shale contain roughly three trillion barrels of oil. This exceeds by as much as a factor of two the world’s known crude oil reserves. Coupled with US coal deposits that stand at around 275 billion tons this is a huge energy reserve. Known, recoverable coal deposits in the USA are sufficient for a quarter of a millennium at current rates of use. As the effects of oil drilling in the deep water take their effect on wildlife along the Gulf Coast, destroy habitats, and the like one way of trading a disaster may be to look inland for the future of US energy production. Where in the world the action will be in trading a disaster in the sea may be in trading stocks of companies that operate on dry land.

Video: 4 Stock Trading “Profit Pockets”?

Profitable Trading Tips — Mon, 07 Jun 2010 22:56:00 +0000

There are specific & precise low-risk, high-probability entry points that can lead to some potential “profit pockets” on any given chart when trading stocks.

* 4 of them were recently discovered by a 35+ year market veteran…

-and he’s recording some brand new training videos that show you what they look like, how they work together, and how you can spot them on your own.

The first training video is done, and you can see it here on his new training website…

Pay close attention to the chart that’s displayed early on in the training video that outlines these 4 “profit pockets”, which are identified by these custom methods designed to “pinpoint” each one:

* The Profit Pipeline Method…

* The Trend Validator Method…

* The Velocity Method…

* The Countertrend Cash Method…

I’m really excited about these 4 additional ways to pull more profit potential out of almost ANY stock chart, because they can complement any existing method you’re currently using…

-and that just gives you even MORE of an edge over those traders who DON’T know about these techniques.

These training videos likely will NOT be online for long, so make sure you watch & take notes here…

Whenever this 35+ year market veteran releases complimentary training videos, I PAY ATTENTION because the “on the house” information he just “gives away” is often worth more than many training courses you’d have to pay for. So, don’t take this training lightly and pay close attention to what he teaches. Your portfolio will thank you for it later

See it here…

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Trying to Outguess the Market

Profitable Trading Tips — Sun, 06 Jun 2010 22:55:17 +0000

Traders have been trying to outguess the market since the first stock was offered for sale in the first stock market. Traders search for overlooked stocks that are ready for a rise in price. Traders look for stocks ready to take a dive and get ready to short them. Traders are always looking for where in the world the action will be in order to make a profit a second before everyone else finds out. In today’s world of instant messaging and social media it was only matter of time before the whispered stock tips of yesterday became the stock tweets of today. In the first days of the internet a tech savvy young man went online and hyped a bunch of stocks that he had just bought. Then, obviously, he sold as soon as his victims bought. Now folks are sending text message tips and messages on social media. Because the messages can be send and received very rapidly there is the misguided sense that the receiver is getting privileged information, much like the folks who believed the kid a few years ago. The sad fact is that a lot of those folks who are acting on tips and not doing a little technical analysis are headed for trouble when trying to outguess the market.

The skittishness of the market can be blamed on any number factors from continuing sovereign debt problems to a well deserved skepticism of market makers after the recent crash. However, the speeded up version of hot stock tips being passed from Blackberry to Blackberry (heaven forbid that anyone would just use a cell phone anymore) would seem to be a contributing factor to what appears to be a variant of following the herd. However, this herd is not wildebeests on the Serengeti but rather tech savvy traders and investors looking to get a tip before the rest of the crowd does. Trading the rallies and retreats of the stock market can be done in the knowledge that trading history repeats itself. With the use of technical analysis software the trader can predict the next moves of the market with a reasonable degree of certainty. Combining knowledge of technical trading with an overview of the stocks in which one trades will allow the trader to trade with efficiency as others look for tips while trying to outguess the market.

Certainly bits of loose information may come to a trader but in order to gain perspective and anticipate the market a degree of fundamental knowledge is necessary and what is essential is the ability to confirm the information in a so called tip with solid fundamental or technical analysis. When trading Toyota, for example, a trader will need to know if a piece of allegedly new information the computerized brake problem has already passed through the hands of institutional traders in which case the market will already have discounted the “news.” There is a temptation to believe that tips disguised in very technical terms are fresh analysis but in a world where you can receive an email that has already been copied to a thousand people it is important to be able to do your own homework and to set your own goals rather than trying to outguess the market.