The stock market keeps going up and more and more people want to get in on the profits. We are reminded of the surge in the Chinese stock market followed by a crash just a few years ago. A taxi driver in Shanghai lamented, after the crash, that he had picked all lucky names and numbers in the market and felt cheated that his picks had failed! Unfortunately, many in the US market are taking an all-too-similar approach. Just because has stock has been going up does not mean that it will still increase in value instead of correct. Way too stock pick advice is just so much hype and frankly dangerous for the novice investor. Long term investors focus entirely on fundamental analysis of stocks and day traders focus primarily on sound technical analysis. In both cases discipline and rules result in trading profits.

Picking Stocks to Trade

In today’s electronic and internet age the best way to find stocks to trade is with stock screening tools. Here are a few to consider.

Stock Spotlight
Big Cap 20
IBD 50
Sector Leaders

Use these tools to find stocks with strong fundamentals such as sales, margins, and profits. And always use these tools to check out stocks about which you read in the financial news or about which you receive a tip. That is the first discipline that will lead to trading profits.

The Past Predicts the Future

Fundamentals are what determine the final stock price but along the way technical analysis is a better tool. Markets develop patterns. And those patterns are repetitive. Technical analysis indicators are based on statistical analysis of trading patterns.

Relative Strength Index (RSI) – this indicator measures a stock’s most recent performance in relation to its historical strength. The number and magnitude of recent and historical up and down closes in compared.

Moving Average – the moving average is also used in technical analysis it is used to find the average value of a security’s price over a set amount of time. Trends of financial assets are tracked using the moving average through smoothing out the price fluctuations of daily price data. There are different types of moving averages including the Simple Moving Average (SMA), the Exponential Moving Average (EMA), the Moving Average Crossover, and the Moving Average Convergence Divergence (MACD).

Candlestick Analysis – candlestick analysis uses candlestick charts that provide advantages over the bar charts. They are much more visually appealing and they clearly illustrate investor sentiment. This provides a much clearer depiction of what is actually occurring in the markets, than if you were to use bar charts.

These technical tools help the disciplined trader make sense of a moving market. By recognizing the first part of a developing pattern the trader can profit by placing a trade the benefits as the second half of the pattern develops. But, it takes patience to make this work and traders need to avoid the twin demons of the market, greed and fear. Taking a disciplined approach in following trading rules is the best way to produce trading profits.

The stock market is clearly over bought and it keeps going up. Earnings and the promise of benefits from the tax overhaul are driving many sectors. Bulls keep buying and bears warn of a stock market correction. Interestingly, CNBC writes that for the market to keep going up it needs to pull back first.

The stock market posted one of its best weeks in over a year and all the major averages hit records.

However, let’s be honest: those who are looking for this rally to continue nicely through the rest of the first quarter should be hoping for a pullback right here.

That’s right – a pullback at this juncture would help the market digest its recent gains and work off stocks’ overbought condition, which will actually give it a better chance of rallying further in the future.

Stock traders make their money on short term market movement instead of investing for long term growth. And a short term correction followed by higher stock prices could result in profits two times for a smart trader. The two ways to take advantage of this scenario are fundamental and technical analysis. The fundamentals are clear in that stock prices are at historic highs. Where traders will profit is from reading technical signals of both a correction and a recovery. Another approach is to use stock options to hedge risk and lock in opportunity for both up and down markets.

How to profit from stock option trades is to develop, improve, and trade with an options strategy. It is common to see the expression options strategy bandied about on the internet. But, what is a stock option strategy? It is defined method of approaching options, analyzing options and their underlying equities, and buying or selling both puts and calls.

If you think the market will keep going up you will buy call options and if you think it will correct you will buy put options. A call option gives you the right to buy a stock at a set price even if the market price goes up. A put allows you to sell at a set price even when the market price falls. If you simply cannot decide which way the market is going to go an alternative as described on our sister site, Options-Trading-Education.com is to use a long straddle.

A long straddle is buying both a call and a put on the same stock with the same expiration date. In a long straddle options strategy the worst a trader can do is lose the cost of the premiums paid for the call and put if the stock does not change price. However, this options trading strategy has potentially unlimited potential if the stock price changes significantly either up or down.

Considering that both the bulls and bears have good arguments about a continued rally and for at least a short term correction, options allow you to limit risk to the price of an option contract and a strategy such as the long straddle let you position yourself to take advantage of market movement in both directions.

In a Forbes article about why bitcoin is worth anywhere from zero to infinity the author notes the sketchy beginnings and risks of the cryptocurrency.

The first time I wrote about Bitcoin (BTC) – the electronic currency set up to buy and sell illegal drugs and other products through an anonymous public electronic ledger – was in June 2011, a few days after its price dropped from $17.50 to “a few pennies” after its Tokyo-based currency exchanger Mt. Gox was hacked.

People buy or sell BTC in a wave of fear. Specifically, they are afraid of missing out on further appreciation in BTC’s price. For those suffering from such fear, there is plenty of evidence to support their belief.

In succumbing to the fear of missing out bitcoin investors are ignoring the risk of hacking which happens with a predictable frequency. There is no Federal Deposit Insurance on bitcoins or any other cryptocurrency. The other risk is just how fast can an investor get out of a large bitcoin position when there is a crash? There are no guarantees of fast and reliable exchange of your bitcoins for dollars in the event of a crash. And, unlike the US stock exchanges, there is no circuit breaker that clicks in at a 5% loss. That having been said there is good reason to be wary of long term bitcoin investment. But can you make money just trading bitcoin?

Can You Apply Technical Trading to Bitcoin?

Let’s say that you are avoiding bitcoin investment for all the right reasons but you are a day trader and making money from high volatility in markets is your business. Technical analysis works in most markets and may well be effective in trading bitcoin on a short term basis.

Should You Buy and Sell Bitcoin Futures?

The CBOE is going to offer bitcoin futures although many large banks are uncertain about the risk of clearing these contracts. Bloomberg writes about how this is working out.

With just a few days left until Cboe Global Markets Inc. debuts futures contracts on the cryptocurrency, many banks are still weighing whether to offer them to clients — and if so, how to handle the mechanics. Several of the largest firms, including JPMorgan Chase & Co. and Citigroup Inc., aren’t immediately offering clearing of the futures as they wait to see how it will work, according to people briefed on the plans.

In interviews, some executives and traders said their desks are eager to get in on the action – but most sounded cautionary notes, ticking off concerns and unanswered questions. Bitcoin’s violent price swings this week have made the new market look all the more dangerous.

The basic concern is that traders will default on their bitcoin futures contracts if their positions are overwhelmed by the sort of price swings that the cryptocurrency has undergone, especially this year. There have been corrections of 25% and 20% in September and November. An advantage of trading bitcoin futures is that one will be able to get in and out of contracts more reliably, providing that the whole thing does not go south all at once.

It would seem that the best course of action for those who want to make money just trading bitcoin is to start with small positions and to keep them short, mostly day trading until a technical strategy can be shown to be a reliable guide to profitable trading.

Bitcoin just keeps going up but all rallies eventually peter out. The question is how badly will the bitcoin rally end? Investor’s Business Daily notes that Bitcoin clears $10,000 while other cryptocurrencies fall.

Bitcoin topped the key psychological barrier of $10,000 early Tuesday but several Bitcoin-related stocks like Riot Blockchain (RIOT) and Overstock (OSTK) fell.

But for its soaring highs, volatile Bitcoin has had some lows this year, including three separate drops of more than 25%.

Still investors are pouring into the Bitcoin space to get a piece in the new digital gold rush.

While Bitcoin continues to spiral upward stocks of companies that rely on processing bitcoin transactions for their profits are all taking a hit. Our take is that investors are starting to hedge their bets in preparation for another bitcoin correction. After all, the cryptocurrency has routinely corrected by 25% every few months. How badly will the bitcoin rally end once speculators decide that the bitcoin gold rush is over?

How Do Speculative Rallies End?

USA Today writes about Bitcoin’s speculative fever.

Bitcoin’s huge gain – whose bumpy ride includes five rallies of more than 20% and four short-lived bear markets, or drops of 20% – even dwarfs the Nasdaq’s 86% rise in 1999. That run, of course, ended with the bursting of the internet stock bubble.

Bitcoin backers view it as a currency and payment system of the future, as well as a new asset class that people can invest in. Believers say it’s an emerging alternative to currencies like the dollar, euro and yen, and an investment like gold, stocks or bonds.

Skeptics say Bitcoin is impossible to value, wildly volatile and a speculative play that may never gain widespread acceptance from governments and central banks. They brand Bitcoin a “fad,” a “fraud,” and a “bubble.”

The bitcoin rally is different from the 1999 dot com bubble and crash in that the pain will not be as widely felt. Folks who are invested in this mania are speculators and not mom and pop investors or pension funds for millions of workers. Thus the bitcoin rally may end badly but will affect a smaller group of people.

Technical Rallies

There are no fundamentals underlying bitcoin or other cryptocurrencies. There is the argument that this is the medium of exchange of the future but that does not make it valuable. Those who are buying bitcoin today are doing so in the expectation of making a short term profit and hoping that the profit will last into the long term. Simplistic technical analysis shows bitcoin to be a volatile market with an upward trend. Unfortunately there is more to technicals than most bitcoin buyers appreciate. When one or more big owners of bitcoin positions decide that enough is enough they will start to exit their positions and that will eventually lead to a stampede of folks trying to get out. That will turn one of the 25% corrections into a 95% crash. That is how badly the bitcoin rally will end.

In the last few years the stock market has continued to amaze as the high tech darlings have risen to greater and greater heights. Meanwhile, bitcoin, the cryptocurrency, has skyrocketed to the $8,000 range. Now CNBC looks at bitcoin and the renewable energy sector and makes a judgement to go with renewable energy over bitcoin for the future.

The hyper focus on bitcoin is causing investors to miss another huge winner this year that they can actually understand.

Bitcoin is just one of many cryptocurrencies, and it is hard to embrace, if impossible not to follow, as it hits $8,000. It isn’t tangible, and it certainly is difficult to comprehend. Yet all we hear about is how it’s up thousands of percent this year. So you wouldn’t be blamed to figure that you simply missed the best investment of 2017 – and possibly ever.

But there’s another rising trend that’s literally right under your nose: renewable energy. Its potential returns might not come so fast, but I am confident it is here to stay, which is more than I am willing to say about bitcoin.

Successful investors and traders have a way to value investments. The most common for long term investors is intrinsic value. That calculation is based on predicted future earnings. The problem with cryptocurrencies like bitcoin or gold for that matter is that they have no future earnings. They are touted as the ultimate hedge against the demise of paper currencies. Unlike bold bullion or bitcoin renewable energy stocks can be evaluated for future earnings and those earnings are bright. The fact of the matter is that solar and wind power are not just sidelights anymore. For example the state of Iowa gets more than a third of its electricity from wind and solar.

Foreign Interference

One major issue for US solar stocks is government subsidies in China and dumping of cheap solar products in the USA. However, the dumping of the 2011 era is over and US companies are not only competitive again but also selling at increasing prices. This is not to say that foreign competition will not be an issue but wholesale dumping is hopefully a thing of the past.

How about Bitcoin?

The proof of how good an investment is comes down to how well it performs and bitcoin has performed very well this last year. The problem is that bitcoin is acting gold did in the 1970s. There is a mania among bitcoin devotees that keeps driving prices up. And like gold in the early 1980s bitcoin may well be due for a fall. Interesting the blockchain technology that supports bitcoin may have more uses and could survive a bitcoin collapse. Our sister site, Options Trading Education, wrote about this.

Bitcoin has been a great deal for some investors who got in early. But many believe that the bitcoin phenomenon is simply the 17th century Dutch tulip bulb frenzy in disguise. Nevertheless, bitcoin is based on an interesting technology called blockchain. And blockchain technology has caught the attention of banks and other institutions because of the way it allows people to transfer value without a middleman. The point about how you can make money from blockchain technology instead of speculating in bitcoin is that you can invest in companies that use this technology or a new index fund containing just such companies. Business Insider writes about stock in a new blockchain index.

If you have a small portion of your portfolio to gamble on bitcoin it might just be profitable. But if you want to sleep at night and see your investment grow over the years consider renewable energy stocks.