1 0 Tag Archives: Exchange-traded fund
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Daytrading Stocks During a Bear Market

The US stock market appears to have entered a new bear market since its high at the end of April. While Wall Street generally defines a bear market as a 20% decline, the average bear market drops quite a bit more. As of this writing, the market has declined over 14% from its April high.

Daytrading stocks during market declines can prove to be quite the challenge for day traders no matter how much experience they have. This is due to the fact that market volatility has a tendency to increase during most market declines, whether they are short term corrections or the typical bear market. This increase in volatility can wipe out the trading capital of even the experienced trader if they do not adjust their trading.

Generally speaking, after large run-ups in stock prices, or in any market, there will be violent pull-backs. While this increase in volatility can produce some big directional moves, there may be sizable intraday swings that can catch a trader off guard.

With this in mind, how does a daytrader prepare for these changing conditions? Well, most daytraders are not in the business of forecasting market direction, but it can be very helpful to pay attention to some technical and psychological indicators that may provide a clue regarding market direction. Those indicators include price and volume, the TRIN, New 52 week highs and lows, the advance/decline line, the number of bullish vs. bearish investors, etc. A more detailed discussion regarding these indicators is more suitable for another article.

When a day trader becomes aware that the market character has changed to a bearish tone, then it is time to adjust their thinking when it comes to managing trades. First of all, due to the usual increase in market volatility, the trader should scale back position size. While it may have been reasonable to trade 1,000 shares in a stock during a bull move, 500 shares might be more reasonable in a bear move. The novice day trader will think they are losing out on a sizable profit opportunity by trading smaller during these major down moves. The experienced trader realizes that it is more important to preserve capital for time periods when the market is more predictable and less volatile.

One other issue facing daytraders during these bear markets is that the market has a tendency to have sharp intraday reversals, and there tends to be more sizable opening gaps. As some day traders actually do carry positions over night, it is a good idea to carry smaller positions over night due to the greater risk of a market reversal.

The day trader should also be aware that the overall long term market tendency is for stocks to trade higher each day. As such, even while the market is in a downtrend, quite a few trading days will close to the upside. During the current down move, nearly 40% of the trading days have closed to the upside. If a daytrader can recognize that even bear markets will pause for a breather, they will recognize significant opportunities to profit after these brief pauses when the market resumes its downtrend.

Day traders should also consider trading other vehicles besides individual stocks during bear markets. This is due to the fact that it costs the trader extra to short a stock, since they must first borrow the shares from their broker, and pay interest on those shares, in order to sell the stock short. Therefore, day traders should consider trading stock index futures, or ETFs that rise when the market falls. It is important that traders consider the cost of their trades, not just whether they make a profit or loss.

While it is definitely possible to trade profitably during bear markets, there are significant pitfalls. For many novice day traders, it may just be a good idea to sit on the sidelines and observe the market action so that they are prepared for the next bear market downturn when it comes along.

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04. Jun, 2011
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The Most Important Things to Know When Investing

The first thing to know when investing is your risk profile. This can be set up in a discussion with an expert, so don’t panic if you don’t know how this should be done. The main question is how much risk are you willing to take in your investing process, and here you have to look at the two sides of the coin.

High risk means potentially higher returns, but also important fluctuations in the value of your investments and the risk of losing money. On the other hand, if you are comfortable with a low risk investment, you can expect a lower return, and only small fluctuations in value.

Normally you would choose a broker advice or an account manager advice. However, your long-term goal when investing will be to build your own knowledge such as you will be able to go by yourself. Many investors work with brokerages, banks, insurance companies, mutual fund companies.

If you choose to go to a broker, opening an account is as simple as opening a bank account. Read the account agreement in full, to see what the brokerage company will provide to you and what your obligations are, and then you can sign the agreement.

To help you in managing your investments and figuring out what is best for you considering your risk profile, your age and your profit expectations, go and talk to a financial advisor or a financial planner. The best advice for you is to be informed and to get educated about your investments, so you will know what you are doing and you will also know what those, who are dealing with your investments, are doing. This will help you to stay on top of things and avoid being scammed.

So remember, to go into financial instruments like stocks, bonds, commodities, mutual funds, you will need a broker or an account manager. If you want to go in real estate you will need a real estate agent. All this mix can be implemented after you talk with a financial planner who can give you the big picture.

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28. Dec, 2010