How do successful Traders Control Emotion ?

How do successful Traders Control Emotion ?

Great traders are often thought of as talented anticipators of direction or momentum, or as exceptionally skilled risk managers, which many are. But an oft-overlooked trait which should always be mentioned is the successful trader’s ability to control emotions.

Use your Head !

I definitely think every trader struggles with controlling our emotions from time to time, and it is one hurdle which trips up many would-be traders that never choose to get beyond it. And it is a choice - either you control your emotions, or your emotions control you.

I’ve traded in the same office with guys who broke keyboards over a $500 loss, and I’ve seen guys who can literally take a nap when up 6 figures on the day they are so cool, calm and relaxed - just total control. The difference between them wasn’t their account size either - it was in their minds.

Mapping a Path to Profits

I suppose the simplest approach for getting to where you want to be is that you seek to build that control over time. There’s a natural tendency to treat trading like watching a horse race and get excited or upset, depending upon the outcome.

However, the best traders have found the boundaries of their comfort zone, and they stay right on the edge of them. They know before they put on a trade what the worst-case scenario entails, and they proceed with the trade with that in mind, able to accept it if it happens. They stay within their risk limits by doing so. Further, they know that if they put on too much risk, they’ll not only lose more than they should, but they’ll likely make some poor choices along the way by focusing on the loss rather than making the best decision at any point along the way.

A great trader is able to think clearly from start to finish, and while there may be some mild irritation (enduring pullbacks), minor impatience (if the position stagnates), or slight satisfaction (as the trade begins to work), they avoid letting those emotions drive their behavior. They truly do stick with their plan, making modifications to it not on a whim, but only when absolutely necessary.

A Simple Solution

The best way to achieve that state of control is to chose to trade small enough that the outcome of any one trade doesn’t carry huge meaning. That will help to formulate a good habit of focusing on the trade, not the P&L (which is where emotions come from usually).

As you gain more control, you incrementally add more risk over time as you are comfortable, gradually increasing that comfort zone but not trying to achieve it overnight.

Develop good habits with small trades, and then slooooowly build your trade size along the way. If you strike the right balance between growth over time and clarity right now, you’ll be well on your way.

Posted by: Srikanthbabu Kaliki

Send queries to my E-mail : sri_reddy_2006@yahoo.com

We are also providing short term stock tips for the individuals on monthly fee with amount of ( Rs. 210/- ) . Interested persons can send e-mail to sri_reddy_2006@yahoo.com

Contact number: 09849138180 (please do not call in market time )

Wish you happy investing & trading.

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Stop Loss Discussion

Stop Loss Discussion

* A stop loss is your emergency exit, your safety net, your plan B when things don’t work out quite like you had planned.

* Even if you’ve never been taught how to set stops or an approach to determining which levels could serve as locations for your stops, choosing an arbitrary price to set your stop is better than not having one at all. Deciding on stop loss levels will largely depend on a couple of factors: the individual stock in question’s personality, and the overall market’s behavior at that time. Taking those into consideration should help you gauge an appropriate spot for an exit, which also is related to position sizing.

* Capital preservation is a priority to traders, but even longer-term investors would be better off incorporating some risk management elements into their plan. It all boils down to respecting the market and setting that ego aside. Your need to be “correct” can become costly if you allow it. So respect the market, or it will force you to respect it! We have to accept some level of risk in order to profit in the market, but even a small measure of humility should be a part of the plan because your timing may be off.

* Consider setting multiple stops for a longer-term position so that you won’t get shaken out on a small dip but at worst you’ll be reducing your position size as the stock moves against you. Your final stop would be in an area that on the chart it’s clear the entire trade has reversed course. Partial sales offer a lot of freedom, so remember that you don’t have to be “all in” or “all out” of a position. Scale out appropriately to reduce risk when you see fit.

* You don’t have to win on every trade, so look at stop loss orders as a way to protect your long term odds of success. Give yourself the best chance of profiting over time by preventing big hits to your account. You want to avoid ever going from stockholder to STUCKholder! Getting deep in the hole on any trade or investment costs you opportunity elsewhere, along with costing you your objectivity. All of us are wrong from time to time in the market, but the best traders know how to limit the damage done when they are wrong. The stop loss allows you to emulate that trait.

* Today’s commission rates are low enough that it’s sensible to use stops and then re-enter the stock later if you see fit. Stated otherwise, it’s easy to reverse that sale and quite inexpensive to do so.

* Every broker offers at least a basic stop loss order, with many brokers (including mine) now offering advanced order types which let you specify multiple conditions that must be met before your stop order gets triggered. That’s a huge tool for today’s traders and investors, so use conditional orders if they’re available to you.

The bottom line is this: small losses are the key to long-term success, whether you’re an investor or a trader. The stop loss order exists for the very purpose of limiting your “wrongs,” so use them!

posted by : Srikanthbabu Kaliki

We are also providing short term stock tips on monthly subscription (Rs. 210/-).
Interested persons send mail to sri_reddy_2006@yahoo.com

Day Trading Techniques

Day Trading Techniques

1. Buy near open price
If possible try to buy shares below open price, or at open price. Don’t buy shares if price is gone very high then open price, wait for the price to come down near open price and then buy that stock.

2. Check buying volumes
Before buying check out the buying and selling quantity (volumes). If buying volume started increasing then the stock may go up.

3. Check derivative status
If possible try to check out the derivative of the stock which you want to buy. If derivative of that particular stock is going up with increasing buying volumes then you can immediately grab (buy) that share/stock. Most of the time it is seen that if the derivative goes up, then its stock or share also goes up.

4. Wait for the target price to buy
For example, if buy is given at 150.5 then don’t buy below this price, only buy at 150.5 price or slightly higher then price. Because the given buy price may be the resistance price, if it breaks then share price goes up or else may not go up above 150.5. So plan to buy at given targeted price, don’t buy below target price.

5.Strictly maintain Stop Loss
Strictly maintain the given stop losses. This will help you to prevent from huge loss. Suppose, for moment the share/stock what you bought falls drastically down, then you may end up with huge loss. So always maintain given stop loss. “Stop Loss will reduce your loss”.

6. Down wait for huge profit in single share/stock
If you are getting some profit and if you notice that is not further moving up (it’s called consolidation) then you have to sell your share/stock and come out of that trade. In this manner, you can earn small profit instead of loss then you can do another trade and again earn small profit. Likewise if you keep earning couple of small profits in a single day then all your small profits will add up to huge profit amount in a single day. “Get satisfied in small profit and do multiple trades".

Posted by: Srikanthbabu Kaliki

Send queries to my E-mail : sri_reddy_2006@yahoo.com

Contact number: 09849138180 (please do not call in market time )

We are also providing short term stock tips for the individuals on monthly fee with amount of ( Rs. 210/- ) only. Interested persons can send e-mail to sri_reddy_2006@yahoo.com



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Getting Prepared for the Trading Day

Getting Prepared for the Trading Day

With the great challenge of facing the stock market each day and the hope of pulling money out of it on a regular basis, a trader can do few things more important than prepare adequately. It should be no secret that many of the brightest minds in the world are at work to make their living in the stock market, and such competition cannot be taken lightly! Furthermore, while traders should not be in the prediction business, we must certainly have a game plan.

As time progresses, a trader will inevitably learn from his mistakes. This experience is the foundation for laying out a game plan in preparation for the trading day. Merely being a student of the market and of one’s own results will teach a trader to react certain ways to market conditions or events. It is this foundation which should be built upon in order for the trader to elevate his game to the next level (and it IS a game).

In order to develop a trading plan, a trader must begin with his personal style in mind. Swing trading involves a plan that may evolve over the course of a few days to a few weeks, while day trading can be faster-paced and more spontaneous. Personality, patience, and profit objectives will play a large role in which style of trading one may wish to employ, but the trader should choose his method as he plans for success.

Once the trading style is known, the trader must take into account current market conditions. Are recent days or weeks characterized by lasting trends, or by narrow ranges and choppy action? Knowing the answer to this question will put you miles ahead of many other traders who walk in each morning without taking current conditions into consideration. The market will catch you off guard as it changes its rhythm or volatility, but recent history serves as a guide until things change. This means choppy, low-volume, range-bound markets should likely be approached with smaller positions and the expectation of taking profit more quickly and in one piece. A trending market with larger range days and greater volume allow the trader to take bigger positions in hopes of scaling out in pieces as the market moves in the trader’s profitable direction.

Whether after the market closes or early in the day prior to the market’s open, some time should be spent determining an IF/THEN strategy for the upcoming session. By screening for a handful of potential trades, the decision-making process is simplified and a plan is easier to carry out.

Consider finding a list of trade candidates for both the long and short side of the market, setting specific entry and exit prices, and then simply execute that plan. IF the long candidates rise to your entry prices, THEN purchase them. IF the short candidates break the levels of support you see, THEN short-sell them. IF none of your trade candidates trigger their entry prices, THEN do nothing! This kind of game plan will allow you to effectively respond to market conditions without having to predict direction or hope to be bailed out of losing positions. Approaching the market with the IF/THEN mentality also will help the trader to execute a plan, rather than fight the emotional urges to find excitement or force trades. Sometimes things will work exactly as planned and other times the market will whipsaw you right out of positions. Meeting the market with a game plan and sticking with it will undoubtedly allow the trader to work with less stress and emotion, which are two of the worst negative forces that traders face.

Feeling well physically is a very important trait which must be present for a trader to profit. Staying healthy and rested allows the trader to work with a clear mind and focus on the task at hand. Additionally, personal relationships can play a large role in a trader’s effectiveness. When life is rocky away from the trading screens, the successful trader must be willing to cut back on trading size or even back away from the market entirely. A prideful ego will not only cause rough waters on the home front with relationships, but it will also damage the trading account! A clear conscience allows quality rest and a fresh start each morning for returning to the market sharp and ready. Make the most of your weekends to catch up on personal to-do’s and relaxation. When Monday arrives, if you aren’t at your best, don’t expect your trading to be!

Finally, as the morning breaks and the market’s opening nears, follow a routine to get into the proper state of mind for following your plan. This may include reading up on current events, reviewing your charts one final time, grabbing your morning caffeine, or listening to your favorite song. Whatever it is, find what works for you when it comes to getting into the best mindset to extract profits from the market. Remember, the competition is serious and fierce, sharp-minded, and most of all, prepared. You should be too!"

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Trading Rules for Swing Trading

These trading rules below should help your swing trading efforts yield more profits. By following some trading rules, your trading approach will be far superior to any trading method without rules. The objective for all of us is to maximize gains while minimizing losses along the way. Successful trading requires discipline, and these guidelines will help you in your quest for profitability.

1. Emotional control is at the heart of good trading.
Controlling yourself allows the ability to think clearly at each moment, resulting in success as a trader.

2. Cut losses with the most strict discipline.
We must preserve capital at all times. Losing is part of trading, but opportunity cost is to be considered when hoping for a losing position to reverse course. If your trade reverses and violates support, get out and be willing to re-enter. This will save you from big losses and you can always re-enter if the stock crosses the entry price again.

3. Make good decisions and winning will take care of itself.
Focus on how you play the game and not on the scoreboard. Trade with discipline and follow your game plan.

4. When you lose, don't lose the lesson!
Forget the names but remember the events. Those who don't remember the past are doomed to repeat it. Make mistakes with composure and character, without blaming others, and don't dwell on mistakes.

5. When in doubt, get out.
Scrutinize your positions at all times, each day, and you will not be left holding a stock without reason. Be willing to change direction at any time, because your flexibility as an individual investor is a big advantage which should be embraced!

6. Keep your risk/reward profile in check.
Profits can exceed losses even if the number of losing trades is greater than the number of winning trades. Always properly manage money, size positions accordingly, obey stops, and protect profits. This will keep you in the game!

7. Avoid scheduled news.
We are unable to foresee breaking news, but scheduled news we can step aside from. Scheduled news includes interest rate announcements, corporate earnings announcements, and various daily economic releases. Remember to trade only when you've got the best of conditions.

8. Consider your account size for appropriate trading.
An account that is too small magnifies the effects of each trade, which keeps us from thinking rationally. Trade with the attitude that the next trade will simply be 1 of the next 1000 trades you will make.

9. Get a charting program that allows you to build watch lists, sort stocks, and draw trend lines
This is essential to learning. Price action and volume are vitally important in finding good chart patterns.

10. Scale out of winning positions as they work for you.
This achieves two goals: taking some off the table and keeping you in the game. If your trade reverses, you took some profit at good spots. If the move continues, you are still on board for the ride.

11. Don't dig yourself into a hole early in the day or in your career.
Be willing to observe the market and make an informed decision. Missed money is better than lost money, so wait patiently for the best opportunities to arrive.

12. Trade with a blend of anticipation and confirmation.
Balancing these two will mean that you adopt a system of "if this happens, I will do that." Wait for your pitch!

13. Beware of your trading process following a winning streak.
After a win streak, be extra disciplined! Many will make money in the market, but discipline is required to KEEP it. Stay on your guard at all times!

14. Evaluate your results at least monthly.
Monitor your P&L, your win/loss ratio, and the relationship between your biggest wins and worst losses. Reviewing these results helps you continually improve your understanding of the markets and yourself.

15. Finally (perhaps most important), always be patient.
Long-term patience will keep your confidence and optimism high, and short-term patience will help you wait for the best trades. Success doesn't come easy, and rarely are fortunes made overnight. Be willing to pay your dues and put in the work in order to achieve your goals.

How to Deal With Idel Time as a Trader

Many people think of full-time trading as a super exciting career and never a dull moment. This is certainly not always the case if you’re trading for a living! Perhaps new traders swing for the fences day after day, but they won’t be able to for very long.

To trade successfully, you must learn that there are some very slow and quiet times when trading the market. Whether you are waiting for the right conditions to establish new trades or if you’re waiting for trades you are in to develop, dealing with the idle times in an effective way will put you miles ahead of others on the road to profitability.

Markets and stocks spend time in uptrends, downtrends, and consolidation modes. Your method as a trader will dictate which of these market conditions are best, and when it’s best to sit on your hands or get away from your screens completely.

If you trade continuation chart patterns, the trending markets are your time to be active. Recognizing a trendless market will help you to avoid getting chopped up by initiating trades in narrow trading ranges. If you prefer reversal chart patterns, then the slower market days lacking a trend will be the times when you will be more active, and you’ll want to avoid the trend days which can be costly to a fade trade approach.

Once you have established your trading positions, you absolutely must allow them to develop according to your original trading plan. Many traders fight the urge to micro-manage positions, and it’s easy to with direct access brokers which provide hotkey orders and dirt cheap commissions.

What ends up happening when you over-manage your trades is that you either don’t give a stock enough room to move and you get stopped out too early, or you are afraid of any pullback which may temporarily erase some open profits, so you sell too early and lose your position in a good trade.

How does a trader avoid micro-managing trades?

For some, it might mean setting conditional alerts and walking away completely to tend to other matters. Maybe you go play golf or head to the bookstore. One of the best traders I have ever been around used to sit in the row behind me on our trading floor.

He had a big account and would patiently wait for his favorite conditions to develop so that he could establish some large trading positions. I can recall several occasions when he was up 6 figures for the day and you would have thought he was asleep in his chair, rocked back with his hands behind his head and eyes closed.

He forced himself to relax and think about something other than the giant profits on his screen which he may have been tempted to take had he been watching every tick.

Regardless of whether you are day trading or swing trading, there will be idle times as a trader which you must learn to deal with properly. Wait for the right conditions, enter your trades, set your exit parameters, and find a way to let the trades develop without interfering.

Guide Lines for Swing Trading Strategy

If your trade timeframe supports swing trading, here is the strategy we follows. Ofcourse this may not be the exact way you wish to swing trade, but it is intended as a guide to help you determine a trading strategy that suits not only your timeframe, but also your personality as a trader. If your timeframe is shorter, please see the day trading strategy page for more information.

Swing Trading Strategy:

When swing trading, your position size will usually be smaller than when day trading due to the fact that you are looking for a larger move. Your stop loss orders should be placed wider than when day trading for this reason. Naturally, your profit targets are farther away, so patience is a necessity.

Stocks often gap, so here are some guidelines for swing trading:

• If a stock gaps 1-2%, enter 1/2 of the intended position size and monitor the stock's behavior before adding to the position.
• If a stock gaps 2-3%, only enter 1/4 of the intended position size.
• If a stock gaps over 3%, it may be best to pass on the trade entirely, as the risk/reward profile of the trade is no longer the same.

Here are a few rules of thumb to help determine exits when swing trading:

• If the prior day's low is taken out on the breakout day (or high for shorts), exit the trade.
• Once a trade is held overnight, place a stop-loss order no further away than below the recent consolidation area, as a move beneath it would signal a failure.
• Once a trade is profitable by at least 10%, never give back more than half of the open profit. This helps to avoid the frustration of letting winning trades turn into losing trades.
• Once a trade is profitable by at least 5%, move the stop-loss order to breakeven on a closing basis.
• Partial buys and sells can be very helpful. If a stock breaks out in a sluggish fashion, consider entering only a partial position. If a trade is exhibiting little follow-through after the breakout, decrease the position size.
• Always monitor the health of the overall market, and the health of your positions. When things aren't acting right, either lighten up or go to cash entirely to preserve capital. It's easy to get back in.

These are some general guidelines for any trader with a swing trading strategy to determine exits that fit their timeframe, and are intended for educational purposes as you seek to define a swing trading strategy that suits your needs.

Guide lines for Day Trading Strategy

Day trading strategy should be a good starting point for you. Ofcourse this may not be the exact way you wish to day trade, but it is intended as a guide to help you determine a day trading strategy that suits not only your timeframe, but also your personality. Trading in accordance to your personality will ultimately serve you best.

Day Trading Strategy:

If you are a day trader, your position size is likely larger due to the fact you are looking for a smaller move with your short timeframe. Keeping a tight stop is extremely important when trading larger size, as a day trading strategy gives stocks multiple opportunities to work. For day trading, the strategy is rather simple:

• Always keep your profit objective at least 3 times greater than what you are willing to risk.
• Allow not more than a 1% move against you from your entry point.Ideally, you are in the trade beyond the trend line and out of the trade below it. You can always get back into the trade if the stock returns to the buy point.
• If the futures (Nifty and Sensex) make an intermediate lower high intraday (or higher low when trading the short side), exit half of your position. This implies a weakening market and can make it tougher for open positions to continue working.
• If your stock hits a new low for the day (long trades) or new high for the day if you are short, exit the position. A day trade is intended for initial moves, so there is no purpose in widening stops to accommodate a stock moving in the wrong direction. Get out if the stock breaks a low (or high if short) as you can reenter the trade if it triggers again.
• Once momentum fades and buyers are thinning out, take your profit. This can be done by carefully monitoring the intraday chart and the time & sales window for fading momentum.

Stock trading for simple profit

This article defines a general, simple plan to exploit bear markets for profit. A simple scheme exists to invest with medium-term holding periods for a net profitable expectancy.This one involves exploiting high volatility off bear markets with respect to liquidity common sense.

Liquidity Logic
For every sell order, initiated by either a retail or institutional trader, someone must stand on the other side to accept the transaction (i.e. provide liquidity). With each bull market, increasing numbers of public investors look to become shareholders of various corporations, pushing prices up along the way, and vice versa for bear markets.

Like most resources on Earth, the number of public buyers remains limited and as initiated buying orders slow down so do the stock prices. Liquidity squeeze then commences as the amount of willing buyers lessens, forcing sellers to settle for lower prices.

Consequentially, bargain hunters arrive and the so-called liquidity cycle begins again. As rationale affirms, higher liquidity allows for price rallies, and lower liquidity periods tend to cause swift price declines.

Volatility
Volatility simply means the rate or speed of market movement. Mentioned above, price drops occur from a shortage of buyers, where shareholders resort to settling at increasingly falling prices for cash.

As panic induced influences tend to transpire more often with selling, the average rate of stock price drops remains greater than that of growth. If the market has a 50% chance of upside or downside moves, then making purely downside bets would end profitably due to the larger sizes off price dips. Unfortunately no evidence exists to prove the market operating in a random, 50/50 fashion.

Probabilities & Timing
With the last several decades, the Indian stock markets have experienced corrections following roughly two to six years of consecutive bullish years. This suggests that as public investors take interest and buy up on stocks, it takes an average of four years to exhaust liquidity where a market decline becomes inevitable.

A few conclusions result from the above.

Rallying or falling markets function in a collectively exhaustive manner, where bullish periods occur more often than bearish, and one always leads to the other. With this logic, a numerically-based timing of trading entry and exit plans come to form.

General Strategy
With each consecutive bullish year further than four, the next year carries a higher probability of general stock index decline as the very limited liquidity fades. With added volatility in panic selling modes, the investor could survive rallying periods easily and the downside moves result in potentially much greater rewards.

The exit plan could revolve around statistical means (e.g. at the end of the consequential bearish year, when volatility levels reach historical highs, etc.). It could also center at a fundamental path, where company insiders and institutions begin to buy heavily, or economic figures look to make a come back.

Patience
The simple scheme provides a positive expected return, and it requires a lot of patience to pull off. Like anything else good in life, it pays to stay disciplined and persistent.

Hedging practice to protect your portfolio

Hedging is a practice every investor should know about - there is no arguing that portfolio protection is often just as important as portfolio appreciation. Like your neighbor's obsession, however, hedging is talked about more than it is explained, making it seem as though it belongs only to the most esoteric financial realms. Well, even if you are a beginner, you can learn what hedging is, how it works and what hedging techniques investors and companies use to protect themselves.

What Is Hedging?
The best way to understand hedging is to think of it as insurance. When people decide to hedge, they are insuring themselves against a negative event. This doesn't prevent a negative event from happening, but if it does happen and you're properly hedged, the impact of the event is reduced. So, hedging occurs almost everywhere, and we see it everyday.

For example, if you buy house insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters. Portfolio managers, individual investors and corporations use hedging techniques to reduce their exposure to various risks.

In financial markets, however, hedging becomes more complicated than simply paying an insurance company a fee every year. Hedging against investment risk means strategically using instruments in the market to offset the risk of any adverse price movements.

In other words, investors hedge one investment by making another. Technically, to hedge you would invest in two securities with negative correlations. Of course, nothing in this world is free, so you still have to pay for this type of insurance in one form or another. Although some of us may fantasize about a world where profit potentials are limitless but also risk free, hedging can't help us escape the hard reality of the risk-return tradeoff.

A reduction in risk will always mean a reduction in potential profits. So, hedging, for the most part, is a technique not by which you will make money but by which you can reduce potential loss.

If the investment you are hedging against makes money, you will have typically reduced the profit that you could have made, and if the investment loses money, your hedge, if successful, will reduce that loss.

How Do Investors Hedge?
Hedging techniques generally involve the use of complicated financial instruments known as derivatives, the two most common of which are options and futures. We're not going to get into the nitty-gritty of describing how these instruments work, but for now just keep in mind that with these instruments you can develop trading strategies where a loss in one investment is offset by a gain in a derivative.

Let's see how this works with an example. Say you own shares of Reliance Industries Limited (Ticker: RIL). Although you believe in this company for the long run, you are a little worried about some short-term losses in the Reliance Industries . To protect yourself from a fall in RIL you can buy a put option (a derivative) on the company, which gives you the right to sell RIL at a specific price (strike price). If your stock price tumbles below the strike price, these losses will be offset by gains in the put option. (For more information, see options basics article in http://rupeedreamsindia.blogspot.com/2008/03/what-are-futures-options-derivatives.html)

The other classic hedging example involves a company that depends on a certain commodity.

Let's say TATA STEEL is worried about the volatility in the price of Iron ore, the plant used to make steel. The company would be in deep trouble if the price of Iron ore were to skyrocket, which would eat into profit margins severely. To protect (hedge) against the uncertainty of Iron ore prices, TATA STEEL can enter into a futures contract (or its less regulated cousin, the foreward contract), which allows the company to buy the Iron ore at a specific price at a set date in the future.

Now TATA STEEL can budget without worrying about the fluctuating commodity. If the Iron ore skyrockets above that price specified by the futures contract, the hedge will have paid off because TATA STEEL will save money by paying the lower price. However, if the price goes down, TATA STEEL is still obligated to pay the price in the contract and actually would have been better off not hedging.

Keep in mind that because there are so many different types of options and futures contracts an investor can hedge against nearly anything, whether a stock, commodity price, interest rate and currency - investors can even hedge against the weather.

The Downside
Every hedge has a cost, so before you decide to use hedging, you must ask yourself if the benefits received from it justify the expense. Remember, the goal of hedging isn't to make money but to protect from losses. The cost of the hedge - whether it is the cost of an option or lost profits from being on the wrong side of a futures contract - cannot be avoided. This is the price you have to pay to avoid uncertainty.

We've been comparing hedging versus insurance, but we should emphasize that insurance is far more precise than hedging. With insurance, you are completely compensated for your loss (usually minus a deductible). Hedging a portfolio isn't a perfect science and things can go wrong. Although risk managers are always aiming for the perfect hedge, it is difficult to achieve in practice.

What Hedging Means to You
The majority of investors will never trade a derivative contract in their life. In fact most buy-and-hold investors ignore short-term fluctuation altogether. For these investors there is little point in engaging in hedging because they let their investments grow with the overall market.

So why learn about hedging?

Even if you never hedge for your own portfolio you should understand how it works because many big companies and investment funds will hedge in some form. Oil companies, for example, might hedge against the price of oil while an international mutual fund might hedge against fluctuations in foreign exchange rates. An understanding of hedging will help you to comprehend and analyze these investments.

Conclusion
Risk is an essential yet precarious element of investing. Regardless of what kind of investor one aims to be, having a basic knowledge of hedging strategies will lead to better awareness of how investors and companies work to protect themselves. Whether or not you decide to start practicing the intricate uses of derivatives, learning about how hedging works will help advance your understanding the market, which will always help you be a better investor.

Learn the types of stock trading

The stock market is a reliable indicator of the actual value of companies which issue stock. Values of stocks are based on verifiable financial data such as sales figures, assets and growth. This reliability makes the stock market a good choice for long term investing – well-run companies should continue to grow and provide dividends for their stockholders.

The stock market also provides opportunities for short-term investors. Market skittishness can cause prices to fluctuate quite rapidly and investor psychology can cause prices to fall or rise – even if there is no financial basis for these variations.

How does this happen? News reports, government announcements about the economy, and even rumors can cause investors to become nervous or to suspect that a company will increase in value.

When the price starts to fall or rise, other investors will jump on the bandwagon, causing an even faster acceleration in price. Eventually the market will correct itself, but for savvy short-term investors who watch the market closely, these price changes can offer opportunities for profitable trading.

Short term traders are divided into 3 categories: Position Traders, Swing Traders, and Day Traders.

Position Traders
Position trading is the longest term trading style of the three. Stocks could be held for a relatively long period of time compared with the other trading styles. Position traders expect to hold on to their stocks for anywhere from 5 days to 3 or 6 months. Position traders are watching for fundamental changes in value of a stock. This information can be gleaned from financial reports and industry analyses.

Position trading does not require a great deal of time. An examination of daily reports is enough to plan trading strategies. This type of trading is ideal for those who invest in the stock market to supplement their income. The time needed to study the stock market can be as little as 30 minutes a day and can be done after regular work hours.

Swing Traders
Swing traders hold stocks for shorter periods than position traders – generally from one to five days. The swing trader is looking for changes in the market that are driven more by emotion than fundamental value.

This type of trading requires more time than position trading but the payback is often greater. Swing traders usually spend about 2 hours a day researching stocks and executing orders. They need to be able to identify trends and pick out trading opportunities. They usually rely on daily and intraday charts to plot stock movements.

Day Traders
Day trading is commonly thought of as the most risky way to play the stock market. This may be true if the trader is uneducated, but those who know what they are doing know how to limit their risk and maximize their profit potential. Day trading refers to buying and selling stock in very short periods of time – less than a day but often as short as a few minutes.

Day traders rely on information that can influence price moves and have to plot when to get in and out of a position. Day traders need to be rational and analytical. Emotional buyers will quickly lose money in this type of trading. Because of the close attention needed to market conditions, day trading is a full-time profession.

10 Golden Rules for Successful Stock Market Trading

Your stock trading rules are your money. When you follow your rules you make money. However if you break your own stock trading rules the most likely outcome is that you will lose money.

Once you have a reliable set of stock trading rules it is important to keep them in mind. Here is one discipline that can reap rewards. Read these rules before your day starts and also read the rules when your day ends.

Rule 1: I must follow my rules.

Naturally if you develop a set of rules they are to be followed. It is human nature to want to vary or break rules and it takes discipline to continue to act in accordance with the established rules.

Rule 2: I will never risk more than 3% of my total portfolio on any one stock trade.

There are many old traders. There are many bold traders. But there are never any old bold traders. Protecting your capital base is fundamental to successful stock market trading over time.

Rule 3: I will cut my losses at 5% to 15% when I am wrong without question.

Some traders have an even lower tolerance for loss. The key point here is to have set points (stop loss) within the limits of your tolerance for loss. Stay informed about the performance of you stock and stick to your stop loss point.

Rule 4: Never set price targets.

This is a style that will allow me to get the most out of rising stocks. Simply let the profits run. Realistically, I can never pick tops. Never feel a stock has risen too high too quickly. Be willing to give back a good percentage of profits in the hope of much bigger profits.

The big money is made from trading the really BIG moves that I can occasionally catch.

Rule 5: Master one style.

Keep learning and getting better at this one method of trading. Never jump from one trading style to another. Master one style rather than become average at implementing several styles.

Rule 6: Let price and volume be my guides.

Never listen to any opinion about the stock market or individual stocks you are considering trading or are already trading. Everything is reflected in the price and volume.

Rule 7: Take all valid signals that show up.

Don't make excuses. If an entry signal shows up you have no excuse not to take it.

Rule 8: Never trade from intra-day data.

There is always stock price variation within the course of any trading day. Relying on this data for momentum trading can lead to some wrong decisions.

Rule 9: Take time out.

Successful stock trading is not solely about trading. It's also about emotional strength and physical fitness. Reduce the stress every day by taking time off the computer and working on other areas. A stressful trader will not make it in the long term.

Rule 10: Be an above average trader.

In order to succeed in the stock market you don't need to do anything exceptional. You simply need to not do what the average trader does. The average trader is inconsistent and undisciplined. Ask yourself every day, "Did I follow my method today?" If your answer is no then you are in trouble and it's time to recommit yourself to your stock trading rules.