With the rollercoaster ride known as the market virtually coming off the tracks last week, it wouldn’t be too shocking if a lot of people lost money. If you’re among them, you’re certainly not alone. But the last thing you should do is risk your entire portfolio to try and “catch up” and make up that lost money. Let’s say you have $10,000 in your account and put the entire amount in each trade: - If you make 20% in your first trade now you have $12,000. - If…
Ever since Adam Smith wrote Wealth of Nations, we’ve known the first rule of unfettered economics — supply and demand balance each other. The second rule is that money moves on. There are numerous interesting examples of this at work right now. Knowing where money is flowing might help you make some slightly different investment decisions. It also makes some mysteries clear. Last Thursday, in IDE, for instance, I’d found an interesting study of dollar strength and stock…
Have you ever heard of the efficient market hypothesis? The basis of the hypothesis is that stocks trade based on all known information. In other words, there is never news that the market hasn’t already priced in. The implication is that the market is never inefficient. If you’re looking at that and thinking about how much of a bummer it is, I don’t blame you. I found out about the theory when I first started learning about the markets back when I was 16 (yeah, I was young)….
Have you ever been on a losing streak and felt like there was no way for you to make money in the markets? I think we all feel that way from time to time. It’s natural. After all, our emotions are never static. The worst part is that when we’re in that mindset, we can actually create a self-fulfilling cycle. Maybe we’re trying too hard. Maybe we get sucked into a variety of different indicators that we never followed before. Or perhaps we get into one trade hoping that…
What affects the market today could mean nothing tomorrow, but there is one dynamic I’ve been seeing over and over in today’s market. It relates to the price of oil. Consider that since November, the Dow Jones has dropped 20 percent. Oil on the other hand, has doubled and nearly every day that oil hits a new record high, the stock market ends down on the day. On Monday, when oil prices fell $4 a barrel, the market rallied higher. The reason oil is having such a nasty effect on…
One of the simplest ways to make money in the stock market is to find a pattern with a history of repeating, and then exploit that pattern for profits. Today, I’d like to share with you a pattern that proves to be one of the best ways to make money in a down market. All you have to do is look for companies that recently cut or eliminated their dividend payment, and short them. The reason why stocks drop is straightforward. Investors view a company’s dividend payment as a barometer…
Let’s talk about cocktails today. We’ll be careful to use both halves of the word. George Carlin died; boy I’ll miss his humor. I’m not much of a swearer myself. But I’m not my grandmother either, so if you swear around me, though not at me, I’ll just overlook it. (Andy is an artist when inspired.) It’s hard to scare a woman who majored in English then Linguistics with four-letter words. Shout one out, and I’ll give you the etymology. Then…
High priests have ways to keep a good gig to themselves … magic rites, forbidden knowledge, and secret terms. It doesn’t matter whether they are psychiatrists, witch doctors or investment analysts. In our field—investments—we’ve been considering the secrets of volatility. So far, it’s been all plain English. But the witch doctors aren’t going to let us off that easily. We’ve seen volatility as a matter of “jumpiness” visible to the…
Now that you have the standard deviation-volatility idea down, you can roll right on to Bollinger bands for a practical way to put what you know to work. When I first looked at charts with Bollinger bands, it seemed as though they were drawn on top of prices. How they predicted anything was not at all obvious. But the Bollinger band is a variation of standard deviation. Instead of being calculated from closing prices, it’s based on a 20-day moving average. The normal setting is 20…
You see it all the time; a stock jumps 20-30% in just a few days. Suddenly, the average investor sees what is happening and decides to join the bandwagon, hoping to catch some of the move. After jumping in, the stock comes down 15% and the investor is at a loss.This type of loss is one of the most common mistakes investors make, but is also one of the easiest to avoid. Take a look at the chart below to see what the situation looks like. This is a chart of Sirius Satellite Radio (SIRI). In 2006,…
