Can someone explain the stock market to me?

For more info, google my id tag mouser57 and add do a search with this annotation (mouser57 articles trading) minus the brackets. I had a private forum on stockhouse but I have since closed it and ventured onto FX Currency Market

In every profession, there are probably a dozen or two major rules. Knowing them cold is what separates the professional from the amateur. Not knowing them at all? Well, let's put it this way: How safe would you feel if you suddenly found yourself piloting (solo) a Boeing 747 as it were landing on an airstrip?
Unless you are a professional pilot, you would probably be frightened out of your wits and would soil your underwear. Hold that thought as you read this essay ... because I will explain to you how market manipulation works.
In order to successfully speculate, one should presume the following: THE SMALL CAP STOCK MARKETS PRIMARILY EXIST TO FLEECE YOU!
I'm talking about Vancouver, Alberta, the Canadian Dealing Network and the US Over-the Counter markets (Pink Sheets, Bulletin Board, etc.). One could also stretch this, with many stocks, to include the world's senior stock markets, including Toronto, New York, NASDAQ, London, etc.
The average investor or speculator is not very likely to have much success in the small cap crapshoots.
I guess that is what attracted ME to these markets. I have been trying, for quite some time, to answer this question, "How come?" Now, I know. And you should, too!
"While these speculative companies do not actually make any money, one can profit by speculating in these companies."
That is the premise on how these markets are run, by both the stock promoters, insiders, brokers, analysts and others in this industry. That logic is flawed in that it presumes "someone else" is going to end up holding the dirty bag.
Follow this premise all the way through and you will realize the insane conclusion:
For these markets to continue along that route, new suckers have to continue coming into the marketplace. The conclusion is insane in that such mad activity can only be short-lived. I disagree with this premise and propose another solution
What the professionals and the securities regulators know and understand, which the rest of us do not, is this.

"RULE #1:
ALL SHARP PRICE MOVEMENTS -- WHETHER UP OR DOWN -- ARE THE RESULT OF ONE OR MORE (USUALLY A GROUP OF) PROFESSIONALS MANIPULATING THE SHARE PRICE."
This should explain why a mining company finds something
good and "nothing happens" or the stock goes down. At the same
time, for NO apparent reason, a stock suddenly takes off for the sky! On little volume! Someone is manipulating that stock, often with an unfounded rumor. In order to make these market manipulations work, the professionals assume:
(a) The Public is STUPID and
(b) The Public will mainly buy at the HIGH and
(c) The Public will sell at the LOW. Therefore, as long as the market manipulator can run crowd control, he can be successful.

Let's face it: The reason you speculate in such markets is that you are greedy AND optimistic. You believe in a better tomorrow and NEED to make money quickly. It is this sentiment which is exploited by the market manipulator. He controls YOUR greed and fear about a particular stock. If he wants you to buy, the company's prospects look like the next Microsoft. If the manipulator wants you to desert the sinking ship, he suddenly becomes very guarded in his remarks about the company, isn't around to glowingly answer questions about the company and/or GETS issued very bad news about the company. Which brings us to the next important rule.

"RULE #2:
IF THE MARKET MANIPULATOR WANTS TO DISTRIBUTE (DUMP) HIS SHARES, HE WILL START A GOOD NEWS PROMOTIONAL CAMPAIGN."
Ever wonder why a particular company is made to look like the greatest thing since sliced bread? That sentiment is manufactured. Newsletter writers are hired -- either secretly or not -- to cheerlead
a stock. PR firms are hired and let loose upon an unsuspecting public. Contracts to appear on radio talk shows are signed and implemented. Stockbrokers get "cheap" stock to recommend the company to their "book" (that means YOU, the client in his book). An advertising campaign is rolled out (television ads, newspaper ads, card deck mailings). The company signs up to exhibit at "investment conferences" and "gold shows" (mainly so they can get a little "podium time" to hype you on their stock and tell you how "their company is really different" and "not a stock promotion.") Funny little "hype" messages are posted on Internet newsgroups by the same cast of usual suspects. The more, the merrier. And a little
"juice" can go a long way toward running up the. The HYPE is on. The more clever a stock promoter, the better his knowledge of the advertising. Little gimmicks like "positioning" are used. Example: Make a completely unknown company look warm and fuzzy and appealing to you by comparing it to a recent success story, Diamond Fields or Bre-X Minerals. That is the POSITIONING gospel, authored by Ries and Trout (famous for "Avis: We Want To Be #1" and "We Try Harder" and other such slogans). These advertising/PR executives must have stumbled onto this formula after losing their shirts speculating in a few Canadian stock promotions! The only reason you have been invited to this seemingly incredible banquet is that YOU are the main course. After the market manipulator has suckered you into "his investment," exchanging HIS paper for YOUR cash, the walls begin to close in on you. Why is that?

"RULE #3
AS SOON AS THE MARKET MANIPULATOR HAS COMPLETED HIS DISTRIBUTION (DUMPING) OF SHARES, HE WILL START A BAD NEWS OR NO NEWS CAMPAIGN."

Your favorite home-run stock has just stalled or retreated a bit from its high. Suddenly, there is a news VACUUM. Either NO news or BAD rumors. I discovered this with quite a few stocks. I would get LOADS of information and "hot tips." All of a sudden, my pipeline was shut-off. Some companies would even issue a news release CONDEMNING me ("We don't need 'that kind of hype' referring to me!). Cute, huh? When the company wanted fantastic hype circulated hither and yon, there would be someone there to spoon-feed me. The second the distribution phase was DONE....ooops! Sorry, no more news. Or, "I'm sorry. He's not in the office." Or, "He won't be back until Monday." The really slick market manipulators would even seed the Internet news groups or other journalists to plant negative stories about that company. Or start a propaganda campaign of negative rumors on all available vehicles. Even hiring a
"contrarian" or "special PR firm" to drive down the price. Even hiring someone to attack the guy who had earlier written glowingly about the company. (This is not a game for the faint-hearted!)
You'll also see the stock drifting endlessly. You may even experience a helpless feeling, as if you were floating in outer space without a lifeline. That is exactly HOW the market manipulator wants you to feel. See Rule Number Five below. He may also be doing this to avoid the severe disappointment of a "dry hole" or a "failed deal." You'll hear that oft-cried refrain, "Oh well, that's the junior minerals exploration business... very risky!" Or the oft-quoted statistic, "Nine out of 10 fail each year and this IS a Venture Capital Startup stock exchange." Don't think it wasn't contrived. If a geologist at a junior mining company wasn't optimistic and rosy in his promise of exploration success, he would be replaced by someone who was! Ditto for the high-tech deal, in a world awash with PhD's. So, how do you know when you are being taken? Look again at Rule #1. Inside that rule, a few other rules unfold which explain how a stock price is manipulated.

"RULE #4
ANY STOCK THAT TRADES HUGE VOLUME AT HIGHER PRICES SIGNALS THE DISTRIBUTION PHASE."
When there was less volume, the price was lower. Professionals were accumulating. After the price runs, the volume increases. The professionals bought low and sold high. The amateurs bought high
(and will soon enough sell low). In older books about market manipulation and stock promotion, which I've recently studied, the markup price referred to THREE times higher than the floor. The floor is the launch pad for the stock. For example, if one looks at the stock price and finds a steady flatline on the stock's chart of around 10 cents, then that range is the FLOOR. Basically, the markup phase can go as high as the market manipulator is capable of taking it. From my observations, a good markup should be able to run about five to ten times higher than the floor, with six to seven being common. The market manipulator will do everything in his power to keep you OUT OF THE STOCK until the share price has been marked up by at least two-three times, sometimes resorting to "shaking you out" until after he has accumulated enough shares. Once the markup has begun, the stock chart will show you one or more spikes in the volume -- all at much higher prices (marked up by the manipulator, of course). That is DISTRIBUTION and nothing else.
Example: Look at Software Control Systems (Alberta: XVN), in which I purchased shares after it had been marked up five times. There were eight days of 500,000 (plus) shares trading hands, with
one day of 750,000 shares trading hands. Market manipulator(s) dumping shares into the volume at higher prices. WHENEVER you see HUGE volume after the stock has risen on a 75 degree angle, the distribution phase has started and you are likely to be buying in at or near the stock's peak price.
Example: Look at Diamond Fields (TSEFR), which never increased at a 75 degree angle and did not have abnormal volume spikes, yet in less than two years ran from C$4 to C$160/share. Example: Look at Bre-X Minerals (Alberta: BXM), which did not experience its first 75 degree angle, with huge volume until July 14th, 1995. The next two trading days, BXM went down and stayed around C$12/share for two weeks. The volume had been 60% higher nearly a month earlier, with only a slight price increase. Each high volume and spectacular increase in BXM's share price was met with a price retreat and leveling off. "Suddenly," BXM wasn't trading at C$2/share; it was at C$170/share.... up 8500% in less than a year!
In both of the above cases, major Canadian newspapers ran extremely negative stories about both companies, at one time or another. In each instance, just before another share price run up,
retail investors fled the stock! Just before both began yet another run up! Successful short-term speculators generally exit any stock run up when the volume soars; amateurs get greedy and buy at those points.

"RULE #5
THE MARKET MANIPULATOR WILL ALWAYS TRY TO GET YOU TO BUY AT THE HIGHEST, AND SELL AT THE LOWEST PRICE POSSIBLE."
Just as the manipulator will use every available means to invite you to "the party," he will savagely and brutally drive you away from "his stock" when he has fleeced you. The first falsehood you assume is that the stock promoter WANTS you to make a bundle by investing in his company. So begins a string of lies that run for as long as your stomach can take it. You will get the first clue that "you have been had" when the stock stalls at the higher level. Somehow, it ran out of steam and you are not sure why. Well, it ran out of steam because the market manipulator stopped running it up. It's over inflated and he can't
convince more people to buy. The volume dries up while the share price seems to stall.

LOOK AT THE TRADING VOLUME, NOT THE SHARE PRICE!
When earlier, there may have been 500,000 shares trading each day for eight out of 12 trading days (as in the case of Software Control Systems), now the volume has slipped to 100,000 shares (or so) daily. There are some buyers there, enough for the manipulator to continue dumping his paper, but only so long as he can enlist one or more individuals/services to bang his drum. He may continue feeding the promo guys a string of "promises" and "good news down the road." (Believe me, this HAS happened to me!) But, when the news finally arrives, the stock price goes THUD! This is entirely orchestrated by a market manipulator. You'll see it in the trading volume, most of which is CONTRIVED. A market manipulator will have various brokers buying and selling the stock to give the APPEARANCE of increasing volume and price so that YOU do start chasing it higher. At some point during the stall stage, investors get fed up with
the non-performance of the stock. It drifts for a while, in a steady retreat, with perhaps a short-lived spike in price and volume (the final signal that the manipulator has finally offloaded ALL of his paper). Then, the stock comes tumbling down -- having lost ALL of the earlier share appreciation.

Sometimes, with the more cruel manipulators, they will throw in a little false hope... giving you a little more rope so they can better hang you. Just after a severe drop, there will be a "bottom fishing" announcement which sends the share price up a bit on high volume, rises a little more after that and then continues to drift. Meanwhile, you keep getting "shaken out" through a cruel drip-drip water torture of the share price's slow retreat. Again, virtually every movement is completely orchestrated.



"RULE #6
IF THIS IS A REAL DEAL, THEN YOU ARE LIKELY TO BE THE LAST PERSON TO BE NOTIFIED OR WILL BE DRIVEN OUT AT THE LOWER PRICES."
Like Jesse Livermore wrote, "If there's some easy money lying around, no one is going to force it into your pocket." The same concept can be more clearly understood by watching the tape. When a market manipulator wants you into his stock, you will hear LOUD noises of stock promotion and hype. If you are "in the loop," you will be bombarded from many directions. Similarly, if he wants you out of the stock, then there will be orchestrated rumors being circulated, rapid-fired at you again from many directions. Just as good news may come to you in waves, so will bad news. You will see evidence of a VERY sharp drop in the share price with HUGE volume. That is you and your buddies running for the exits. If the deal is really for real, the market manipulator wants to get ALL OF YOUR SHARES or as many as he can... and at the lowest price he can. Whereas before, he wanted you IN his market, so he could dump his shares to you at a higher price, NOW when he sees that this deal IS for real, he wants to pay as little as possible for those same shares... YOUR shares which he wants to you part with, as quickly as possible. The market manipulator will shake you out by DRIVING the price as low as he can. Just as in the "accumulation" stage, he wants to keep everything as quiet as possible so he can snap up as many of the shares for himself, he will NOW turn down, or even turn off, the volume so he can repeat the accumulation phase.
In the mining business, there seems to always be another "area play" around the corner. Just as Voisey's Bay drifted into oblivion, during the fourth quarter of 1995 and early into 1996, the same Voisey Bay "wannabees" began striking deals in Indonesia. Some even used new corporate entities. Same crooks, different shingles. The accumulation phase was TOP SECRET. The noise level was deadly silent. As soon as the insiders accumulated all their shares, they let YOU in on the secret.

"RULE #7
CONVERSELY, YOU WILL OFTEN BE THE LAST TO KNOW WHEN THIS DEAL SHOWS SIGNS OF FAILURE."
Twenty-twenty hindsight will often show you that there was a "little stumble" in the share price, just as the "assays were delayed" or the "deal didn't go through." Manipulators were peeling off their paper to TART the downslide. And ACCELERATE it. The quick slide down makes it improbable for your getting out at more than what you originally paid for the stock... and gives you a better reason for holding onto it "a little longer" in case the price rebounds. Then, the drifting stage begins and fear takes over. And unless you have serves of steel and can afford to wait out the manipulator, you will more than likely end up selling out at a cheap price.

For the insider, market maker or underwriter is obliged to buy back all of your paper in order to keep his company alive and maintain control of it. The less he has to pay for your paper, the lower his cost will be to commence his stock promotion again... at some future date. Even if his company has no prospects AT ALL, his "shell" of a company has some value (only in that others might want to use that structure so they can run their own stock promotion). So, the manipulator WILL buy back his paper. He just
wants to make sure that he pays as little for those shares as possible.

"RULE #8
THE MARKET MANIPULATOR WILL COMPEL YOU INTO THE STOCK SO THAT YOU DRIVE UP ITS PRICE SHARES."
Placing a Market Order or Pre-Market Order is an amateur's mistake, typifying the US investor -- one who assumes that thinly traded issues are the same as blue chip stocks, to which they are accustomed.
A market manipulator (traders included here) can jack up the share price during your market order and bring you back a confirmation at some preposterous level. The Market Manipulator will use the "tape" against you. He will keep buying up his own paper to keep you reaching for a higher price. He will get in line ahead of you to buy all the shares at the current price and force you to pay MORE for those shares. He will tease you and MAKE you reach for the higher price so you "won't miss out." Miss out on what? Getting your head chopped off, that's what! One can avoid market manipulation by not buying during the huge price spikes and abnormal trading volumes, also known as chasing the stock to a higher price.


"RULE #9:
THE MARKET MANIPULATOR IS WELL AWARE OF THE EMOTIONS YOU ARE EXPERIENCING DURING A RUN UP AND A COLLAPSE AND WILL PLAY YOUR EMOTIONS LIKE A PIANO."
During the run up, you WILL have a rush of greed which compels you to run into the stock. During the collapse, you WILL have a fear that you will lose everything... so you will rush to exit. See how simple it is and how clear a bell it strikes? Don't think this formula isn't tattooed inside the mind of every manipulator. The market manipulator will play you on the way up and play you on the way down. If he does it very well, he will make it look like someone else's fault that you lost money! Promise to fill up your wallet? You'll
rush into the stock. Scare you into losing every penny you have in that stock? You'll run away screaming with horror! And vow to NEVER, ever speculate in such stocks again. But many of you still do.... The manipulator even knows how to bring you back for yet another play. What actors! No wonder Vancouver is sometimes called "Hollywood North."

"FINAL RULE: A NEW BATCH OF SUCKERS ARE BORN WITH EVERY NEW PLAY."
The Markets are a Cruel, Unkind and Dangerous Playing Field, one place where the newest amateurs are generally fleeced the most brutally.... usually by those who KNOW the above rules. Just as I have a duty to ensure that each of you understand how this game is played, YOU now have that same duty to guarantee that your fellow speculator understands these rules. Just as I would be a criminal for not making this data known to you, YOU would be just as criminal to keep it a secret. There will always be an
unsuspecting, trusting fool whom the rabid dogs will tear to shreds, but it does NOT have to be this way.
IF every subscriber made this essay broadly known to his friends, acquaintances and family, and they passed it on to their friends, word of mouth could cause many of these market manipulators to pause. IF this effort were done strenuously by many, then perhaps the financial markets could weed out the rooked
manipulators and the promoters could bring us more legitimate plays. The stock markets are a financing tool. The companies BORROW money from you, when you invest or speculate in their companies. They want their share price going higher so they can finance their deal with less dilution of their shares... if they are good guys. But, how would you feel about a friend or family member who kept borrowing money from you and never repaid it? That would be theft, plain and simple. So, a market manipulator is STEALING your money. Don't let him do it anymore. Insist that the company in which you invest be honest or straight... or find another company in which to speculate. Your money talks in LOUDER volumes than any stock promotion scheme. ALWAYS refuse any deal which smells wrong. Refuse to tolerate the scams prevalent in the financial markets. This can ONLY be accomplished by KNOWING and USING the above
rules. Thoroughly COMPLETE your due diligence on a company before risking a dime. Dig up the Insider Reports to find out who is blowing out their paper, how often they are blowing out their paper and whatever happened to their "last play." Begin to use this as YOUR rule of thumb: If the insider's paper
is really worthless, then avoid it. Find another's whose paper DOES hold promise and honest possibilities. In these small cap stock markets, you are investing more in the INDIVIDUAL behind the play, than the "possibility" of the play itself. Ask yourself before speculating: Could I lend this person $5,000 for a year and hope to get it back? If not, then don't! Do it for your own good and the good of everyone else who is so foolish as to speculate in these financial markets!

The truly sane and only somewhat safe solution to all of this:
FIND GOOD COMPANIES IN WHICH TO SPECULATE AND GET INTO THEM AT THE GROUND FLOOR LEVEL. Anything else is criminal or stupid. This is a case where there really isn't a gray area. It's either Black or it's White. The company and its management are scamsters

 

Here is the best example I can give people that are losing money on their picks.
If you stay focused on 10% profits and 2% losses, your monthly gains will outpace your losses and your portfolio will go up every month without fail.
Example:
$10,000 invested each into 5 stocks
First stock you get out on 10% profit of $1,000
Second stock you cut loss at 2% of -$200
Third stock you get out on 10% profit of $1,000
Fourth stock you cut loss at 2% of -$200
Fifth stock you cut loss at 2% of -$200
Tally of $1,000 - $200 + $1000 -$200 -$200 = $2,000 - $600 = $1,400 Profit
So you can see that if you have one winner in a month on five picks you will still come out profiting.
3 or 4 winners will increase potential profits even greater monitoring your losses.
This method has kept me up over 700% since November
Just my humble opinion
Mouser57
Not on small caps, on the mid and large caps yes.
Small caps you will have to adjust on the average (maybe a 5% or so, depending on the volitility)of your entry price which would be bought close to the bottom of a dip after the reversal has occured.
So if it dips below again your bottom entry point, it probably would be a large dip anyways.
You don't want to be buting on a play that is still heading down, looking at plays that have already started on the uptrend.
mouser57



Prior to making a trade.
MATHEMATICAL EXPECTATION OF THE 10/2 RULE
ME = [{1 + (AW / AL)} * PW] – 1
Where:
ME is the mathematical expectation.
AW is the average winning amount
AL is the average losing amount.
PW is the % of winning trades for the strategy
Example:
If you have a 20% winning average, the average winning trade is $10,000 and average losing trade is $2,000(following the 10/2 rule, take only a 10% profit and take only the 2% loss)
ME = [{1 + ($10,000 / $2,000)} * 0.20] – 1
ME = [{1 + (5.0)} * 0.20] – 1
ME = [6.0 * 0.20] – 1
ME = 1.20 – 1.00
ME = 0.2
Giving you a positive mathematical expectation on 1 win out of every 5 plays.
EXPECTED RETURN
Average amount of P/L expected for each trade using the 10/2 rule.
ER – (PW * AW) – (PL * AL)
Where:
ER is the expected return
PW is the probability of the winning trade.
AW is the average winning amount
PL is the probability of a losing trade (1 – PW)
AL is the average losing trade amount
Works is the expected return is greater than zero.
Example:
If you have a 20% winning average, the average winning trade is $10,000 and average losing trade is $2,000(following the 10/2 rule, take only a 10% profit and take only the 2% loss)

ER = (0.2 * $10,000) – (0.8 * $2,000)
ER = ($2,000) – ($1,600)
ER = $400
IMHO
mouser57

 

Does anyone have a recommendation for a good paper trading website? I have done it once before on a site called Virtual Stock Exchange (vse.marketwatch.com) and I really enjoyed it. I was just wondering if there are better ones out there.

Thanks,

Chris

 

+1

use the cash for kindling. You'll at least get a fire out of it.

 

1. Learn before you leap
A common mistake made by many novice traders is to jump into the markets without knowing what they're doing. They don't take the time to observe how the markets operate before risking their money.
"For most things that people do, they will observe before they step in," says Sunny Harris, president and CEO of Sunny Harris & Associates in Carlsbad, Calif. "If you want to learn to dance, you're going to watch somebody do it before you try it. [But] 80% of the people who start trading today will not be trading in 12 months - some people say it's 90%. That's because they don't start with step one."
She says traders must examine every detail of the system they plan to use so they know - and understand - every possible way it can go wrong and right.
Part of this education must include deciding what your motivation and strategy are going to be and how you will execute trades. Consider how often you will be trading and the transaction costs as part of the plan because frequent trading can eat away at profits through commissions. Also consider your own personality in deciding what and how to trade.
Motivation is a key component, traders say, because the most successful of their lot are in the business because they simply love trading. They don't let a desire for profits cloud their decision-making.
"If you're in commodities because you want to make a lot of money, that's not good motivation," Harris says. "There are very few traders who I know who are in the market because they want to get rich that do well."
Tom Basso, CEO of Trendstat Capital Management in Scottsdale, Ariz., says a strategy must take into account how much time can be given to managing a position. He says those who choose to become system traders must thoroughly test their system to discover how often it will trigger signals and how often the trader can expect to make losing trades.
Patrick Welton, chairman and CEO of Welton Investment Corp. in Carmel, Calif., says, "The most important rule is a trader really needs to know his or her advantage in their methodology, in their work habits, in the area that they choose to specialize or the market they choose to specialize in. If they cannot articulate, know and understand what gives them their advantage, then they are in grave risk of failure."
When selecting markets to trade, Roy Niederhoffer, principal of R.G. Niederhoffer Capital Management in New York, recommends sticking with markets that have a high degree of liquidity as they are easier to move positions in and out of with less slippage.
2. Cut losses, let gains run
"Cut your losses short and let your gains run" is an old saying repeated by many traders and for good reason. They say a mistake made by many new traders is they hold on to losing positions far too long thinking the market will turn around. They also tend to get out of winning positions too quickly to lock in an immediate profit, yet that eliminates the chance for greater gains.
"I'll hold stuff forever if I keep being right, and most amateurs are afraid to hold winners because they're afraid it's going to evaporate," says Dennis Weinmann, partner with Coquest in Dallas.
David Druz, who heads up Tactical Investment Management, a commodity trading advisor in Henderson, Nev., says successful traders rely on a small number of very profitable trades to compensate for several smaller losses.
Harris adds: "The psychological tendency is not to ride profits like you should. It's a very hard thing to do. Taking losses is easy because it's over quickly. Once the [trade] has made a little bit of money, the tendency is to want to capture it so that it doesn't turn into a loss."
To extend their gains novice traders need to fight the urge to take profits quickly.
3. Discipline is crucial
Disciplined traders who stick with a tested trading plan or system will always profit over those who trade inconsistently, the experts say, because constant second-guessing ruins the profitability and eliminates the benefits of having a system in the first place.
"If you have a trading system or a trading plan and then override it or don't follow it, then you don't have a trading system or a trading plan," Dunn says.
Peter Eliades, editor and publisher of Stockmarket Cycles Newsletter in Santa Rosa, Calif., says new traders tend to give up on a system when it is losing money, which is also the point at which a system is likely to start making money.
He says it's also important to maintain consistency on trading behaviors, such as whether to trade during overnight hours as markets behave differently during their nighttime hours.
4. Focus on the process
Focusing on the process of trading instead of making profits may sound like a contradiction, but traders say this is vital because losses are an inevitable part of trading. Those who focus only on making money are likely to lose because they can't cope with inevitable downturns in their investments.
"When you start concentrating on the profits and the losses, you tend to get high emotionally when you're making money and low, frustrated or panicked when you're losing money," Basso says. "That emotional high and low is not a good way to go. You really want to stay fairly steady as a trader and just keep concentrating on the process."
Traders note that they can't control the market's direction and can't always predict what the market will do next so they simply focus on the part that they can control - the trading.
"The biggest problem with the beginner is the way that they keep score is by the number of winners and losers," Weinmann says.
"If you're afraid to lose, why are you trading? I guarantee you will lose on one of your next 10, 15 or 20 trades."
5. Know your exit
Traders should know where they intend to exit their position before entering any market, based on whatever system they are following. Figuring this out ahead of time can help a trader stick with a system and eliminate second-guessing. It also can reduce losses by having a stop loss order in place.
It's important to keep in mind, however, that the market may not always agree with where you place an order.
"You can't tell the market how much money you want to lose. It doesn't care," Harris says. "The market will move where it's going to move so you set your stops according to that movement."
She notes that stop orders must take into account that a position may turn negative before it shows a profit, so stops that are set too tightly could force a trader out of the market at a loss.
"If you know that all profitable trades at some point in the life of the trade had an excursion against you of $200 or $300, you wouldn't put a stop that close would you?" Harris asks. "That trade is likely to turn into a profitable trade and you don't want to be out of it."
Traders recommend taking a market's volatility into account when setting stops and basing the order on a market indicator, such as a moving average.
Sheldon Knight, president of K-Data Inc. in Sunnyvale, Calif., says one method of setting stop orders is basing them on a market's lowest level over a chosen number of days. He says traders who set stops arbitrarily without considering the market's behavior are likely to lose.
"Fixed dollar stops will limit the loss on an individual trade but they will increase the number of losing trades," he says. "The tighter your stop, the more likely you are to be stopped out, which means the more likely you are to have several losing trades in a row."
Part of the reason behind knowing where to exit a position is to avoid "hope trades," whereby a position continues losing ground as a trader prays for a market turnaround.
6. Manage your money
Professional traders recommend risking a set percentage of capital and never altering that percentage. Risking 2% to 3% at a time, for example, maintains a constant level of risk to your portfolio. They say those who think they can make a fortune on one or two big trades are only kidding themselves.
"That's the difference between professional trading and amateur trading - the management of losses," Eliades says. "Making a little bit at a time ends up making a heck of a lot over a fairly short period of time."
Risking a set percentage also is an advantage in times of repeated losses because it reduces their impact.
"You need to scale the size of your trading to match your equity, so as you have a drawdown [it] is cushioned because you are trading fewer contracts on the way down," Knight says.
It's tempting for a novice to risk increasing amounts of capital on a losing position, but such attempts to "double down" typically produce greater losses as the trader throws good money after bad.
"You should be trading more and more as you're getting hotter and the system is getting hotter and it's in a winning streak, and risk less when you're in a losing streak," Eliades says. "People have a tendency to work the other way around, especially on the losing side. They tend to up the amount they're losing to try and get it back quickly and that's the wrong way to do it."
It's also important to have sufficient capital to survive potential losses and keep trading.
"If you're trading an S&P system and your worst drawdown has been $30,000, then you have to start with at least $65,000 to $70,000 so you can have two times the worst drawdown and still be able to trade," Eliades says.
Dan Gramza, president and CEO of Gramza Capital Management in Evanston, Ill., says an often overlooked aspect of risk management is overexposure of a trader's portfolio to a single futures complex. For example, someone risking 2% of capital on five individual currencies is really risking 10% of their capital in the overall currency market.
7. The trend is your friend
This often repeated saying from the trading floor is another key to succeeding in the markets. Rather than trying to predict market tops and bottoms, many traders recommend going with the flow.
"Trade in the direction of the trend until it's over," Harris says. "Never have an opinion about the market. The trend is your friend and you just trade with it. Let the market tell you where it's going."
Basso says it's easier to make money when a market is in a trend, as opposed to moving sideways.
"If the markets aren't trending, don't expect to have a big month," he says.
8. Don't trade emotions
Keeping a calm state of mind is crucial when playing the markets and it's important to remember the market's actions are nothing personal.
"That's a very easy thing to say, but it's a very difficult thing to do," Eliades says. "That's the way losers trade. They trade with their emotions and they forget all the things that they've learned."
He says this causes traders to second-guess themselves and keeps them from thinking clearly.
"[It's] important to develop a method of trading and stick to it. If the methods are correct and it works, discipline and patience are what will make money," Weinmann says. "Beginning traders take trading emotionally, good traders don't."
It's also important to avoid "marrying" a position. This happens when a trader believes a position is the right one and becomes convinced the market must somehow be wrong.
"The market is always right, having nothing whatsoever to do with your opinion or position in it," Dunn says. "If you think otherwise, you are in error."
9. Consider who loses
One interesting way of planning a trade is to think about whom you will be taking money from. Everyone entering the market obviously thinks he's going to win, but that's simply not going to happen.
"Somebody has to be losing to you if you're winning, so we always like to stress that you should know from whom you're going to take profits because if you're buying, the guy that's selling thinks he's going to be right too," Druz says. "They will just assume they are taking money from people who are incorrect about their decisions and that's all right, but it's perhaps not as strong as another way to look at it."
He says trend traders usually take money from hedgers, for example, because hedgers usually sell into a rising market and buy into a falling market.
10. Remain humble
Those who believe they're smarter than the rest of the market and confuse luck with skill won't hold that opinion for long, traders say.
"Be humble in the face of the markets or the markets will see to it that you're humbled," Basso says.
Niederhoffer reminds amateurs that it's unlikely anyone has exclusive knowledge of the markets.
"The conventional wisdom is usually wrong," he says. "When you think you have interesting information, chances are everyone else has it too."

 

Mouser, your posting just confirms what I've thought all along: The stock market only exists for the purpose of making rich people richer. It's a gigantic good old boy network that relys on fresh meat from fresh fools to feed their money making habit. It has nothing to do with little people investing their hard earned money in order to reap a profit from a successful company. It's just a giant playground for the rich to get richer and make sure that the little guy is left holding an empty bag at the end of the day.

A few months ago on George Noory's Coast to Coast AM radio show, he was interviewing a guy who could have written your posting. He pretty much said the same things that you are saying and that I have thought all along. It's just a network of good ole boy cronies protecting each other and making sure that they get rich.

The entire stock market seems inherently ANTI-American to me. The idea of rich people getting richer without actually doing any WORK seems counter to the work ethic of our country. The idea of one guy sitting in his air conditioned office buying low in the morning and selling high in the afternoon without really doing anything, making any product, putting anybody to work, or performing any real service is not a great example of a hard work ethic. And it becomes even more sinister when the money that is being manipulated comes from the pockets of real working people.

I wouldn't trust the stock market any more than a 20 year old timing belt.

 

"Bulls make money, bears make money, pigs get slaughtered."

 

Wow, I would think on a board where most of the members own exotic cars that the info in this thread would be a tad better.... I don't work in finance but I've just completed my degree in finance and plan on one day pursuing my masters.

If you really want to understand the market and one day hope to invest in it. Then I suggest you do a little more than watching a movie. Try reading a few books, start with something easy like Trading for dummies and then work your way into text books. Eventually after you've read enough theory, you can then go onto technique. Frankly it's not something you pick up really quick. If you're not planning on putting a lot of time into this then yeah go for a broker but realize this isn't like a movie. Speculation, which is anticipating a move in the market which you believe will be profitable is not for a noobie. In fact it's not for the very seasoned either. Typically speculation brings heartache. If you want to invest and you are young you can invest aggressively in growth stocks, or even foreign stocks but realize it's fairly risky.

My advice, invest in an Index fund. Low fees with returns that typically slaughter mutual funds and speculating day traders.

Investopedia.com will be your friend. They even have a stock market simulator to get your feet wet.

Edit. Didn't see the second page.

 

Someone explain this....

Simple questions, long answers I'm sure:

How does someone "go public" with thier company?

And how does the money that is made from selling stock in the company actually get in the company's checking account?

 

I will try to keep this post short. To give you an idea of my trading history in brief here it is.
1. A coworker asked me what I was doing to add to my income, he suggested I trade stocks, never paid attention to it before.
2. He suggested I spend about three months googleing on how NOT TO LOSE MONEY, read forums on mistakes other people made.
3. After that I studied TA, Techical Analysis for 3 months. Some sites: Tradingday.com (Excellent tutorials there) Stockcharts.com (Excellent tutorials there also)
4. Opened a paper trading account through CIBC, traded until 55% win/loss & felt confident.
5. Opened a real account with $5K (what I was willing to lose and would cry)
6. I left early mornig trading alone, I concentrated one the last hour of the market. Here is where the block buyers do there trading for the next day. The banks and trading houses
buy from them, here is where you see the trend. If the stock is trending up sharply in the last hour (I buy in in the last 30 minutes). Then in the first hour of the monring (I sell)
This is where the masses buy after reading and studying all night looking for an opportunity on a stock.
7. Yes there are the institutions and there are victoms, I try to think like an institution, how to fleece the masses. If you can think like that, the you are "Rolling with the Big Dogs"
8. Traded daily for a year using my 10/2 trading rule and first year I managed to accumulate $150K.
9. My coworker wanted to introduce me to a Forex Broker with a offer to come on board and trade for them. I refused, (if I am going to trade I will trade for me and not make profit for others)
I could not sleep if I lost even the smallest amount of OPM on their hard earned cash. If I lose money it is only my money, so I can sleep at night.
Short as I can make this post, hope that this explains my trading philosophy to you.
Regards

Mouser57

 

Took about a year. Using the PMP approach follow a WBS (Work Breakdown Structure) Starting with "Trading" break it down to "Educate Yourself" "Data" " Funding".
Each category your break down further, each of those new categories you break down to single items which require time etc. From there you accomplish each goal. There is a saying, you can't get where your going if you don't know where you've been.
Create a log book/electronic book for your goals, actions, learnings, reference materials.
What you are doing in essense is building your own system, this system wil work for you because you are working with what ONLY YOU KNOW and you know the history. Prepare for battle with knowledge or prepare with enthusiasm. Which will get you ahead?

 

An IPO, or initial public offering is done through a sort of middleman "underwriter" who evaluates the worth of the company and what they think the stock will fetch. It's way more complicated then that, but the only time a stock makes it's particular company money is during the IPO when it's worth is first divided and sold in the primary market. After that, the stocks trickle down into the secondary market where most of us make our purchases.