Personal Economics 101

Update, Jun 11: As I noted below, a danger in stop orders is that if the prices gaps below your indicated sell price, the order will be executed lower than you anticipated. This was the case today for SCHD, the example used below. The stop price was $54.45. However, the market gapped down at opening, and SCHD sold at 53.63. (See chart below). I still kept a profit of $840, but this was slightly lower than I had planned. But if the market continues to sell off, I will have protected at least most of my profit in the position. I have the option of buying back in, if I think the market will reverse. Have you ever sold a profitable position only to see it advance once again, leaving you in the dust? For example, you buy AMD at $19, then sell it at $32. That's a nice profit, and I'd be happy. But, shortly after you sell, over the next few weeks, it takes off like a rocket and advances to $55. One method to manage this situation is through the use of sell stop orders. A sell stop or...

Some ideas about trading. Trading stocks and other assets such as futures, is different than investing. Trading has a very short-term outlook. But these ideas can also benefit the investor, who looks at long-term wealth-building for retirement and other purposes. It's OK to be both, but my suggestion is to only "trade" about 10 percent of your total portfolio.  Trading should be boring, like factory work. If there is one guarantee in trading, it is that "thrill seekers" get their accounts ground into parking meter money.  Amateur traders turn into professional traders when they stop looking for the "next great technical indicator" and start controlling their risk on each trade. If you focus on the money, you will start to impose your will upon the market in order to meet your financial needs. There is only one outcome to this scenario: you will hand over all of your money to traders who are focused on protecting their risk and letting their winners...

As of 11:30 am CST, the DJIA is down more than 400 points. Ouch, especially after last Thursday and Friday. Wednesday's gains are history.  I use stops on my positions, so I sold off four positions this morning. Not the best situation, but I always want to limit my losses.  How to you know where to put a stop loss order?  Simple, actually. Before you place an order for a stock, ETF, or futures contract (mutual funds are a bit different, since they are not traded like stocks), you first decide how much you're willing to lose.  For example, say your interested in XYZ stock which is selling for $50. You're portfolio size is $50,000. In this case, the prudent thing to do is not put more than 25 percent in any one stock, so you will invest $12,500 in this stock. That's 250 shares.  However, you should not really risk more than 2 percent of your portfolio, so your maximum risk should be $250. So you'd place your stop at $49.00. If XYZ is a fairly volitile ...

(Part 2 is here .) Trading is different than investing. Simply put, trading is short-term, investing long-term.  The goal of investing is to gradually build wealth over an extended period of time through the buying and holding (and selling at a appropriate time) of a portfolio of stocks, ETFs, bonds, and other investment instruments. Trading involves more frequent transactions, such as the buying and selling of stocks, commodities,  currency pairs , or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with  annual returns  of 10 percent to 15 percent, traders might seek a 10 percent return each month.  Trading is hard work. Don't let anyone fool you. But if you're interested in this, it can be rewarding. However, you must have discipline and be able to follow rules. Most traders blow up their accounts. But the good ones follow certain habits. These habits can work well for investors al...

By recognizing how emotions can lead them astray, investors can take steps to protect themselves from their worst impulses. Here are some traps to avoid. 1. Holding losers too long Cut your losses early.  Love the company, but not the stock.  No one is ever right 100 percent of the time. Use risk management before you buy a stock. Decide how much you're willing to risk on any investment or trade and scale your position size accordingly. Never risk more than two percent of your portfolio. Use stop losses to protect yourself. For example, if your portfolio is $10,000, then a $200 loss would be acceptable. If you buy a stock at $20, then place your stop at $18 for 100 shares, $19 for 200 shares.  2. Selling winners too soon If the reason you bought the stock has not changed, do not sell too soon. There are different strategies for managing a trade that has turned profitable on paper. You can sell half your position and let the rest ride. Or you can use trailing stops...

Continued from Part 1 . Trading is different than investing. Simply put, trading is short-term, investing long-term.  The goal of investing is to gradually build wealth over an extended period of time through the buying and holding (and selling at a appropriate time) of a portfolio of stocks, ETFs, bonds, and other investment instruments. Trading involves more frequent transactions, such as the buying and selling of stocks, commodities,  currency pairs , or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with  annual returns  of 10 percent to 15 percent, traders might seek a 10 percent return each month.  Trading is hard work. Don't let anyone fool you. But if you're interested in this, it can be rewarding. However, you must have discipline and be able to follow rules. Most traders blow up their accounts. But the good ones follow certain habits.  These habits can work well for inve...

Basically, accumulated wealth should have nothing to do with your risk tolerance, or risk management. There are two ways to look at this: Your risk tolerance should decrease as you get older, because you have fewer years until retirement to ride out any bad markets or bad decisions. If you’re in your 20s, you probably should be investing in mostly stocks, which over the long-term have better returns, though from time-to-time bonds can offer very good returns. If you’re in your 60s, you should be in “safer” asset classes, such as bonds and money markets. I’m 67 and I have 25 percent in stocks, 10 percent in bonds (I believe bonds are in a bubble and the face value will go down in the next few years), and the rest in money markets. I’m kind of waiting to see what the market does, as it seems to not have much direction right now. (The S&P 500 is essentially unchanged over the last 12 months. Below is a chart of the SPY ETF, which tracks the index. Each candle is 1 week.) Your risk ...

When you buy a stock, it’s likely because you sense an opportunity. But how often do you establish the parameters for making profits? How will you know when to get in or out of a trade? These are questions you should ask yourself before entering a trade. Creating a step-by-step trade plan—a blueprint for how to build positions and reshape them as conditions warrant—can help you develop a disciplined approach to your trading. Before beginning any trade plan, perform a quick self-evaluation: Are you buying a stock for fundamental or technical reasons? Which investing style do you prefer (e.g., growth or value, trend or countertrend)? Determine your view of market sentiment: Is momentum generally tilted up or down? Once you have your bearings, and you’ve identified a list of stocks or exchange traded funds (ETFs) based on your research analysis method—fundamental, technical or both—you’re ready to embark on the actual planning. Here are five key steps to help you create a sma...

After yesterday's route in the market, things have quieted down today, so to speak. At 2:30 pm CST, the DJIA is down "only" 160 points, the S&P 500 down 8.3. We're still above October's lows.  The uptrend identified last week is coming under pressure. Be watchful and careful. After my stops where executed yesterday, I'm about 85 percent in cash. I think I'll stay there for a while.  I did some trades in the futures market yesterday, with mixed results. Even these markets are a challenge. And oil is impossible right now, down 4.70 a barrel, just today. A month ago, who would have thought oil would be $15 lower. If I hadn't been on vacation -- oh well, should haves have no place in right thinking. Move on. I bought 1 contract of gold (GCZ18) December 2018 at 1202.2. I placed my stop loss at 1200.9, or 1.30 below entry. That's a pre-defined loss of $130. A little tight. Later, in another account, I bought 2 contracts of GCZ18 at 1202.5. He...

Our simulated portfolio, based on the Investor's Business Daily Big Cap 20 screen, created on Oct 30, 2018, is now up about 7.5%. This is the third test of using this screen that I've done in the last 12 months. All have been successful.  Symbol Last Today's Chg Total Chg Total Chg % Profit Time ULTA 313.56 +1.75 +44.45 +16.52% $3,328.80 11/16/18 INTU 211.44 -3.10 +11.00 +5.49% $1,078.00 11/16/18 MKC 150.00 +1.36 +6.09 +4.23% $846.51 11/16/18 ROP 297.79 +3.34 +20.54 +7.41% $1,478.88 11/16/18 CI 213.72 +0.92 +5.48 +2.63% $520.60 11/16/18 Cash Value Total Fees Active P&L Today's Return Entry Value Current Value Closed P&L Total P&L $420.39 $4.95 $7,252.79 $344.37 $100,000.00 $107,252.79 $0.00 $7,252.79 Some strategies for using this screen: Invest the same amount in each of the top five stocks. For example, this test portfolio has $20,000 in each of the five stocks.  Use a stop loss on each stock. You still have to protect yourself if...

Oil is the hardest thing to trade successfully, at least in my experience, but I will keep trying.  Bought 1 contract (CLZ18) at 64.83 on Oct 31. Set the stop at 64.69. Pretty tight stop, but only willing to risk $140. At one point, I had a $200 profit, but the market turned and I was stopped out at my 64.49 stop price. Good thing too. Overnight, oil went down $1.90, which would have been a $1,900 loss.  That is the purpose of stops. Always use them. They protect your account if you're wrong. And you will be. But if your wins are at least 2:1 over your losses and you're only right 50 percent of the time, you'll make money. I shoot for a 3:1 gain; otherwise, I probably won't get into the trade.  Will look for another opportunity at these lower prices. 

It takes time and discipline to become money smart. It doesn't happen overnight. Some people go through life never saving and living paycheck to paycheck. Learning how to be able to handle your money at an early age may not seem sexy, but it will certainly put you down the right path. But if you think you have enough time to become serious about your finances, think again. You may still feel young and invincible even when you hit your 30s, but the scary truth is that you are halfway to retirement. It is time to put the financial foolhardiness of your 20s behind you and become more frugal with your cash by mastering these top financial habits. 1. Actually Stick to a Budget Most 20-somethings have played around with the idea of a budget, have used a budgeting app, and have even read an article or two about the importance of creating a budget. However, very few individuals actually stick to that budget, or any budget at all. Once you turn 30, it's time to ditch the wishy-wash...

Trading is simple, but it ain't easy. If you want to stay in this business, leave "hope" at the door and stick to your stops.   When you get into a trade, start looking for signs right away that you are wrong. If you see them, then get out before your stop is hit.   Trading should be boring, like factory work. If there is one guarantee in trading, it is that "thrill seekers" get their accounts ground into parking meter money.   Amateur traders turn into professional traders when they stop looking for the "next great technical indicator" and start controlling their risk on each trade.   Professional traders only place a small portion of their assets into 1 position. Or if they take on a large position, then they strictly limit their risk to 1-2% of their current equity. Amateurs typically place a large portion of their assets into 1 position, and they give it "room to move" in case they a...

Bought 3 contracts of gold (CGZ18) at 1209.6. Subsequently rallied to 1222 and I raised stop to 1219.9. Price then dropped, and was stopped out at 1219.9. Profit of $90. Price dropped to 1207 and is now (Nov 10) at 1209. P/L on futures Since Sept 1 is now $2,894.50.  The zone I identified was not that strong, with four bases. While a lower probability trade, I think was still worth the try, but I had to closely watch price movement and manage my stop. Now that gold is at lower prices, will look carefully for a nice demand zone over the weekend. 

The British Pound was on a tear on Oct 31 going from 1.275 to 1.3047, so I mapped out a supply zone and shorted 2 contracts (BPZ18) at 1.3045. This would be considered a counter-trend short sale, and carries more risk than a short in a down-trend.  Caught a small move down and closed my position at 1.3020 at a stop. During the trade I moved my stop down to this level and the price then moved up several hours later to close the trade.  Profit was $306.40 after commissions. Not a huge gain, but I'll take the small profit to make up for my small loss the day before in WTI crude.  Futures trades since Sept 1 now stand at a profit of $3,072.50.  17 total trades.  8 losing trades. Average loss of $209.37. 9 winning trades. Average gain of $527.5 Profitable trades are 53 percent. 

That's the subtitle to this entire blog, and a basic principle of mine. Many brokers and some financial advisors are going to tell you to stay fully invested all the time. This is a buy and hold strategy. “Just re-balance your portfolio will do the trick!” This assumes that you have a properly balanced portfolio, which could be something like 70/30, which is 70 percent stocks (equities) and 30 percent bonds. The ratio could be something different, but the principle is the same. This is bad advice. In fact, this buy and hold advice is so bad it should be criminal. To take a lesson from 2008, if you had done this buy and hold and re-balance crap, both your stocks and bonds would have tanked. You would have suffered losses approaching 60 percent. This is unacceptable. It would have taken the average portfolio nearly 6 years to return to break-even. Granted, sometimes bonds will provide a safe haven, but not always. And other asset classes, like commodities, can also provide some...

1: Excessive/Frivolous Spending Great fortunes are often lost one dollar at a time. It may not seem like a big deal when you pick up that double-mocha cappuccino, stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up. Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra mortgage payment or a number of extra car payments. If you're enduring financial hardship, avoiding this mistake really matters – after all, if you're only a few dollars away from foreclosure or bankruptcy, every dollar will count more than ever. 2: Never-Ending Payments Ask yourself if you really need items that keep you paying every month, year after year. Things like cable television, music services or fancy gym memberships can force you to pay unceasingly but leave you owning nothing. When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savin...

By Dominik Stone I learned about trading but I also learned a lot about myself and what I was good at, what I was horrible at, and what I was psychotic at — things that had nothing to do with day trading. Day trading is the best job in the world on the days you make money. You make a trade, then maybe 20 minutes later you are out of the trade with a profit, and for the rest of the day you think about how much money you made. It’s the worst job in the world on a bad day. I would make a trade, it would go against me, and then I wanted my heart to stop so my blood would stop thumping so loudly. I am now unemployable in every other way. Here’s what I learned. All of these lessons I will certainly use today, and many years after will stop trading. You can’t predict the future. Everyone thinks they can. But they can’t. This applies not just to trading but everything. You could be in relationship or married for 11 years and the next thing you know — you are splitting or divorced ...