Stock Trading Blog

The Difference Between Mutual Funds and ETF’s


If you’re like most investors, you probably have at least some kind of experience with mutual funds. A 401k or 403b company sponsored retirement plan uses mutual funds almost exclusively as an investment vehicle while most people use mutual funds for their IRA or Roth IRA. Beginning investors tend to start out with mutual funds as a way of gaining experience in the stock market and build up starting capital before opening up a brokerage account to trade stocks as well.

But mutual funds haven’t delivered the kind of performance that investors have been seeking over the past decade or so. Management fees and sub-par portfolio gains have led to a massive exodus away from mutual funds into exchange-traded funds (ETF’s) where investors have more direct control over their portfolio’s and pay fewer fees along with it.

In 2015, Wall Street saw $150 billion leave the mutual fund industry while ETF’s saw inflows of $150.6 billion. Investors are viewing ETF’s as better alternatives to mutual funds despite the fact that the mutual fund industry is by far larger with $11.5 trillion in assets under management whereas ETF’s have only $2.1 trillion. But before you jump ship from mutual funds into ETFs in order to chase better gains and lower fees, there are some stark differences that you need to know.

A side-by-side comparison between Wall Street’s favored investment vehicles

Mutual funds are actively managed, diversified investment vehicles that are designed to track a specific benchmark. They usually have a team of analysts that make stock selections for the portfolio and have the ability to make adjustments throughout the year as the economic environment changes.

Mutual fund strategies are usually given away by their name. Take a hypothetical fund we’ll call XYZ Blue Chip Growth Fund. Just from the name, we know that this fund invests in large cap companies and takes a growth investment strategy into account when making its stock selections. Management will do its best to track an index that follows along the blue chip growth stocks and will charge investors a fee for doing so.

At first glance, ETF’s look to be very similar to mutual funds. Most are designed to track a specific index and hold a basket of stocks in its portfolio. But ETF’s are passively managed meaning no manager will track the individual stocks or make adjustments to the portfolio. They come with lower fees than a mutual fund  but run the risk of holding poor stocks in the mix.

ETF’s are more liquid than mutual funds though. Mutual funds trade once per day at the end of the day while ETF’s trade much like stocks do. But ETF’s with low trade volume can present a problem for investors with higher intra-day volatility.

Final considerations

Once you start to branch out in your investment experience, you’ll find that there are a lot of vehicles out there for you to pick from. Trading individual stocks after only holding mutual funds can be a stressful endeavor especially if you aren’t used to high levels of volatility in your portfolio. While some investors are favoring ETF’s over mutual funds, others look to ETF’s as a way to bridge the gap between funds and stocks. Using ETF’s for diversification purposes or as a way to slowly dip your feet into the market can be helpful.

Both ETF’s and mutual funds have a place in an investment portfolio and shouldn’t be viewed as an either/or scenario. A healthy balance of both is the key to maintaining a successful investment account.

Trading ADR’s


The globalization of financial markets has made it possible for investors to be a part of nearly any type of publicly traded company in the world. If you have a brokerage account where you can buy or sell stocks, you may already be trading ADR’s without even realizing it. While similar to stocks, there are some differences you’ll want to keep in mind to be a successful investor.

ADR stands for American depository receipt, a financial instrument that allows foreign companies’ stock to be traded in US markets. They can be traded like stocks through buying and selling and some even have options contracts available on them.

One key difference is the fact that an ADR is a certificate that represents a specified number of shares in the foreign company. This was done as a way of circumventing the complexities of dealing with foreign exchange costs that can fluctuate independently of stock prices. Because ADR’s can represent differing amounts of stock depending on the underlying issuer, investors should look up what the value of an ADR is before buying it. Some ADR’s are a simple 1 to 1 exchange while other ADR’s can represent a handful of shares.

Diving into the world of ADR’s

Investors typically won’t trade stocks with questionable practices or confusing financials which is why ADR’s are sponsored by US-owned banks. These issuing organizations agree to offer ADR’s on a foreign companies stock in exchange for the proper financial documentation. They also decide how to value the ADR relative to the company’s local currency. Because of the exchange rate, some foreign stocks may only be worth a few pennies in US currency. The sponsoring bank will take this fact into consideration and price the ADR at an appropriate price to reflect its actual value.

ADR’s are issued in one of three ways: Level 1, Level 2, and Level 3. Level 1 issued ADR’s aren’t required to disclose as much financial information as the other two levels and is generally done just to gauge US interest in the company’s stock. Level 1 ADR’s are very similar to stocks that trade on the “pink sheets” and you should exercise extreme caution before investing.

Level 2 and Level 3 ADR’s trade on recognized US exchanges like the NYSE and the NASDAQ. These issues get more visibility and gain benefits such as being able to raise additional capital in exchange for

more detailed financial disclosures to the sponsoring bank and stock exchange.

Final thoughts

Investors interested in trading ADR’s can find out more about them from BNY Mellon or JP Morgan. These two sites will give you detailed information such as how many shares of stock an ADR represents on a foreign stock.

If an ADR offers a dividend, there may be additional tax concerns investors should be aware of as well.  Each country has different rules regarding dividend taxation that can completely eliminate any benefit you would otherwise receive.

Finally, ADR’s can be more complicated than US stocks making them fit only for investors who are able to put in the extra work before investing. Make sure you do your due diligence before incorporating ADR’s into your investment portfolio.

Should You Invest in an IRA or Roth IRA?


If you’re like most Americans, you’re probably wondering if you’re contributing enough for retirement. After you build up an emergency savings account and start investing in your company’s 401k or 403b plan, you might be considering opening up an IRA or Roth IRA account. Both will help you stash away funds for retirement, but each has a different approach for taxing contributions and withdraws that can make picking the right plan a difficult decision.

Both types of IRA plans are designed to be individual retirement accounts that can be used in addition to other types of accounts such as company sponsored retirement plans. Both have specialized tax treatment as well but work with different rules. The best way to figure out which type of IRA is best for you depends greatly upon your current income and your expected income once you finally retire.

The Traditional IRA

Most Americans are at least somewhat familiar with the traditional IRA plan. It works a lot like your company’s retirement plan except only you make contributions into the account. Contributions made into an IRA are pre-tax contributions which means you can use it to lower your overall tax burden by whatever amount you have invested into the IRA in a given year. As of 2016, the contribution limits for a traditional IRA are $5,500 or $6,500 if you’re over 50 year of age under the catch-up contributions provision.

A traditional IRA may make sense if you expect to earn less income in retirement than you currently earn now. That way you can lower your taxable income immediately and defer taxation for when you withdraw it in retirement when you might be subject to a lower tax bracket. Like most retirement plans, you’ll be subject to a 10% penalty tax for any withdraws before reaching 59 ½ years old.

The Roth IRA

A Roth IRA differs from a traditional IRA in the way contributions and withdraws are taxed. In a Roth IRA, contributions are not made pre-tax and cannot be deducted. However, withdraws after reaching 59 ½ years old are completely tax-free – both contributions and gains. In other words, you pay taxes upfront in a Roth IRA but get to take out funds without incurring additional taxation.

Because of the way Roth IRA’s are structured, they are ideal if if you expect your income to stay the same or increase in retirement. It can also be a much better better deal considering that you’ll be able to take out profits on your investments without having to pay additional taxes. For example, let’s say you invest $10,000 into a Roth IRA which grows into $100,000 by the time you retire. Since you’ve already paid taxes on the original $10,000 contribution, you’re free to take out all those gains without having to pay any more taxes.

Final Considerations

While it may seem that a Roth IRA is the better type of account, there are limitations which may prevent you from being able to invest. Unlike a traditional IRA, Roth IRA contributions may not be made if you exceed a certain level of income. For single filers as of 2016, the limit is between $184,000 and $194,000 while married filers are limited between $117,000 and $132,000. A simple way of deciding which account is best for you is to follow these income limits – if you earn less than the limit, a Roth IRA is probably the better choice for you whereas if you earn more than the limit, a traditional IRA will be your only option.

Using Options in Your Investment Portfolio


Becoming an experienced investor usually follows a certain path. You might have started out by investing in mutual funds and progressed into opening up a brokerage account that lets you trade individual stocks. You’ve learned the basics of stock diversification and have no hesitation when it comes to placing stop and limit orders on stocks you’re trading. Now you’re ready to take the next step.

Adding options trading to your investment strategy can help you boost returns, mitigate risk and hedge your positions. A stock option lets you leverage your money by controlling 100 shares of stock  per contract. That means your potential gains or losses can be much higher than you’ll find by just trading stocks s you’ll need to be aware of the potentially increased volatility in your account. Unlike stocks, options have an expiration date so your strategies will need to have a time element to them as well. Used correctly, options can help you round out a portfolio and even reduce the amount of risk you’re exposed to.

Buying and Selling Call Options

A call option gives you the right, but not the obligation to buy a stock a specified price for a limited period of time. If the stock increases in value, you can exercise the option and make a profit. If the stock doesn’t increase in value, or even loses value, then you don’t have to do anything with the option. You can let it expire worthless and limit your loss to the cost of purchasing the call option.

Let’ take a look at how call options work:

Let’s say you think XYZ stock will go higher in the next few months but you don’t want to purchase 100 shares of stock. XYZ is currently trading at $50 per share and you decide to purchase a call option at $52.50 that expires in three months for $35. That means that if the stock hits $52.85 or higher, you’ll make a profit. If the stock doesn’t hit this price within three months, then you’ll lose the $35 it cost to buy the call.

You can also sell call options. That means instead of having the option of buying a stock, you are under the obligation to sell it. Selling a call without owning the stock is considered extremely high risk because there’s no limit to what kind of losses you might incur.

Using the previous example, let’s say you thought XYZ was going to go down instead of up so you sell a call option and immediately make $35. As long as the stock doesn’t go higher than $52.85, you will end up with a $35 profit. However, if the stock rises higher than that, it will reduce your profit until you owe whatever the difference is. If the stock ended at $60, you would owe $750 minus the $35 you received when you sold the call.

Buying and Selling Put Options

A put option gives you the right, but not the obligation to sell a stock at a specified price for a limited period of time. Buying a put means you believe a stock will decrease in value within a specified amount of time.

Let’s use our earlier example but make it a put instead of a call:

XYZ stock is trading at $50 per share and you think it will go lower in the next three months. You purchase a put option at $48.50 that expires in three months for $35. If the stock drops below $48.15, you’ll make a profit. Otherwise, you’ll be limited to the loss of the put option – $35.

Selling a put option means you think the price of a stock could increase. You’ll be under the obligation to purchase 100 shares of stock at a specified price. Unlike selling call options, selling a put does have a limit to how much risk you’ll be subject to since a stock can only go down so far.

If you thought XYZ might go up, you might consider selling a put. Let’s say you sold a put at $50 on XYZ for $35. Like selling a call, you would immediately pocket the $35 gain. If XYZ then increases in value or holds at $50, the put would expire and you would keep the $35 gain. If the stock drops though, you would be obligated to purchase 100 shares at $50 per share regardless of what price the stock actually fell to.

Final Thoughts

By combining buying and selling both calls and puts, you can set up unique strategies with its own risk/ reward potential. One of the most common strategies is known as a covered call where you buy 100 shares of stock and then sell a call option at a higher price. That way you hedge against downside risk at the cot of limiting your total upside potential since you would be obligated to sell the stock once it hit a specific price. Once you get used to basic options strategies, you can begin utilizing more complex scenarios that can take your investment trading to the next level.

Is Buy and Hold Trading Dead?


Before the advent of the day-trader and Regulation Fair Disclosure, investing was simple. You bought a stock and held it until you retired or closed out your account. Large cap, well established companies that payed a dividend were ideal. Stocks like Exxon Mobil, Johnson & Johnson, US Steel and other well known brands were common picks and held in most investment portfolios.

But that strategy doesn’t seem to followed by anyone on Wall Street these days. How often have you heard someone advocate buying a stock and holding it for a decade or longer? It could be that such advice simply isn’t newsworthy and therefore doesn’t get as much attention, but there could be a deeper reason why this strategy is no longer followed.

Modern Portfolio Theory

The standard investment model is Modern Portfolio Theory. It’s goal is to maximize returns based on an expected level of market risk. Investments are chosen along the “efficient frontier” – those that fall into the efficient part of the risk/return spectrum.

The assumption that investors are risk adverse is the basis for the theory. Therefore investors will take on more risk only if the potential reward increases. In this manner, a portfolio’s expected return can be calculated as the weighted sum of each individual assets expected return.

Take a hypothetical portfolio made up of four equally weighted stocks with differing returns:

(25% * 5%) + (25% * 12%) + (25% * 8%) + (25% * 20%) = 11.25%

Risk is ascertained by comparing standard deviation’s of each potential portfolio. If portfolio A had an expected return of 10% and a standard deviation of 8% while portfolio B had an expected return of 10% and standard deviation of 9% then investors would naturally choose A because it has the same reward but lower risk.

Sector rotation

Another common investment strategy is known as sector rotation. The stock market has been observed following a relatively predictable pattern called the business cycle. As the economy goes through different phases of growth and contractions, different sectors of the economy outperform and under perform accordingly.

Investors who follow sector rotation may swap out stocks once a year or so as the economic environment changes aiming to reinvest in a sector that’s ideally positioned to outperform. Most mutual funds follow this type of investment strategy to some degree.

Final thoughts

While more advanced investment strategies are preferred now, some part of the old “buy and hold” method still makes sense. Investment results are usually compared to a benchmark like the S&P 500 with some outperforming and others under performing. If an investor’s strategy is long term enough, they should be able to withstand market crashed because they have enough time to recoup those losses and then some.

If you had invested 30 years ago and held on through all the ups and downs since, you would currently have a gain of more than 844%. Some investors believe that it’s actually more efficient to simply ride the market over a long period of time without trying to pick and choose investments. In truth, the best result may come from a combination of the two theories

Trading Like John Bogle


There’s one simple rule if you want to be a successful investor – buy low and sell high. It sounds simple enough, but it’s a lot harder to implement in practice. Fund managers constantly compete with the market in attempt to generate higher returns than the benchmark on which they are based – usually the S&P 500.

But in some circles, trying to beat the market is believed to be a futile exercise. Despite the huge market that exists for fund managers to attempt to beat indexes like the S&P 500, most fall short. In fact, if one were to have invested in the S&P 500 30 years ago and held it to today, they would up more than 844%.

With that in mind, one fund manager thought to create an investment that didn’t try to beat the market. Instead he designed the index fund – an investment vehicle that mimicked the performance of the S&P 500 following its ups and downs without any attempt at hedging risk.

Keeping a long term view

John C. Bogle was the founder of The Vanguard Group and designed the first index fund in 1975. His idea was to avoid charging investors large fees and concentrate on simply mimicking the S&P 500 instead of trying to beat it. In this way he could pass off those savings to clients and put up higher returns than most of his competitors.

It was an innovative way of looking at the market and focused on long term investment goals instead of gaming the market. His strategy held that it was better to hold on through bear markets and take full advantage of the following bull market instead of trying to avoid losses and missing out on the rebound.

John Bogle made a distinction between investment and speculation by maintaining that investors had a long term viewpoint while speculators focused on short term gains.

Bogle had four key points that needed to be considered when investing:

Don’t rebalance – Bogle held that rebalancing took away from the point of letting market fundamentals do their job.

Don’t invest overseas – Contrary to popular belief, Bogle said that investing in the US made more sense for investors instead of investing in unknown foreign companies.

Diversification means stocks and bonds – Bogle maintains that a portfolio of 60% stocks and 40% bonds is the ideal allocation for investors and should get them the best result.

Keep it simple – Like his index funds, Bogle believed investing was actually a rather simple matter of letting the market guide your investments without interference.

Final considerations

It’s important to note that Bogle’s investment strategy isn’t for everyone. Investors aren’t  able to hedge their portfolios putting them at risk for short term fluctuations. Because of this, index investing should only be done by those who have a high risk tolerance and aren’t planning to withdraw their money within the next several years. Those near retirement should keep index fund exposure to a minimum and put the majority of their portfolio in more conservative assets.

What You Need To Know About Portfolio Diversification

There’s one word you’ll hear repeated in the investment world over and over again – diversification. It’s the idea that you shouldn’t hold all your eggs in one basket – in case it falls, you won’t break everything all at once. It’s a good idea and one that most investors try to follow.

The problem is that a lot of investors don’t really know what needs to be diversified. Obviously holding a single stock is more risky than holding a portfolio of ten stocks, but simply adding more to the equation isn’t the end of the process. There are several things you’ll want to mark off your checklist before you can consider yourself truly diversified.

The Diversification Checklist

When you’re designing your investment portfolio, you’ll want to make sure you don’t expose yourself to more risk than you need to. In other words, you don’t want to double up on a particular risk without being aware that you’re doing it. There are four main considerations to keep in mind when you’re choosing your investments.

The first thing you’ll want to diversify is the market sectors you’re invested in. There are numerous sub-sectors, but there are eight major economic sectors:

  • Energy
  • Financials
  • Health Care
  • Industrials
  • Information Technology
  • Materials
  • Telecommunications
  • Utilities


When you’re setting up your portfolio, it’s a good rule of thumb to make sure you don’t have more than 20% into any one sector. That way if one sector becomes bearish, you aren’t overly exposed to downside risk.

Another important consideration is market capitalization – the overall size of the company. Small cap stocks tend to be more volatile than larger cap stocks while large cap stocks may be subject to geographic risks due to the size and breadth of their operations. By holding a variety of sizes, you’ll be able to take advantage of the growth commonly found in small cap stocks while also holding more stable large cap’s to balance out your portfolio.

The third part of diversification concerns geographic diversity. If you hold stocks that all operate in just the US, you run the risk of being affected by risks local to the US economy. Interest rates, currency values and political changes are all risks associated with geographic location. To minimize risk, you’ll want to spread out investments beyond the US to include other countries.

Finally, you’ll want to invest in more than type of asset class. If you hold only stocks, you’ll be exposed to risks that only affect the stock market. By branching out to include bonds, commodities and currencies, you’ll never be overly exposed

Final considerations

No matter how diversified you get though, you can’t eliminate all risks. Systemic risks can affect the entire financial marketplace. You can mitigate the loss by staying diversified, but you can still be adversely affected. But these events are hard to predict – take the financial crisis in 2008 that took Wall Street down in a matter of weeks. The best thing you can do is simply diversify your investments and keep a long term approach to your financial goals.

Why Wall Street Might Not Be Smarter Than The Average Investor


If you tune into any financial news program, you’ll immediately find yourself inundated with complex predictions based on mathematical algorithms, analytical breakdowns and speculation on what the economy will do next. These experts have decades of experience trading stocks, manage billions in assets and hold degrees from prestigious universities like Harvard and Yale. It’s all too easy to simply forget trying to mange your own investments and just listen to what everyone else is telling you to do.

But watch closely and you’ll notice something interesting – they never seem to agree with each other. For all their knowledge and tools at their disposal, no one really knows what’s going to happen next in the market. It’s like the quote form The Wolf of Wall Street, “Nobody, I don’t care if you’re Warren Buffet or Jimmy Buffet, nobody knows if the stock market is going to go up, down, sideways, or in circles, least of all stockbrokers…” But don’t panic just yet, there’s a way to play right alongside the trading elite without drowning in the Wall Street cacophony.

Learning to follow your own rules

If you’re trying to invest on your own, you might find the experience a bit overwhelming. There’s a lot of information to absorb and while you might have a plethora of tools at your disposal, understanding how to use them and what they mean takes time and patience.

But some of the most important tools you have available come from yourself. Maintaining discipline when you trade is critical. There’s a lot of noise out there and you have to be able to filter out the nonsense and focus on the basics. Why are you buying the stock? Why is it at that price? And when will you sell it?  If you can answer those three questions, you’re already doing better than many institutional traders who trade by computer models and other quantitative measures.

Successful trading boils down to following the fundamentals. When you buy a stock, you’re buying a partial ownership into that company so understanding how it makes a profit is key to knowing why you’re buying it in the first place.

Finally, Wall Street’s weakness is that they control other peoples money making them more likely to be reckless and rely on software rather than their own analysis. When you manage your own money, it tends to make you a bit more cautious and sober-minded. Think back to the sub-prime mortgage crisis in 2008. If anyone had thought to stop and question how values were being determined, they might have been able to avoid a crash.

Final thoughts

The stock market is a dynamic organism that ebbs and flows over time. Even the professionals make wrong calls – more often than you might realize. When you know what you own and why, you’re already one step ahead of them. The trading tools for charting patterns and following buy/sell signals are helpful, but they’re secondary to having trade discipline.

As you become a veteran trader, you’ll understand how to use more sophisticated analytical software. In time, you’ll be able to do your own analysis just like the institutional investors. The only difference between you and Wall Street will be the amount of money you control and you might even find yourself beating the pro’s by doing it yourself.

Are You Paying Too Much For Stock Trading Services?


Regulation Fair Disclosure drastically changed the Wall Street landscape by allowing both individual investors as well as institutional ones access to the same information at the same time. As a result, stock trading companies proliferated to meet the surging demand of investors who wanted to take charge of their own investment portfolios.

Now, you can choose from more than a dozen online discount stock brokers that let you trade everything from stocks and bonds to options, futures and currencies. Competition has been good for the online trader reducing prices over the past decade. Stock trades that used to cost upwards of $25 to buy or sell are now commonly priced under $10. But depending on how much you trade and what you’re trading, you might not be getting the best deal available.

Comparing stock trading services

Not all online trading services are the same so you need to know going in exactly what kind of trading you’ll be doing the most of. Some sites specialize in stock trades while others focus on options and more may be known for Forex trading or other types of assets. Not all brokers offer all types of trades either so if you want to do certain kinds of trades, you’ll need to work with a broker that has those services available.

Of course you can always have more than one account to trade from. In fact diversifying your brokers can make sense if you’re doing a lot of different types of trades. But be careful to watch if they have extra fees for fund transfers or withdraws.

Final thoughts

It doesn’t hurt to shop around for a better price even if you already have a broker. Most offer some kind of transfer initiative that will credit you fees for a limited period of time or even a bonus for switching. Price alone isn’t always the best way to decide what broker to choose though. Other benefits such as being able to reach a representative when you need them or having the option to sit down with a financial planner can be helpful if you ever get overwhelmed with trying to manage your investments or run into trouble with the broker software.

Check out our Top 5 Stock Trading Platforms here and see which one is right for your investments.

What’s the Difference Between ETF’s and ETN’s?


Wall Street has a reputation for developing new types of investment products, slapping a not new label on them, and sending them out for investors to peruse without really taking the time to explain exactly what it is that they’re buying.

While most investors are at least somewhat familiar with ETF’s (Exchange Traded Funds) now, many more don’t realize that some of the products they think are ETF’s are actually ETN’s (Exchange Traded Notes). What’s more, they don’t know what the difference is – something that could easily derail an investment portfolio by not fully understanding what it is they’re buying into.

Breaking down ETF’s

An ETF is an investment product designed to track a particular index, commodity or basket of assets. They trade like shares of common stock and have a high degree of liquidity while possessing relatively low fees. Mutual funds on the other hand only trade once per day and have a range of fees that can often exceed 1%. Also, mutual funds generally have active management where assets are bought and traded in an attempt to keep the fund balanced and generate steady returns. ETF’s on the other hand are passively managed – the portfolio of an ETF is not looked at on a day to day basis or traded or changed as the economic outlook changes.

ETF’s own shares of the asset they are invested in similar to a mutual fund. Shareholders don’t own the assets directly, rather they share ownership of the ETF itself. Investors have been leaving mutual funds and flocking to ETF in recent years due to the benefits offered by them and the consistent under-performance and high management fees associated with mutual funds. Investors have been taking their investment portfolio’s into their own hands and seem to prefer the similarity to stocks with the ease of trading and the plethora of trading options available.

ETF’s can be found for almost anything. Sector specific, commodities, leveraged and short selling ETF’s are all popular and making it possible for investors with very little experience in derivatives to take part in the trading process.

Breaking down ETN’s

While an ETF trades in stocks and physical assets, an ETN deal in debt securities. Unlike bonds, ETN’s don’t have periodic coupon payments and trade similarly to stocks with a high degree of liquidity. It don’t show a pool of the assets it’s invested in, rather it will track an index. Once the ETN matures, the financial institution issuing the ETN will hand out profits minus fees.

Like other debt securities, the value f an ETN varies depending on the credit rating of the underlying issuer. This means that an ETN’ value may change simply as a result of credit changes even though the index it’s tracking might not change at all. Investors should note the increased volatility that ETN’s may have and not invest in them for purposes of adding a conservative asset class to their portfolio.

Final thoughts

Both ETF’s and ETN’s have a place in an investors portfolio, but due diligence should always be exercised. Fees can also dip into overall gains of these products so investors need to be wary of how they will impact performance over time. ETN’s can be particularly confusing as they invest in debt securities but aren’t always considered conservative investments depending on the issuer.

When to Sell a Stock That You Really Love


It is a fact that investing online when emotions are high or simply in tact can have devastating consequences. You know the signs are pointing down, yet you can’t find it in yourself to sell your favorite stock. What do you do?

The best way to combat emotions while trading is to have a list of rules. Many traders can argue that the hardest part about investing in the stock market isn’t buying the stock, it is selling the stock. When you get emotionally attached to a position, the longer you hold it the harder it will be to let go of it. To combat this and “let go”, follow these simple steps:

1. Separate Yourself From the Position. Imagine the stock as any random company with ticker xyz or cba, it doesn’t matter. You need to get the attachment out of your head that this stock is “special” and unique.

2. Take a Good Hard Look at the Facts. Ask yourself, “knowing what I know now, would I still buy this stock today?” Overview the fundamentals and technicals again, since you have separated yourself emotionally, you will now see things a bit clearer.

3. Acknowledge the Worst. You need to mentally acknowledge the fact that this stock is no longer a stock you should hold, and it needs to be removed from your portfolio.

4. Sell The Stock Immediately. As soon as you understand what needs to be done, do it! Don’t sit around and wait because your mind will try and reverse your thinking. Hesitation is for the weak, but you are strong.

5. Drink a Cold One and Reflect. Now that you’ve done the unthinkable and sold your once “favorite” stock, reward yourself with a beer, lemonade, glass of water, whatever. Think about what you did and how it will benefit you in the long haul, be proud of yourself for staying disciplined.

6. Find the Next Big Winner. With your freed up cash and freed up mind, start your search for the next big winner.

Post the rules somewhere on your wall, desk, monitor, whatever so that you see them every day. When you run into that situation next time simply refer to rules and you will be amazed at how calm you remain. Why? Because you have a plan of attack.

Smart Tips for Trading Stocks Part-Time


There’s a misguided view that when it comes to trading stocks, one need be all in to really make it financially worthwhile. That’s simply not true. It’s important to build a solid portfolio overtime and at a rate that make most sense for you. Here are some tips for trading stocks part-time:

1. Swing trade your way to profits – Swing traders hold stocks anywhere from a few days to a few months, depending on trading strategies and market conditions. While there are many different trading strategies, most seek to identify and capture a trending stock’s “sweet spot” or the bulk of the trend. This type of trading is conducive to the part-time trader, since precise entry and exit is not the goal, and you don’t have to watch the ticker around the clock.

2. Develop bread and butter trading strategies – Every successful athlete needs a “go to” move, and traders are no different. Successful traders rely on bread and butter strategies to maximize their profit potential. A toolbox of strategies include break out-pullback, trend pullback and post earnings trades, to name a few. My quest to become an expert in these strategies has lead me to know the details of these trades better than I know the back of my own hand.

3. Build a strong watchlist – Watchlist development is the key to successfully trading part-time. Every evening, I identify 10-20 “primary watchlist” stocks that will receive most of my attention the coming trading day. These stocks are culled from my master “focus list”, which is developed over time by an organic process that looks for stocks based on my bread and butter strategies.

4. Identify entry and exit points for primary watchlist stocks – When picking stocks for the primary watchlist, write down the price that would get you to enter the stock, and the expected target and stop-out prices. Base these prices on your bread and butter strategies. For example, if a breakout strategy identifies $25 as the level that will propel the stock higher, mark this level as your entry point. If $30 is the level you would take profits, mark this as your target. Most important, figure out how much you are willing to lose and mark this as your stop-out level. Most traders want the stop out level to at the least match their target level, while risking no more than 1-5% of their portfolio. In this case, your stop-loss would be no lower than $25.

5. Let your target and stop levels do the work – Once you have entered a trade, there is an overwhelming temptation to continually eyeball your positions. This can lead to over trading, which can be detrimental to the swing trader trying to hit that sweet spot. For this reason, my advice to the part-time trader is to turn off the quote feed once the trade is made. You’ve already researched your positions and set target and stop levels. It’s now time to let your analysis work itself out. With risk analysis and a stop loss order in place, the probability of a disastrous loss to your portfolio is minimal. So sit back and relax. Or better yet, focus on your day job!

Following these 5 smart trading tips will do wonders for your portfolio, evolution as a trader, and ability to manage time and stress levels. In future posts I will dig deeper into the intricacies of trading with these tips and detail what it takes to be a successful swing trader.

Day Trading 101


Day trading is often misunderstood to be synonymous with investing. Where investing is the act of expending money with the goal of profiting by way of appreciation, day trading has a narrower definition. It means the buying and selling of stocks within a single trading day. Profits are made not through general appreciation, but rather through technical means using leverage to amplify small price discrepancies.

The trader who specializes in day trading watches mainly for one thing: volatility. The more an asset fluctuates in price, the higher chances of it becoming undervalued or overvalued and the room there is for profitable trading.

In order to take advantage of those tiny differences in price, day traders typically use leverage by way of margin accounts. This allows them to control greater amounts of an asset but it comes with a much higher degree of risk than investing. Margin trading amplifies both gains and losses so day traders need to have a sufficient amount of capital set aside in order to withstand losses.

Because of the vital need to time the market, computers are usually used to make trades. Algorithms designed  to spot temporary pricing inefficiencies allow day traders to make multiple transactions in a variety of assets in a given day giving rise to the prevalence of quantitative finance.

While typical investors analyze assets using fundamental analysis, day traders rely elusively on technical analysis. The ability to spot trends in momentum, volumes, and other chart related indicators is essential in understanding how to day trade.

The Advantages of Day Trading

Day trading eliminates the need for thorough financial analysis and time-intensive research. Mathematical models base trades off of predetermined patterns throughout the day making it largely a hands-off approach.

One big advantage day traders have is the ability to profit equally in any type of market. Regardless of the general direction of the economy, day trading uses strategies like buying long or selling short when as asset moves out of its previously established pattern. Recessions provide just as many opportunities for profitable trading as booms making it a strategy for any type of economic season.

The Disadvantages of Day Trading

The ability to handle a high amount of risk is necessary to day trade. For investors who don’t want to see a large amount of volatility in their holdings, day trading is an inappropriate strategy. The need to have a large amount of money liquid is also an important key to success for day traders. Investors who don’t have a lump sum of cash on hand could be squeezed out of the market quickly without the ability to ride out losses.

Financial analysis gives investors the tools to understand companies that may outperform its peers or macroeconomic trends that may be occurring so that they can profit off of the long term value created. Day trading ignores long term fundamentals in favor of quick, temporary price adjustments. Traders that have a long term strategy in mind such as saving for retirement or a large purchase such as a home should consider investing rather than day trading.

What is the Future of Online Trading?


Since the first stock traded hands on the docks in the early 1600’s with the East India Trading Company to today’s simplicity of point-and-click transactions, technology has been a key factor in making capitalism the standard economic model of the world. With the advent of digital trading systems known as electronic communications networks (ECN), brokerage houses were able to monitor stock quotes and broadcast them to investors, but the real breakthrough came with the proliferation of the internet  and the unparalleled impact it has had on global financial markets. Now that stocks can be traded accurately and instantaneously, the future of online trading holds some interesting prospects.

The Impact on the Consumer

Even in the last decade we’ve seen tremendous growth in mobile data streaming and the portable abilities it gives consumers. Internet browsing is already available on portable devices and the trend is likely to continue on this path. Look for more streamlined and comprehensive trading platforms that are accessible on smartphones, tablets, and other similar devices. Expect downloadable trading applications to replace desktop software used to analyze trends and make investment decisions.

The advancement of technology also means that new financial instruments will be created. It’s already happened with assets like collateralized debt obligations (CDO’s) and credit default swaps (CDS’s). With new trading systems come new asset classes which will broaden investor portfolios and add complexity to investment strategies. Assets like currency pairs, commodities, options, and debt products will be packaged together in more creative ways giving traditional investors access to a broader investment base from which to choose.

What it Means for Institutional Investors

For institutional firms like investment banks and asset management companies, technology has paved the way for new types of trading strategies like high-frequency trading (HFT). Using predetermined algorithms to decipher market patterns and take advantage of pricing inefficiencies, entire companies known as “quant” funds are able to profit from tiny discrepancies that wouldn’t be possible for individual traders to spot. Quantum computing will become ever-more present in institutional firms to handle the additional computational expectations and encryptions. Expect to see more of these types of companies handling money and replacing traditional models like “buy-and hold” investing.

Redefining Boundaries

Globalization means that companies don’t exist in domestic vacuum anymore. The price of doing business is slowly melding into a worldwide equilibrium which is already having an impact on things like currency valuations and labor costs. The influx of investors in the global marketplace will add more complexity into valuation models and financial analysis making computer-based trading more prevalent. Expect to see more foreign companies blended into everyday portfolios and increased volatility in the overall financial system.

The Benefits of Investing in Infrastructure



Since the time that Harvard’s Michael Porter wrote his groundbreaking work on competitive advantage to James F. Moore’s take on business strategy with his coining the term and concept of business ecosystems, the intellectual pursuit for a clear definition and understanding of economics through analogy has taken many evolutionary turns. Economics can be understood from both the perspectives of physics and biology, and one such topic that can be found in both intellectual bodies is the concept of infrastructure.

What is Infrastructure?

When prompted, most people would say that Thomas Edison’s greatest work was the creation and mass production of the light bulb. Albeit his most famous work, few consider that the more economically impactful act of Edison was not the mass production of light bulbs but More…