If you are trading in penny stocks, then instability is something that you need to get accustomed to.
At the same time, you will have realized how some of the most volatile penny stocks can actually work in your favor.
This is because erratic prices often bring the promise of high gains and minimal losses if you know what stock to put your money in.
For others, unstable penny stocks may be a cautionary tale about what companies to avoid. Day traders love volatile stocks.
Here is a list with penny stocks that are the most volatile:
1. Insignia Systems
For the most part, the stock for Insignia Systems does look as though it is going to improve. Nevertheless, there are some confounding performances that add to the overall uncertainty. Let’s take a closer look at this to see where it can go…
On the one hand, this does look like a positive growth opportunity for traders that are interested in short-term as well as long-term stocks. This is largely because the company has experienced some heavy losses and is only now making its way back, in the latter portion of the year. Not to mention, the small, company-instigated flash crash caused the share prices to dip even lower.
Despite this, though, there is a silver lining for this company, particularly when you look at the way that the company is performing. The general direction of the company, including its sales, make this a company to watch out for. The main reason for uncertainty here is the fact that the share price is facing a mild resistance level. Should it be able to break out of this, however, things could start looking up.
2. Dogness Corporation
Once again, this is yet another company where it can be difficult to know the direction of progress. The main issue with Dogness Corporation is that it is standing in the middle of two rather extreme share price scenarios. Should the market stabilize itself and head in a more positive course, then there is a good chance that the share prices will move in a similarly upward direction. In the event that this doesn’t happen, though, you could take on some serious losses.
Ignoring this, there are a few other points to take into consideration. On the plus side, this company offers a rather innovative product – smart technology for pet-related products. Due to this, the potential for growth is high. That being said, as the main company is based in China, many potential investors may be put off by this.
These penny stocks are almost completely geared towards investors that don’t mind some speculation. They also need to be able to accept both the high risk and reward scenario. Last but not least, these individuals will have to conduct further review of the company to be certain about its performance.
3. LUNA Innovations Incorporated
This is yet another company stock price that is at the mercy of the surrounding market. As such, if the current volatility continues, then there is a good chance that the share prices of LUNA will follow suit. In this sense, it can be difficult to pinpoint just how well it will do, at least in the near future.
See, this company shows signs of long-term progress and therefore, a good share price for penny investors. This situation can be determined by looking at how well the company has been doing over the past few years. Where it gets tricky, nonetheless, is the short-term position. So, if the rest of the market looks to be in a tough position, then these shares will certainly not fare well.
One clue that may help you to decipher the situation is to check if there is a mild support level around the price point. As long as it stays at $3.00 or more, you should be fine. Still, if it gets any lower than this, you should stay away from the stock.
4. Turquoise Hill Resources Ltd.
Turquoise Hill Resources is a company that finds itself in a rather precarious position. On the one hand, this a company that has been performing quite well and for the most part, this was reflected in the stock price. Unfortunately, sentiment towards commodities changed in the marketplace. This meant that most investors began selling their positions in relation to commodities.
Nevertheless, there is also just as much good news for investors as there is bleak news. This is because the company is actually strong enough to make a comeback on its own. Therefore, buying shares for a lower price now could be beneficial in a short while. To add to this, if market sentiment towards commodities also rebounded, you could be looking at even more profits.
All these are great volatile penny stocks for day trading.
How to Find the Best Possible Penny Stocks to Trade With
As mentioned, trading volatile penny stocks does afford you the chance to make a good profit. This, however, is dependent on you making the right selections at the best possible chance. As such, you should always remember these following tips in this kind of situation:
Focus on the Facts: before buying stock, you will need to have a full understanding of how that company works. This means understanding the business plan and its potential for profit. At the same time, you will also need to look into how well that company can survive in a particular sector given its competitors.
Understand the Value: the other thing that you will need to do is to understand the value of the stock that you are buying. Keep in mind, it isn’t just share price that you need to focus on. You will also need to look at the number of shares that are still remaining. This will allow you to more accurately determine what your shares are worth in the company.
Consider All Factors: finally, there is more to penny stocks than just the company’s performance and share price. To really understand how the price will increase or decrease within a period of time, you will need to look at all compounding factors as well. This includes elements such as market sentiment, global issues, and various other aspects.
These are the most important volatile penny stocks that you need to know about. Based on this information here, you can plan how you would like to proceed with each of these companies. Just make sure that you make the best possible investment decision for you.
Are you considering investing in gold? Are you curious about other ways to do it besides buying it in a physical state?
As it turns out, there is only one other way to do so and that is via an exchange-traded fund. While you may have to deal with a yearly expense ratio, you will not have to insure or store your gold all on your own.
Of course, if you are going to trade ETFs, you will need a broker. And some of the best brokers that allow you to trade ETFs as well as gold are eToro and Pepperstone.
The bottom line is there are 3 main gold ETFs right now.
SPDR Gold Shares
iShares Gold Trust
ETFS Physical Swiss Gold Shares
SPDR is by far the largest of the three. However, the other two are also pretty substantial in their own right. But before we go any further, let us ask ourselves if gold is a worthy pursuit to have in our portfolios.
Why would you want gold in your portfolio?
It is not merely because it is – well, gold. There are plenty of other reasons that make it a highly sought after commodity in the online market at least.
Value is certainly a driving factor. The value of gold usually stays apace with inflation because the US Treasury will keep producing more money, but the amount of gold in the world is finite. Of course, we have not reached the end of that supply yet. But the fact that the supply gold is not unlimited gives it an inherent capability of keeping up with inflation rates year after year.
Moreover, gold has been shown to perform better than other assets in times of difficulty. If we look back at the financial crisis of 2008, we can see that gold was still able to generate a 4.3% rise while S&P 500 sunk by a whopping 38.5%.
Finally, as an investor interested in ETFs, you obviously care a lot about diversifying your portfolio and here again, gold can be very useful. This is because its movements are largely independent of the movements of other assets. Very often, you can find gold shifting in the direction opposite to that of other stocks. It is no surprise then that investors have deemed it a “safe” asset.
Best Gold ETFs To Invest In
SPDR Gold Shares
This is a fund where purchases are made in gold bullion. Selling gold only happens only when there are expenses to be paid for or redemptions to be honored. Being so heavily invested in bullion, it very closely follows the trending prices of gold.
There are some neat benefits to be had from owning gold bars. First off, they cannot be loaned and every share has more value in gold than shares that do not purchase gold in its physical form. The drawback here is taxes. Since the IRS has labeled gold to be a collectible, the taxes imposed on long-term gains are pretty high.
iShares Gold Trust
If for some reason, you have overruled SPDR in your list of options, this is another fund for you to try. Be informed that it sustains bills for insurance, transportation, and warehousing. The gold is stored in a series of vaults spread out across the globe. IAU has also developed a reputation for being a safe fund because of its unusual policy of not selling gold when prices are up to make a profit. Rather, its management focuses on investors being able to purchase and hold their gold bullion.
We mentioned at the beginning that there are certain expenses that must be paid. The good news is that these expenses are considerably low, making this fund a cost-efficient way of purchasing and managing gold. However, once again you will be subjected to taxes from the IRS which has labeled this fund a collectible as well.
ETFS Physical Swiss Gold
This fund has its gold sealed tight in a vault in Zurich. It is also a very liquid fund so you can make purchases and sales without too much trouble. The only real standout feature about this particular fund is that unlike others that store real gold, it has all of its supply stored only in Swiss vaults.
Exchange Traded Funds are one of the best ways to diversify your investment portfolio as provide exposure to a multitude of different markets and industries – but then, so do mutual funds.
So if you were to choose one over the other, how would you go about it?
Of course, you could invest in both simultaneously if you have an ample of amount of dough to spend. However, that is not the case with a lot of traders.
So in this article, we try and explain the reasons why you might fancy investing in ETFs over any other alternative.
As far as investment portfolio diversification and exposure goes, we often see ETFs and mutual funds being listed alongside each other as very strong investment strategies.
That is because, in a number of key ways, they are quite similar. But crucially, in a number of key ways, they are also very different.
ETFs trade in the same way as stocks do and can be traded any time during the day. That affords them with a number of attractive qualities that mutual funds simply do not have.
Reasons to Invest in ETFs
Here are some of the key reasons why you would want to invest in ETFs exclusively.
ETFs cover a wide variety of markets and industries. In fact, some of them even represent the economy of an entire nation. The main benefit of this kind of diversity is that it effectively allows investors to ‘hedge’, relying on one investment to compensate for the risk associated with another.
But it is not merely with investing that ETFs offer flexibility. That quality is also present in the transactions. Since ETFs trade like common stocks, there are no time constraints on when they can be purchased or sold. To put that into context, if you wanted to short sell a mutual fund, you could be liable to pay penalty which could be as high as 1% of your initial investment. And the early sale period could be as long as 90 days after the purchase.
2. Low expense ratios
Owning and managing an ETF can be remarkably less costly than doing the same with a mutual fund. One study shows that in most categories, ETFs have expense ratios that are lower than mutual funds.
That said however, investors who prefer mutual funds will point out that the sum of commissions for all transactions combined with the scale of the bid-ask spread is enough to nullify the benefit of having a low expense ratio. Incidentally, these are both costs that do not apply to mutual funds.
3. No minimum purchase
If you have had prior experiences with investing in mutual funds, you will be aware that a lot of them have a minimum purchase amount which can be anywhere between $100 and $3000, maybe more. In fact, it is not unheard of for a minimum purchase to be as high as $50,000.
Fortunately, there is minimum purchase amount attributed to ETFs. You can literally invest in one share at a time if you want to.
4. Lower taxes
Once again, ETFs out-cheap mutual funds when it comes to capital gains taxes mainly because of the way each trade is structured. With a mutual fund trade, capital gains taxes are applied immediately whereas with ETFs, those gains are not realized until after the securities are sold along with the whole fund. That makes them a lot more cost-efficient when it comes to taxes.
When managing your portfolio, it is important to focus on risk management as well as diversification. A lot of ETFs offer plenty of useful tools to control risk including futures contracts, options, and swaps. So chances are, you can find a fund where you can hedge your bets with call or put options, or trade with option straddles.
However, some ETFs do actually contain options and futures in which case you should find out about how they may affect your trading strategy and the amount of risk involved.
These are just some of the many benefits you can have by trading ETFs over their alternatives. These benefits have been a driving factor in the popularity of ETFs since the early nineties and they continue to be so even today.
ETFs also usually have a higher liquidity and lower fees on a daily basis compared to mutual funds which further elevate their appeal to private investors.
How big are ETFs today? In the United States alone, they have attracted an estimated $1 trillion from investors and have roughly 1000 products trading on stock exchanges all over the country.
An ETF can be bought or sold just like shares of stock since the shares of an ETF are traded on a public stock exchange. Shareholders receive a percentage of the profits, and a residual value if the fund liquidates.
Creation and Redemption
The amount of ETF shares is controlled by a system called creation and redemption. It involves a few big investors or authorized participants and large financial agencies like banks or investment firms that have a high capacity for making purchases. Such APs are the only participants capable of creation and redemption.
In creation, an AP trades a certain number of underlying assets and receives in exchange some newly created ETF shares. Redemption is when the AP returns the ETF shares and receives the underlying assets.
Types of ETFs
There are many different types of ETFs to become familiar with. Fortunately, they are not that hard to get.
Market ETFs are aimed at keeping track of specific indexes like S&P 500 or NASDAQ.
Bond ETFs are designed to give some insight into various types of bond.
Sector and industry ETFs give exposure to industries like technology, medicine, and crude oil.
Commodity ETFs keep track of the price of a given commodity such as oil, precious metals, and food items
Style ETFs keep track of certain styles of investment or focus on market capitalization.
Foreign market ETFs keep track of markets like the Hang Sang index in Hong Kong and Japan’s Nikkei index and others which are outside of the United States.
Inverse ETFs at making a profit out of a declining underlying market/index.
Alternative investment ETFs: These refer to innovative ETF structures like those that enable investors to be exposed to certain investment strategies.
Advantages of ETFs
Ability to buy and sell at any time of the day.
Investors can place different types of orders since ETFs are traded in much the same way as stocks
Without counting brokerage commissions, fees are generally lower as there is no sales load.
Offers investors more control when dealing with taxes such as when they have to pay their capital gains tax.
Disadvantages of ETFs
Given that your strategy is to invest small amounts on a regular basis, it would be more cost- efficient to consider alternatives that invest directly in a no-load fund with a fund company.
Technical problems and discrepancies are not unheard of in ETFs that keep track of their underlying Index.
An ETF sale will not be settled until after 2 days of the transaction. So as a seller, the funds you receive from selling an ETF cannot be reinvested for at least a couple of days.
Happily, however, ETFs will continue to be the subject of innovation, speculation, and advancement for years to come. The key is to be fairly picky about which one you choose to advance your trading goals because, as we know, not all ETFs are created equal.
eToro is one of the brokers with the lowest deposit requirement.
The minimum deposit is only $100.
Unfortunately as of May 2018, all trading brokers stopped offering any kind of deposit and promo codes.
The reason is that the regulators forbid these methods of marketing. In order to comply to the new rules, eToro ,as a regulated broker, has stopped these promotions as well.
Is There any Other Kind of eToro Reward?
Yes, you can still get rewarded for referring a friend. The reward changes all the time.
This is what you have to do to reffer friends on eToro – no eToro code needed:
Log in into your eToro account
Type in the email address of your friends
Click the invite button.
Founded by the brothers Ronen and Yoni Assia in partnership with David Ring, eToro commenced operations in 2006. It was conceived as a platform for investment and financial trading that would suit anyone.
But is it a legitimate enterprise? There is strong evidence to suggest that it is. eToro’s European headquarters are based in Limassol, Cyprus where their operations are regulated by CySEC. In the UK, the firm is regulated under the FCA, another globally recognized financial agency.
At present, eToro’s services are accessible in over 170 countries and it has a network in excess of 5 million traders. On a daily basis, thousands of new accounts are opened. The firm offers trading assets such as currencies, CFDs, commodities, and indices. Unfortunately, however, you cannot trade with eToro if you are a trader from the United States.
At first, eToro’s trading platform was designed to be easy to use for the novice trader. Since then, its former platforms have been fused into one, creating an all incorporating super platform that has brought home several awards since its launch. Simply put, it takes the best out of all the previously-released platforms and offers them as part of one complete package. It is easy to access as well since it has been made available for both Android and iOS devices.
Deposits and withdrawals
eToro trades exclusively in American dollars. A deposit made in another currency is immediately converted before further processing. The minimum amount you can deposit at eToro can vary between $200 and $1000 depending on whose regulations are affected in your area.
There are many payment methods that are compatible with eToro. These include Visa and MasterCards, Skrill, Neteller, Webmoney, Wirecard, China Union Pay, PayPal, GiroPay, and Yandex.
Withdrawals come with a fee of $25 and take as many as 5 days to be processed, certainly not the quickest or cheapest on offer.
All things considered, eToro is definitely up there with the best social trading networks and forex brokerage firms anywhere. There is no eToro code, but that’s not really a problem. The only real drawbacks are the lengthy withdrawal period and the unavailability for US-based traders.
What’s stopping you from investing in the stock market?
Despite the evidence of some fairly sizable ‘push factors’ – namely super-low interest rates crippling the benefits to be had from savings accounts and a series of measures making it tougher to accrue an income as a buy to let landlord – many of us fear taking the plunge and putting our money in the hands of the markets.
In some respects, this appears to be a generational issue. The ‘baby boomers’ have been well-versed in making their money go further through stocks and shares but millennials have not.
That was certainly the finding of an American study carried out by Bankrate.com.
It discovered that only 26 per cent of under-30s are investing in stocks – compared to 58 per cent of people aged between 50 and 64.
While a lack of money was a problem – 38 per cent of 18-30s felt that they didn’t know enough about the market, the highest proportion of all categories asked. In a separate study, reported by USA Today, only nine per cent of millennials would describe themselves as ‘investors’. It’s likely that the recession – sparked by the banking crisis – is fresh in the minds of these nervous investors as it has had a significant impact on their adult life.
A lack of knowledge – and a more cautious mindset – are important factors, therefore.Yet as fed up millennials search for ways to make their money go further, what might help them to feel more confident about the potential in the market?
Here’s some food for thought:
Step 1: You don’t have to risk thousands
Ok, so young people don’t feel like they have big pots of cash to invest. But it’s important to realise that you can still get a decent return from a relatively modest sum.
As The Guardian notes, as little as £50 a month can be invested in unit trusts. It quoted Justin Modray at Candid Money, who advised:
“Look for a fund that spreads your money across a blend of shares, corporate bonds, commercial property and commodities to reduce risk.”
The article also demonstrates how investing £100 a month in a FTSE 100 tracker that returned 5% a year after inflation, would deliver about £88,000 after 30 years, or £152,000 after 40 years. Seeing the large potential reward to be had from putting money into the markets (while still appreciating the risk) is important to win over those who have not yet taken the plunge.
Step 2: Learn the lingo
Don’t know your futures from your forex? Sometimes it can feel like the market speaks a different language to the rest of us – and this might be why so many millennials feel in the dark. This is where sites such as Investopedia can come in incredibly handy – with handy definitions and descriptions of all the key terms you’ll come across. Many of these are easier to understand than they sound.
Step 3: Try before you buy
Would a trial run make you feel more confident? Providers such as IG offer you the chance to run a demo trading account, practicing trading CFDs and spread betting with virtual funds. You’ll see the same charts and data as you would when you’ve put real money into the market – but will get a chance to see what would happen without the risk of losing a penny.
This experience, a greater knowledge of the terminology and an appreciation that relatively small amounts can deliver a decent return should help those who harbor a fear of trading, especially among a younger generation that is reticent to dip its toe into the market.
The market for gold is one of the most liquid out there. It offers a ton of opportunities for you to profit, no matter what the state of the market is like. If you want to learn how to trade gold online, there is also a plethora of guides to help you do this. Some people choose to actually buy the metal in its physical form and own it as a nest egg for the future.
However, using gold trading on the stock market (GDL or GDX) to speculate about the future, equity and more allows you to gain leverage with minimized risk.
The value of gold isn’t a very stable one, as it fluctuates quite often. This can make trading quite difficult because there are many pitfalls that can cause a large loss in profits. The global markets in gold have a ton of different unique traits that can be utilized to your advantage, but it takes a lot of effort to actually learn this, and to keep up with the fluctuations in order to decide when to sell and when to buy stocks in the gold market.
One of the main reasons why people simply don’t trade in gold is the price. In order to invest in the gold market, a huge investment needs to be made. This can be tens of thousands of dollars. This opens up the gate to a large amount of risk as well. The smallest bad call could lead to massive losses that drain you financially and leave you broke.
Cheaper, Safer Alternative to Traditional GLD Trading
If you don’t want to take this type of risk, or if you simply want to be able to invest in the gold market without spending that much money, binary options is perfect for you. Binary options brokers usually offer the chance to trade in gold as a commodity. It is one of the trending assets for trades of any size because it is volatile and because it doesn’t get affected by most market factors that can impact the value of other assets. This makes it one of the safest to trade in, and is perfect for times when the economic stability of the world is in question as well.
The big difference in gold as a commodity in binary options is the cost. It can cust upwards of $10000 to trade in the metal in the traditional way, but with binary options this is cut down to hundreds of dollars instead. The margin for losses is also reduced significantly, making it far easier to deal with a single loss, learn from mistakes made and try again.
High Rate of Return and More Control
When trading in gold binary options, you gain a lot of control over just how much money you can win and lose. A return of up to 85% is offered by most brokers for wins. There are many ways in which the metal can be traded as well.
One of the most popular is the Touch/No Touch trade type. Typically, a traditional binary option trade would involve predicting that the value of the option would hit a certain upper or lower limit in a set amount of time. With this trade type, the value doesn’t have to touch the threshold. As long as the strike price and the direction of the value of the asset are correct, the win is granted to you.
While it is definitely true that gold is a volatile commodity, it is also one that can used very easily in the world of binary trades to your advantage. Make sure you get on a binary options broker and use it to earn some great profits!
At present, the stock market is still reeling from the effects of major financial changes in the world such as Brexit, among others. Because of the focus on global events with a huge reach, smaller single-stock events aren’t getting the focus they need from brokerages and advisors.
If you are wondering how to trade Microsoft stock today or in the near future, you needn’t worry about not having enough guidance. MSFT (Microsoft) is one of the biggest technology companies out there, and has seen its share of rises and sharp falls.
In the current day, the 2016 fourth quarter earnings report from MSFT showed strong earnings in most of its sectors, except for the smartphone sector because of its decision to call it quits on the Lumia series of mobile phones recently. However, experts say that stock at Microsoft is set to rise in the long term. The problem is that at present, MSFT is a company that is in transition, and the state of the company shows that in the short term, the value of shares could decline, especially with the largely negative reaction to the Windows 10 Anniversary Update in August.
How to Safely Trade MSFT Stock
If you don’t want to take the risk of buying a ton of stock in Microsoft only to find out later that you made the wrong choice, that’s okay too. Long term stock trades are scary, as they don’t yield immediate returns, and because the world is a very explosive place. Something could go wrong at any point, leading to massive losses for all investors waiting for long term returns. If you want to trade Microsoft but you don’t want to risk your capital, binary options trades might be the answer to your dilemma.
Short Term Trades with Quick Returns
Basically, binary options trades with Microsoft ask traders to invest a small amount of money from their account at a brokerage firm in accurately predicting the rise or fall of the value of the MSFT stock in a preset amount of time that ranges from 30 seconds to a month. For anyone who isn’t interested in playing the long game, and wants to see returns on their investments as soon as possible, this is perfect. Of course, the faster pace means that there is a higher risk of making a bad judgment call as well.
The good thing is that these won’t really make you lose a lot of money. If you were to make a bad call in trading actual stock, you would stand to lose no small amount of your savings. With binary options, you can only lose the amount of money you initially invested in the trade. This can be as little as $1. To add to this, a lot of the binary options brokers out there offer returns even when the trade has been lost, meaning you don’t lose everything when you lose a trade.
Basic Workings of Binary Trades
At its simplest level, binary trading works by predicting that the stock at MSFT will rise or fall to a certain level that you can set, in a set amount of time. Everything is in your control, from the invested amount to the thresholds and whether or not it will rise, all the way to the expiry time of the option. If the option reaches the threshold in the time specified, a return of up to 95% can be granted to you.
If it doesn’t, the loss isn’t going to hit you too hard. This is one of the biggest perks of binary trading, and when you factor in the fact that it is incredibly simple, you have yourself an investment opportunity that simply should not be passed up.
Are you interested in learning how to trade stocks online and make some good money? The stock market is a system that is based on supply and demand, just like any business. People buy stock and hope that the company you bought stock in becomes more popular and in demand over time, so that you can increase the price at which you sell that stock to other traders, thereby making a profit.
If you have been reading up on stocks, you probably know that the price of a share theoretically increases with the value of the company and how it improves over time. However, there are many other reasons for share prices to change, and not all of them are known or fixed.
There is a lot to do in the complex art of trading stocks. You need to do your research and pick the right stock to invest in. You also have to get used to recognizing patterns in share prices. It is also necessary to invest in an online trading service to trade your stocks on the internet. Before engaging in anything, you also need to practice advanced skills, hone your instincts and educate yourself.
Better Alternatives to Trading Stocks
Stocks aren’t the only way for you to earn money by making trades, though. The risks of the stock market are many, and the return to your hand isn’t as much as it should be considering the risk and effort you’re putting into the industry. There are alternatives to the classic method of trading stocks.
One of the best out there is called binary options trading. This doesn’t have to replace your interest in the stock market, but can be used as a way to diversify your investment portfolio over time.
Binary options trading involves trading with stocks, currencies, indices and other assets, but in a simpler, different way to traditional stock trading. The first step is to open an account at a binary options broker. These are platforms and companies dedicated to enabling traders to trade better, wiser and with more benefits. There is a plethora of these companies out there, and they are available based on financial regulations in the area that you will be trading from.
How Does Binary Trading Work?
A binary options trading (you can see the best brokers here) is a trade that is made by taking a company, a division of a company, a currency pair or any other asset and predicting whether, in a set amount of time, its value will increase or decrease. In a way, this is very similar to the way traders work with normal stocks and shares. However, the difference lies in how the money works out. As a trader, you “bet” a certain amount of money on your prediction coming true.
This means that you place an investment of, for example, $5 on the assumption that the value of Apple, Inc. stock will rise to a certain threshold in the next hour. After an hour has passed, if the value of the company has actually risen to this threshold, the option has finished in the money. Your investment is returned to you, along with a nice profit for winning the trade. If the value doesn’t hit the threshold, you are out of the money.
Typically, this would mean that you lose the $5 that you invested. However, some brokers offer a small return of about 5 – 15% of your initial investment even when you lose a trade.
There are actually many different types of trades that you can make, not just for stocks either. The traditional way of trading binary options is just one of many. Trading stocks online is pretty great, but binary options trading might just be the simple alternative we have all been looking for!
Apple Inc. or AAPL on NASDAQ and the stock exchanges around the world is considered by many investors to be one of the core parts of their investments. Apple shares are cheap to buy, and has a lower price-earnings ratio than the average for the industry.
While it isn’t a company you would invest in for its yield for a dividend, it is slowly getting to the position where it is. So what are the risks of trading in Apple stock, and what is the answer to the question of how to trade Apple stocks during bad times?
One of the biggest issues is the popularity of the device the company is best known for: the iPhone. This smartphone is the flagship of the company, and its failure could very well mean a huge crash in the demand for Apple shares. At present, the demand for iPhone units has been dwindling with each subsequent generation of the device. According to most analytical services, the stock at Apple Inc. right now is under a death cross. This means that investors need to watch out and prepare for declines in their share prices.
How to Make Money Trading Apple Stocks
There is a way for you to make money trading stocks in Apple Inc., even when share prices are on the decline. There is a sector of the online trading arena that is known as the binary options trade. This is a completely digital industry, in which traders invest their money in predicting the rise OR the fall of the value of stocks and other assets. Profits are earned through accurate predictions. This is a huge simplification of the field of binary trading, of course, but it is still one of the best basic descriptions for a complete newbie to the industry.
Since AAPL stock is currently in a rather tense state, investors could see the value of shares either rising or falling in the near future, with a greater chance of it falling. If you have an account with a binary options broker, you can actually invest in a trade for Apple (provided that your broker offers AAPL as one of the assets available to trade), predicting that the share price will fall further to a certain threshold in a set amount of time.
There is obviously risk involved with this type of investment, but it isn’t nearly as bad if you lose as it would be if you were to lose stock in the real stock market.
Why Trading Apple in Binary Options is Better
If the stock value of the company actually does fall below the threshold you set in the time you specified, you are granted a return of up to 90% from the broker based on the broker you chose to work with. If your prediction isn’t accurate, you will lose anywhere from 85% to 100% of your investment. The good thing in this is that you determine the amount of money you can lose when you start the trade. There is no risk of you losing everything. Even better, a single trade can be as small as $5 in size. A loss won’t be nearly as devastating.
In addition to this, you get the added bonus of being able to make money from Apple stock without having to buy a single share. You are given the chance to make a profit whether the stock rises or falls. Binary trades can last for as little as 1minute, meaning that it is a lot more fast-paced. Your profits can come almost instantaneously if you play the field right. That’s how you can make money off Apple Inc. without having to worry about falling prices in the present day.
Binary options trading is not easy if you want to make money. To be successful it requires measured risk taking and someone who is willing to learn different strategies for different market conditions. Every stock moves in different patterns from other stocks, forex trades much differently than stocks do, and commodities also have their own trading personality.
Binary options traders must always learn and evolve if they want to keep a high enough winning percentage to make hefty profits. Here are some different binary options trading strategies that we use to make money.
Successful Binary Options Trading Without A Strategy
If you don’t have a trading strategy or if you are new to binary options trading, then you could try OptionRobot, the free binary options robot.
A lot of binary option contracts expire in one to ten minutes. A trade this short requires a scalping mentality. The fundamentals of the underlying security are probably not important to pay attention to here. What you want is to take advantage of short term patterns in price action. There are a few ways that you can do this well enough to make money. Here are some of the best binary option strategies to make money:
Use a technical indicator based strategy.
Use a signal service.
Read the tape of a stock by looking at prints.
Jump on momentum.
Trade the news and take advantage of trader sentiment.
Take advantage of a flat market by buying “in the money” options.
Use a Technical Indicator Based Strategy
There are many technical indicators to choose from. Examples of popular scalping indicators that we like to use for binary options include:
Relative strength index – Also called RSI, this is a measure of how strong or weak a stock is taking into account it’s momentum, and its recent momentum relative to its previous strength or weakness. The math behind this is complex, but what it is meant to do is to look for overbought or oversold conditions, and identify that a reversal is likely to take place in the direction of the price movement. Most people use a 14 period time frame (but you can customize this depending upon you preferences), and a high and low threshold of 70 and 30 respectively. You look for a signal when the relative strength or weakness crosses past your thresh hold. Many people will take their position when the relative strength crosses past the set threshold, and then crosses back past it again toward the midpoint. For instance your indicator may drop to 25 (below your threshold of 30), and they will take a position when it fails to stay below 30 and crosses back and hits 31. There are many different strategies involving RSI, and it comes down to the trader preference. A lot of charting software will simply give an indicator automatically so the trader does not need to actually think about the level. RSI is useful for binary options because it can quickly identify points where a short term reversal in price action is likely to occur.
MACD – This stands for moving average convergence divergence. Unlike RSI which is meant to spot a likely reversal of direction, MACD is meant to confirm that a price trend is likely to continue. While this is used more for swing trading than scalping, MACD is still useful for shorter time periods such as 30 minute or 1 hour binary options.
Bollinger bands – These are bands mathematically calculated by looking at the standard deviation of the moving average. They are a volatility indicator, because the more volatile the stock is, the higher the standard deviation will be of the moving average. These are useful for short term trades because when a stock hits the upper or lower band it can signal that a reversal of direction may be about to take place. In other words because stock markets move up and down constantly, we can see when a stock is statistically at a higher or lower end of its range compared to its previous moving average. The way to trade this is to buy a put option when a stock hits an upper band, and a call when it hits a lower band. Many brokerages allow traders to apply the bands to a chart.
Each indicator has its benefits and its weaknesses and limitations. Ultimately it takes some knowledge and experience to understand how to use them to your advantage so that they give profitable buy and sell signals for your trading.
Most brokerages will give you the tools to use something called “back testing”, which allows you see how well a technical indicator would have performed over some past period of time that you choose. Use the back testing feature to your advantage and you can find the indicator or mix of indicators that work for your trading style and whichever security you are trading.
You should also be aware that certain types of market environments favor different indicators. A very choppy market probably favors a relative strength or bollinger band approach, and a more directional market probably favors using moving average based indicators. Here are some additional strategies you should read as well.
Use a Signal Service
There are binary option specific services out there, and there are other larger services meant for all types of traders. Our very favorite is marketclub, which we use to trade with fairly often ourselves, but we also like barchart, and Traderific who have both free and paid services. Signaling services can be very good if you need some trade ideas, but blindly following every single will does not usually equate with profitability. The best results come from combining signals from multiple indicators and services.
Before you use any signalling service, make sure to do your research. Many services simply do not work. You need to ask yourself, if a trader can make money with their own signals, why would they sell their winning trades to other people? Sometimes the answer is to spread risk or diversify revenue streams, but many times it is because their methods don’t work. Whatever service you choose, test your strategy with them many times before putting your money on the line.
Use a Tape Reading Strategy But Trade Binary Options
This involves using a stock trading software such as “Think or Swim” to watch the prints of a stock and trade based upon the buy/sell flow. If you spot a lot of activity in one direction, or you see unusually large transactions or orders on the book, you may get an understanding of which direction the stock is likely to head in the near future. Professional traders have long used the order flow of a stock to predict which direction it is heading in the short term.
The only problem is that binary options brokerages do not display this information like some of the professional equity trading platforms do. The key for traders will be to have two platforms open at the same time, placing trades in the binary option account but using information from the equity account. This strategy will not apply to commodities or foreign exchange trades but it can work well with equity trades.
Jump on short term momentum
A trader can see when a stock is picking up unusual momentum compared to how it usually trades. Momentum is characterized by large quick moves, and moves that are much more prolonged than is normal. Even if a trader does not predict the beginning of a momentum move, they can still make money. The goal is not to predict momentum before it starts, it is to jump in and ride the wave until it shows signs of slowing.
Binary option trades are uniquely suited to taking advantage of momentum trades because they are so short term, and a trader only needs to be in the money by a tiny amount in order to have the option pay out. Even if a trader gets in later in the momentum based move, as long as they are in the money when the option expires they will get paid. This could be a 30 second or 1 minute trade that is highly predictable and pays 60%-80% on the binary option contract.
A binary options trader can easily make money using a momentum based strategy. Look for fast movement and jump in the direction of the move. This is a simple strategy, but it may take some time for a trader to hone their skills and understand what big momentum looks like so that they avoid moves that don’t follow through in the direction that they want a stock to go.
Trading the news can be a very tricky strategy, and it is not something that we would recommend to binary option beginners. News traders usually need to be in extremely quickly after news is released, because computers that can read news releases and act on the information before a human can read the first word are competing against people. A trader using a news based strategy needs to quickly read the release, asses what it materially means to the price of the stock, and judge how the stock is priced relative to where it should be given the new information. Traders who use news based strategies are often MBA types, or quantitative type people.
Even though news trading is complex, a binary options trader may be able to take advantage of the public reaction to news by capturing a small portion of the greater move. Remember binary option trading only requires you to be correct in your trade by one penny.
Remember when you are trading any news release that the direction that it will push the stock is not always apparent to an untrained person. You must balance what is released against what was expected by the market. Sometimes even if news is negative, but not as negative as the market expected, you will see the negative news make a security increase in value. Remember to always compare news against expectations before take a position. Expectations are not always readily apparent, and you should definitely test news based strategies in a demo account before you use real money. You will either get the hang of trading news, or decide that it is too hard to predict how news will affect the price.
Trade Correlated Pairs or Negatively Correlated Pairs
One strategy that many quantitative traders are taking advantage of is called correlated trading. This is largely done by computers, so you need to be fast, but a human can still make money if they are ready.
The way to make money is to find a pair of stocks, currencies, commodities, or some mixture of the two that either trade in tandem, or reliably move in the opposite direction of each other (negative correlation). An example of this type of trade would be Citigroup and Bank of America. On most days, when you compare the charts of these two stocks they will look very similar.
Let’s say that while watching the two charts, you noticed that all of a sudden Citigroup’s price moved up $.20 in one minute. Bank of America has not yet really moved. You quickly should take a long position (call option) in Bank of America, and often times after a very small delay it’s price will follow suite and go up. Usually you only have a few seconds to act before its too late, so be quick!
Of course this doesn’t work every time, and many times they move so closely together that you don’t even have time to take a position. Sometimes you will notice a lag, and these times with a slight lag you can make a lot of money with this strategy.
Trading Flat Markets by Buying Binary Options in the Money
This is a relatively new type of trade for binary options traders because brokerages are just now allowing clients to purchase binary option trades that are already “in the money”. These will trade at a discount proportional to how far in the money the price currently is.
If you have a read on the market that says that it will be flat for a while, you probably want to take advantage of this strategy. As long as the price remains in the money, the trader will receive the payout displayed when she purchased the option.
A good time to employ this strategy is during mid day trading hours (about 12 PM- 2PM EST) because the market usually does not move very much during this time. Another good time is on Friday’s after the morning is over, and Friday’s before a holiday weekend while volume is light.
Time of year may also matter, for instance trading is usually slower during the summer months than it is during the spring.
Long Term Binary Options Strategy- Trading Fundamentals
Another type of binary options strategy which is much less common is a long term trade. Brokerages will offer options, especially foreign exchange options, which may be a month or longer in term. Traders who think that a stock is fundamentally undervalued or overvalued may take a position here, assuming that they price will tend to move in the direction of the fundamentals over the longer period of time.
A fundamental analysis involves looking at what the price of a security should be given its underlying economics and the expected future growth. Some people may use a price to earnings analysis, or a Tobins Q, or they may look at a trade imbalance between two countries whose currency they want to wager on. There are many different types of fundamental analysis, but if you think that a security should be priced differently than it currently is, you may want to take a longer term trade with the thesis that the fundamentals will push the price towards the correct value.
Be mindful that once you enter into a binary options trade, you usually can not exit it. If market conditions change you will have to stick with your trade in most cases.
The Best Binary Options Strategy
There is not one “best” strategy. The best strategy is the one that makes you money. Different trades have different preferences, comfort zones, appetites for risk, and time horizons. Test different strategies in your demo account, and use the one that gives you the highest likely hood of making the most money. While this sounds obvious, it only works if you actually do it! Get started testing strategies today.
Day trading has changed significantly over the last decade. New technology has pushed many of the human decision makers from the market, and super-fast computer driven trading has all but taken. Many of the old day traders are complaining that they no longer can make money. Does this mean that day trading is dead? Not even close. But the profession has changed. In order to be profitable today, every trader must take a modern approach.
Success over time in day trading requires the ability to change. The market is always changing. The laws governing trading are changing. The technology driving trading is changing. The global marketplace is changing how the world affects and accesses the US capital markets. Why would old traders think that their tired strategies will still work today? Obviously they do not. They key to trading today is to take a modern approach by following the new rules of trading.
Rule #1 Markets Are Choppy
For most of the history of the stock market, whether you were looking at a short term move or a long term move, the market was very directional for the duration of the move. If you could understand the direction of the market, you could make money relatively stress free without being out of the money. Today, markets are choppy whether you are looking at a 10 minute period or a 10 month period. Trades are often stressful, and the market appears to reverse direction often, only to continue in its original direction further and further.
Why Markets are Fast and Choppy
The reason for this is the high percentage of volume driven by algorithms and executed by computers. For various reasons (think RSI or Fibonacci retracement) a computer will take a trade in the opposite direction as the market moves. Different trading algorithms use different indicators and different math to find potential “oversold” or “overbought” conditions, while other algorithms will pile trades into the direction of the original move. Meanwhile, the original reason for the move (either a large order or a fundamental or technical change) will continue to exert pressure for some period of time. In addition, each stock and commodity has some level of correlation with the overall market, and the market will typically exert pressure in whatever direction it is moving. The result is a lot of “noise” or competing orders in almost every trade.
To combat this traders need to understand the reason a stock is moving in a particular direction and not be tricked out of good trades. Expect most trades to make it tough on the trader to hold, rather than moving in a straight direction. The market moves fast, and trading is not for the faint of heart. The best way to trade is to set your stop loss automatically when you take your trade, and don’t get tricked out of the trade.
Rule #2 Risk Management is Key
Any effective trader has always practiced risk management, but now more than ever this is crucial to separating traders who make money from traders who lose. Computerized trading can move a stock during times of high volatility 10% easily in a matter of seconds. If a big fast move goes against you, especially if you are leveraged, you could lose your entire trading account.
How to Manage Risk While Trading
How do you effectively manage risk while trading? Traders implement many strategies. One of the most popular ones is what is known as a stop loss. A stop loss is a pre-determined price at which your position will automatically liquidate. As long as enough liquidity exists for your position to fully exit at this price, you are guaranteed to not lose any more money than the amount you set. You can set your stop loss at any time, but ideally you will set it before or immediately after you take your position.
Another important technique is manage the size of your trades. This is especially important to a beginner. As a general rule of thumb, it is smart to never to place a trade with more than 1/10th of your total account value. This does depend upon the type of trading that you are doing, and where you set your stop losses. Remember that you always want to plan for a worst case scenario, and you never want your trading account to be completely depleted because of one random circumstance. Stocks can go bankrupt or have surprise good news leaked at any time. Things like terrorist attacks, fat finger traders, mergers and acquisitions, or an algorithm run amok can all move a stock huge amounts in just seconds of time. Computers can read news releases and take positions and can jump on existing momentum much faster than a human. You never want a random even to prevent you from trading in the future.
New Traders Take Heed
New traders have a tendency to take positions that are way too large. The large position creates extra stress, and make them deviate from the system that they are trying to follow. In order to be profitable over time, a trader must follow their system religiously. There is simply not any room to deviate for new traders who want to keep their account balance positive when it comes to managing risk effectively.
New binary option traders especially need to be careful because when they lose, they lose 100% of their entire position value. It does not take a lot of consecutive losses before an account is decimated when position size is too large.
Rule #3 Use Modern Tools
Traders today have unprecedented access to fast trading and liquidity. Market’s are segmented into many various ECN’s (electronic communication networks) and dark pools. Traders do not need to depend upon how good or fast their floor broker is any longer. The trade off that people make in this case is the speed in which prices and liquidity now moves.
Traders should always use a brokerage that provides a modern platform. Traders should have sophisticated “routes” to accessing liquidity, which means that they can access both dark pools and the public liquidity on various ECN‘s. Traders should always strive to get lots of liquidity, and access it fast. This gives them the absolute best price on all of their trades.
Binary Options Offer A Great Modern Tool For Traders
Some traders have moved to new security classes, such as binary options. Binary option trading does not rely on liquidity or access to certain dark pools. Traders get a market price, and they need to be in the money when the option expires. It does not matter how large them become, they can trade any stock or commodity they want equally effectively regardless of order size. Their orders do not move the price, and they always get their orders filled.
Regardless of a traders style or platform, they must be cognizant of how markets behave today. They are fast, computer generated orders represent most of the volume, and the way in which liquidity is spread across different ECN’s and dark pools present new challenges to traders. Traders need to fight back by being smarter, understanding the markets, managing risk and using modern tools.
There is still a lot of money to be made trading stocks. The key is learning to do it systematically.
If you are just beginning to trade binary options, there are a lot of reasons why you should be very careful at first. Binary options are an extremely risk investment even for experienced traders. While day traders have the ability to make a lot of money with binary options very quickly, they also can lose a lot of money just as fast. Learn why you should take it slow, and how you should prepare yourself to trade with larger size trades.
When You Lose, It’s All Gone
A binary option is a very simple instrument. When you win, you win a high return pre-specified payout amount, and when you lose, you lose your entire position. The allure of scoring a huge trade causes many people to wager big amounts on binary option trades, especially right when they start trading. They may even take a position using their entire account value.
When you are trading your whole account value, it only takes 1 wrong trade to lose everything you put into it. More often than not, a loss comes quickly to those who try this ill conceived practice. When it does, they are left feeling depressed and dejected. This is a mistake that can easily be avoided.
Realize That You Will Lose
A big part of being a successful day trader is managing expectations. People who have been trading for a long time are under no illusions that they will be able to avoid losses. Having losing trades is an inevitable and unavoidable part of day trading.
They key to being successful trading is to manage your losses, keep them small, and realize that as long as your strategy is net profitable, you can simply increase your trade size over time and make a lot of money.
While there are different strategies to limiting losses depending upon what you are trading and your trading style, every trade must come to the conclusion that a dollar saved in a losing trade is a dollar earned. An equities trader may use a stop loss, an options trader may take positional hedges, and binary options traders must develop their own strategies.
Small Size Means Less Loss
A good way to limit losses when you are just starting to trade binary options is to keep your position size very small. While this may seem frustrating to the beginner who instantly wants to make a lot of money, they must keep their expectations realistic. Very rarely does a trader become rich over night, and when they do it is always luck. Since luck is out of your control, you should decide instead for the most optimal outcome.
No matter how well you think your strategy will work, unless you are using it with real trades and real money, it is not proven. The first step that any beginner needs to take is to prove that they are profitable with small positions.
Beginners Want To Stick Around
A beginner wants to stay in the game long enough to get better, improve their trading, and eventually make a lot of money. If you lose a lot of money quickly, you will not have enough time to develop and learn.
The name of the game for anyone learning to trade is longevity. Most traders fail very quickly because they do not allow themselves enough time to get skilled at the craft. Successful traders know that they will have a learning curve and they either have so much capital to begin with that large losses don’t stop them from trading, or they were smart enough (or lucky enough to be told by a teacher or mentor) to know that they need to trade for a decent amount of time before they will be skilled enough to be consistently profitable.
If you can not turn profits on a consistent basis such as weekly or monthly, you should only be taking the smallest positions. Only after creating a track record which proves your profitability do you have any right to take larger position sizes. This lesson is very expensive for most new traders. If you heed this advice today, you will save yourself a lot of money.
Probably not. Day trading is extremely hard and computer generated algorithmic trades are making it tougher by the day. Does that mean it can’t be done? Absolutely not. There are day traders today who make a good enough living to support themselves comfortably, and some do much better. You may even consider some day traders to be rich.
The problem is that most people are not able to attain that level of success through trading.Over 90% of people who try to day trade for a living ultimately fail. In fact, as the markets have become more electronic, and more computer algorithm driven, fewer traders have been able to trade for a living. That doesn’t mean that they aren’t profitable, or that they don’t manage to have some big trades along the way. The simple fact is that to do it for a living, over a long period of time, a trader needs to experience a lot of success month in and month out.
If you know that obstacles, you may be able to overcome them. Read on to learn the biggest obstacles to day trading successfully enough to live off of, and learn how to give yourself the highest chance to succeed.
Obstacles To Making A Living
The lack of discipline applying a strategy. This is the number one cause of failure in the trading world. People are often able to develop strategies that are profitable, or would be profitable if they were applied strictly without the trader straying from the system. Unfortunately for a variety of reasons traders can rarely stick to a strategy. Probably the biggest reason why traders are unable to adhere to a strategy involves a lack of patience. Day trading is not as exciting all the time as some people would like it to be. That doesn’t mean that it isn’t very exciting sometimes, but a lot of trading involves sitting around and looking for the right trade setup. Depending upon your strategy, the right trade setups may come few and far between. New traders have a very hard time sitting idle, waiting for the setups to come. New traders think that to become successful, they need to make money every single day. This is simply not the case. Being highly successful on a low number of trades can make a trader rich.
Developing a strategy that isn’t successful enough. It turns out that it isn’t extremely difficult to create a strategy that is slightly profitable, but to create a highly profitable strategy takes some work/know-how. New and experience traders often fall into a trap where they are making money, so they don’t want to change their strategy, but they are not really making enough money to live on. A clearly defined successful strategy is the most important tool a trader needs to systematically make money over a long period of time. Unless you are perfectly disciplined, you need a strategy with a big upside or a high winning percentage (or ideally both).
Pressure to make money quickly. If you want to become a successful day trader who can live off day trading profits alone, the one thing you can’t have enough of before you start trading is money. This is not because you will necessarily lose a lot of money when you start trading (though you may), but because it can take time to get good enough at trading that you can pay yourself regularly. If you are under pressure with low savings and lots of bills or a family to support, you will have a hard time trading successfully. You almost certainly will struggle to maintain any discipline, and you will have a hard time sticking with trading long enough to get any good at it. You need to be able to survive for quite some time without income if trading is your only source of income. Even professional day traders go through a month here and there where they don’t make any money.
The stock market is extremely competitive. I would love to be able to tell you that anyone can become a day trader with a little hard work, but that is not reality. The truth is that the stock market is very, very, very competitive. Wildly competitive. As a day trader, you will be fighting investment banks, hedge funds, trading algorithms, and all sorts of very smart people, institutions, and machines for the same profits. If one person makes money, it means that someone else is losing money or giving up an opportunity to make money (opportunity cost). People who consistently lose money do not survive for very long in the stock market. To be successful as a trader you need to develop a niche, and become very good at what you do. Equity markets are so competitive that they are very efficient at reflecting the “right” prices. There is still opportunity, but there isn’t any “free money”. Being profitable takes intelligence and hard work.
Being unable or unwilling to adapt. The stock market is always changing. A strategy that has worked for a year or longer may suddenly stop being profitable. Laws are changing, and the market has seen the invention of electronic markets, dark pools, and electronic market makers. The way that the market moves will continue to change. For a trader to make a living day trading, an ability to adapt is crucial. Unless you can make a lifetimes worth of income before the market changes, you will need to adapt with the times.
The Keys To Succeeding At Day Trading
After hearing all the obstacles, you may be scared to try day trading. Not day trading may even be the best decision you ever make. Far more traders will lose time, money, and their sanity than than experience riches and success. Even so, day trading is exciting and potentially very lucrative. While fewer traders have been able to make a living in today’s fast moving electronic market, those who are able to make a living tend to do do very well. The odds are against you succeeding at day trading, but if you are able to succeed you will probably be well compensated.
The biggest key to success in day trading is to avoid habits that lead to big losses. Here are the important points to master if you want to earn your living as a trader.
Adhere to your strategy perfectly. By far, the biggest mistake that new traders make is that they are unable to stick to their strategy. Trading has narrow enough margins without wasting money on imperfect trades. Keep yourself profitable by keeping yourself disciplined. A good way to do this is by tracking and reviewing every trade with a trading journal, and by reviewing your trade blotter every day.
Manage your emotions. Negative emotions lead to reckless trading, an inability to properly manage trade size, and make it easier to miss good trades. To master trading you need to master your emotions.
Adapt. If your strategy no longer works, you need to go back to your demo account and either tweak it or develop a new strategy that will work. The market is certain to change, it is up to you to change with it.
Ultimately if you are going to succeed at day trading enough to make a living you are going to have to go through a big learning curve. Their are many resources, and many people willing to help you. You will have to learn to develop your strategies, and learn to control your trading so you adhere to them without wavering. You will need to spot opportunities, and be willing to act quickly and decisively to take advantage while they present themselves. The best day traders are willing to aggressively pursue any opportunity. Any day trader will tell you that the trade setup will not last for long, and if you wait, you will lose your chance.
If you want to make a living day trading you need to be aware that you have a long road ahead of you, but the rewards can be very sweet.
You may have heard many traders say that large cap stocks are not a category that should consistently be traded. But is it really a good idea?
There are a number of reasons (some legitimate) that a trader may shy away from large cap stocks:
Not enough volatility (especially in dividend paying large cap stocks)
Too crowded (there are too many algorithms and too much “smart money” transacting already)
Higher risk of a mutual fund or hedge fund with large orders changing the trade out of nowhere.
Too many competing interests for them to ever have a consistently readable direction (in the short run)
The price is already very efficient.
One of the easiest ways to invest in large cap stocks is to sign up with a regulated broker like 24option.
These are the most commonly cited reasons that day traders stay away from large cap stocks during the course of their trading. While these are all real concerns every asset class has its own set of difficulties.
Like anything, the answer to whether or not you should trade large cap stocks depends upon your goals and strategy. Here are some times and reasons to justify when it may behoove a trader to dip into the large cap lake.
A large cap stock is one of the largest stocks traded in the marketplace. Large cap is short for large capitalization (refering to the size of the market capitalization, or total value of all outstanding stock). For a stock to be considered large cap is must have a total market capitalization of more than $10 Billion dollars.
Large cap stocks are mostly extremely well known companies such as :
Proctor and Gamble
Many large cap stocks are also “Blue Chip Stocks”, which refer to large financially strong companies that have been around for a very long time. Many blue chip stocks operate in manufacturing and consumer goods.
Now that you are clear what is meant by large cap stock, here are times when it can be profitable to trade them.
Your Strategy Doesn’t Depend Upon Large Fluctuations
Many large cap stocks do not experience a lot of volatility (as a percentage of their price) on a day to day basis, which can make them a difficult trade for some day traders who need a stock to make significant moves. This would be true of a trader who has a standard brokerage account and only trades with their own capital, buying and selling equities. There are many other ways for a trader to make money today.
Many day trading strategies do not need large fluctuations (in percentage terms) in order to be profitable. A prime example of this would be a binary options trader. In binary options, the trader only needs to end up “in the money”, even if only 1 cent, for the trade to pay out the pre-determined amount. The payout to him is the same regardless of the percent gain in the position. A binary options trader depends upon reliability much more than large movement.
More Large Cap Trading Strategies
A strategy that may not need large moves in the price of the stock is if the trader is using large amounts of leverage. For instance if a trader is a proprietary trader trading for a brokerage. When a trader uses the house leverage in large quantities, their positions may be so large that even a movement of a few pennies can bring them large gains. There are many people who’ve become millionaires from trading.
Another strategy that may not require large movements in price is a strategy involving stock options. Some people buy short term call or put options, and even a small movement in the stock’s price may correspond with a large fluctuation in the price of the option. Other people “write” option contracts. If a day trader writes an option contract, he is betting that the price will either stay the same or move in the opposite direction (down if he writes a call or up if he writes a put) from the direction the buyer would like the price to move. Someone who writes an option contract is creating a contract, and if that contract expires out of the money the trader does not need to deliver any shares of the stock at expiration (and their profit is the value of the option they sold).
If you do not need large movements in a stocks price, large cap stocks may be the trade for you. Reliability may be more important that size of price changes.
The Price Action Is Readable
If you do not need large price fluctuations but instead depend upon a stock being reliability, many large cap stocks will go through periods when their price action is especially readable. The dependability of the trade may be very attractive. These are examples of when (and how) a large cap stock may become a reliable trade.
Many algorithms (or traders) appear to be buying or selling at the same time (when the stock reaches a particular price, RSI, or moving average for example). While this will never always hold true, it may hold true long enough or often enough for a day trader to turn some serious profits.
The largest transactors in the stock may be mostly buying and selling (moving the price) in the same way on a particular day. This may be a result of news, industry changes, or re balancing of their large portfolios (usually takes place at the end of quarters). If the price direction for a day is very readable and the large transactors appear to be moving the stock in the same direction, it may be a trade to consider. Usually large transactors can be “sniffed out” by reading the prints.
A stock is either “hot” or mired in dismal performance. You may notice that a large cap stock appears to have increasingly worse and worse prospects, or a particular stock may be in the news a lot and may be generating more and more profits such as Apple (AAPL) has been doing for years. If you notice a real trend that you want to be a part of, large cap stocks often have long term trends that stay true for enough time to profit from a trade.
You May Want To Play Earnings
Earnings are an especially volatile time for a stock. Many times even a large cap stock stock can move 5%, 10%, even 20% after earnings are released. Because large cap stocks are stocks that consumers may have more knowledge about, and they may have a lot more news/analysis coverage, many day traders want to take part in the earnings trade.
If you think that you have a feel that earnings may be better or worse than the street is anticipating, or what is priced into the stock already, this can be a very exciting trade to be a part of. Just be careful, as earnings release trades can move a stock’s price a lot for the better but it can also move the price a lot for the worse (depending upon the direction of your position).
Large Cap Stocks Are Still Good To Trade
You do not need to fear large cap stocks as a day trader. What is most important is that you recognize when they can be traded, and that they are most valuable either when your strategy depends upon their reliability or you do not need large price moves in order to be highly profitable. If you can develop a profitable trade in a large cap stock, you should work to exploit it to it’s fullest potential, as day traders make the most money when they are creative and aggressive in their trading.
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