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Bond Trading Strategy
Jesus Said:How can we differentiate between Speculation vs gambling vs trading with risk ?
We Answered:Some definitions make a difference between speculation and investment, whereby investors are more diligent and have more information than speculators when buying into an asset, such as stocks, bonds, real estate or commodities. As a result, speculation is considered more risky than an investment and is understood as a form of betting.
However, this definition is in my view artificial and does not accurately reflect the reality. More recent research seems to indicate that the performance of an investment is much more driven by randomness than investors are willing to admit. The illusion that to a large extent one can control the outcome of an investment decision is in fact one of the most dangerous flaws in the financial industry.
The illusion of control is often followed by, what psychologists call, 'self-attribution bias': If the result is positive, it is because of the investor's skills. If it is negative, it is the fault of the market, the system, Keynesian economists, free trade or whoever stands in the line of fire.
There are many players in the market, each driven by different reasons for buying or selling a particular asset: there are the growth traders, the value traders, derivative traders, scalpers, market makers and many more. Fundamentally, there are two types of players: investors and traders. The investor's game seems to consist of selective hitchhiking on a freeway that is going only in one direction. Many of these investors don't pay attention because they operate under the assumption, reinforced by a 20 year old bull market that the market will eventually go up again and the safe thing to do is to hold on or even buy more. Making money consists of taking a ride on the back of the bull trend and buying the dips. The merely bold and reckless are turned into market geniuses. This lasts until the market turns into a bear market and as it turns out there is a big pileup of fancy cars (hedge funds) full of drivers who do not know how to deal with the reality of investment risk.
A good trader is aware of the fact that he may not even understand let alone calculate the riskiness of the asset (in many cases mathematical methods for calculating risk are an approximation at best and ignore the actual engine that generates the risk of the asset in the first place). As a result, a successful trader will play with the only variable that is under his full control: the amount of money that he trades. Some of such trading strategies are based on the Kelly formula which was originally used to resolve issues associated with random noise on phone lines. Interesting enough, traders using this strategy have similar trading patterns as professional gamblers!
The conclusion is surprising; the bottom line is: speculation, gambling and trading with risk describe all the same behavior: attempting to make a positive return on an investment under uncertainty. Any differentiation is based on individual perception and is not a reflection of a real difference in the risk / return profile.
Harry Said:How do you get good at trading?
We Answered:Practice my friend, and practice well. Develop a trading strategy (or adopt one that already exists) and FOLLOW IT TO THE LETTER. If you have no experience at all then I highly recommend you paper trade at websites like www.kaching.com or www.updown.com they are free to sign up and paper trade your strategies (i prefer kaching over updown).
After you have a strategy or system in place then you have to follow it exactly, even when it loses money. Over 90% of traders who have strategies or systems never follow it through all the way and lose even more money then they were originally going to if they had followed the system. Good traders follow the system. As for "skill", the skill is overcoming your emotions and not getting attached to your holdings (be it a stock, or a currency or commodity or bond or ETF or w/e). You may love Nike as a brand, but as a stock, are they good? Maybe not but because you love the brand so much you decide to hold on to it and eventually lose money. Not a smart move. That's where the skill comes in. Good luck.
Sharon Said:Can practicing forex technical trading improve ur ability to trading over equities?
We Answered:yes, trading on a simulator will help. it is not the same as live trading and you will probably do better on the simulator than on live data. mostly trading is the same whether it is forex, equities, bonds or commodities. there are some differences however, so you need to understand your individual market as well as you can.
you need to study markets and develop a strategy before you start on the simulator.
Tamara Said:what is the best strategy to trade in option?
We Answered:You losses are always 100% in the case of options.
It's not like stocks where you can actually sell your shares when your losses are just 10%
If you cannot handle a 100% loss then you should stay away from options and move to safer investments like stocks, mutual funds, ETFs and Bonds.
Top 3 Answerer in Business & Finance. (Vote for me)
Milton Said:How do I get into investments/trading, stocks and bonds?
The stocks you want to focus on is consumer staples, consumer discretionary, and healthcare. These are DEFENSIVE stocks that will survive through good and bad times. Most of my positions are in these stocks. Some names include 3M, Procter & Gamble, Kimberly Clark, Exxon Mobil, Walmart, Costco. Everybody's got to eat and wipe their butts regardless of the state of economy. Many of these companies survived through the Great Depression.
That's the benefits. You can sleep at night knowing your money is doing well. There are NO guarantees that you won't lose money. It's just that these stocks are the best. They pay good dividends too.
If you're new to stocks, DON'T DAY TRADE. You'll a rookie in a world of professionals. I tried day-trading with Citigroup and AIG when they were a little bit over $1. I had some luck at first, making about $30 a day but I was way over my head. My luck didn't last long and I had to rethink my strategy.
Besides you can't do much with $100 in the market. Day trading involves A LOT of commissions to the broker. With all the commissions deducted from each trade, you'll be lucky if you only lose half your money.
I would just day trade using Yahoo! Finance. Open a stimulation account, give yourself $100 worth of fake money and play it in the stimulation format. You'll see what I mean by losing money every easily.
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