Earnings Release- Most stocks will see a great deal of activity before and after their earnings release. All listed companies release their earnings every three months. Generally companies that are expected to report strong earnings will see some huge buying activity starting a few days before the actual announcement and vice versa. The stock price will see some big changes on the day of the actual announcement. For example, let us say that Banco do Brasil is about to report its earnings in a week’s time. Now, if the street consensus is for the company to report strong earnings, then it may be good idea to build position in the stock before the actual earnings announcement. If the company does report strong earnings, its stock will see some price appreciation on the day of the announcement, giving you a chance to make a decent return in very short period of time.

News of a Possible Deal- A company’s stock can see some huge activity and price movement, if the market anticipates a potential merger or an acquisition. In this case, both, the company that investors speculate will be acquired and the company that investors speculate will make the acquisition will see some price movements. Once a deal is announced, the stock of the company that will be acquired, generally, sees a big intra-day jump.

Company Related News- Apart from earnings release and M&A, other company related news such as the acquisition of a new client or the loss of an existing client, expansion into new markets etc also have an impact a stock’s price.

Competitor News- A company’s stock may also move on any news or development relating to its competitors. For example, if Vale S.A reports a positive quarter, this will have a positive impact on the stocks of other companies in the same sector. This happens because investors believe that if company in a particular sector has reported a positive quarter, other companies would also have had a positive quarter.

Economic Data- The release of economic data such as GDP, unemployment data, retail sales figures, consumer confidence etc will also have an impact on a stock. For example, if there is a release of weak data for retail sales in a particular month, all retail stocks will likely fall once the announcement is made.

So we have here some of the factors that can impact the price of stock. It is very important that active investors keep an eye on these factors all the time.

Straddle involves buying and selling a combination of one at or near the money call option and one at or near the money put option, having same maturity. This position is taken by stock traders who are uncertain about the direction of the stock trading.

A Long position straddle is taken by buying a combination of at-the-money call and put options, with the same strike price and maturity. Similarly, a Short position straddle is taken by selling a combination of at-the-money call and put options, with the same strike price and maturity. Long straddle position is taken with the expectation that the market will move whichever way but will be more volatile and therefore will move more substantially. On the contrary, Short straddle position is taken with the expectation that the market will be range bound and therefore will move marginally I either direction.

Let us understand the risk return profiles of Straddle holders with the help of an example:

Let’s assume that scrip A is trading in the cash market at $10. Mr. X is not sure which direction the market price will move. However he is of the opinion that the market will be very volatile and will more drastically in either direction. Therefore he takes a Long straddle position. For this he will buy one call option and one put option at the strike price of $10 by paying a premium of 40 cents each that is a total cost of 80 cents for buying both the options.

Therefore is clear from the above that within the underlying price zone of $9.2 and $10.8, the straddle buyer would incur loss depending on the actual underlying price. These two prices originate from the premium paid of 80 cents, which is the sunk cost for the straddle buyer.

Similarly the straddle seller in the above example will have a limited profit of 80 cents in the price range of $9.2 and $10.8. These two prices originate from the premium received of 80 cents, which is the only profit for the straddle seller.

These are some of the basics of Stock trading . Apart from these, it is very important that you have sound knowledge of the macro environment and keep an eye on economic indicators that can have an impact on the market.

Let us first begin with the trading strategies you as a trader can employ. As a Stock trader, you have two options when it comes to trading in securities, you can either go long or short. Going long on a stock means that you buy a stock at price x and expect it to appreciate to a certain level at which point you may consider selling. Nothing very complicated here.

Going short on a stock is however a completely different case. Let us just first understand what going short on a stock means. When you go long on a stock, you buy it and wait for price to appreciate, however, when you short a stock, you borrow a stock, this is very important you borrow and not buy, sell it in the market at price x. Now you wait for the price to fall to a certain price and when it does you buy back the stock and return it to the owner from whom you borrowed it. The profit in this trade being the difference between the price you sold the borrowed stock at and price at which you bought it back.

So when do you go long and when do you go short on a stock? You go long on a stock when you think that the stock is likely to appreciate from its current price level. Here you have two ways of finding out if a stock is undervalued or is likely to go up. The first way is to conduct a fundamental analysis. The second way is to conduct a technical analysis.

You go short on a stock when you think that the stock is overvalued and is likely to fall in the near future. Once you have identified such a stock, you can borrow the stock from your broker. Generally, he will charge you some interest for the period you borrow the stock. Therefore, it is very important that you short only those stocks that you are convinced will drop in the near future because holding them for a long time will increase your costs, which may not be ideal since a lot of time you will be trading on tight margin. Once you have borrowed a stock, you sell it in the market and wait for the price to fall. Once the price falls to the anticipated level, you buy back the stock and return to the owner. Short selling is, however, a very risky strategy and should only be implemented if you are convinced that the price of a stock will fall. You can also start your stock investments in penny stocks to better understand the market.

As a trader, you can sometime even go long and short on the same stock. This is great way to hedge your bet and many traders use this technique. You can also hedge using options.

Developing economies are going through a very strong growth phase at the moment. The latest estimates suggest that economies like Brazil have a GDP growth that will be 7% in 2010. The growth in the economy has positively impacted the Brazilian stock market, as well as other developing markets worldwide. In this article, we will look at why understanding key macroeconomic concepts can be very beneficial when investing in stock markets.

Macroeconomics is a field in economics that analyzes the behavior of the economy as a whole. Macroeconomics involves concepts such as unemployment, national income, growth rate, GDP, inflation and interest rates.

The definition of macroeconomics in itself shows why it is important for stock market investors to understand it and apply it while buying stocks and penny stocks. Each of the concepts above has an impact on the market. The concepts are not only important in finding out the state of economy but also in figuring out the future direction of the market.

The study of macroeconomics enables investors to understand the different cycles in an economy. Based on this, investors can decide where they want to put their money. For example, when macroeconomic indicators predict signs of growth, investors can look to invest in the technology sector, which generally does well during the growth phase of an economy. If investors believe that the economy is headed for a slowdown, they can look to invest in sectors such as utilities and consumer goods.

Macroeconomics can also help investors in predicting market bubbles. If the boom in the stock market is not justified by macroeconomic fundamentals then it is very likely that there is an unsustainable bubble in market, which will burst sooner or later.

The importance of macroeconomics in making investment decisions is very high. Understanding macroeconomic variables will take investors a long way in making better investment decisions.

Sharpe Ratio

Sharpe Ratio is one of the most popular risk/reward measures when it comes to measuring the performance of your portfolio. Sharpe ratio allows you to calculate how well you have been compensated for the additional risk that you have taken in your portfolio. Basically, Sharpe ratio gives you the risk-adjusted return. A higher Sharpe ratio indicates a better performance than a lower Sharpe ratio. To calculate the Sharpe ratio, you need the expected return of the risk asset, the risk-free rate and the standard deviation of the risky asset.

The risk free rate is generally the return on short-term government bonds, which are considered the safest form of investment. So suppose we have two risk assets, Asset A and Asset B. The expected return on Asset A is 15% and on Asset B is 20%. The risk free rate is 5% and the standard deviation is 5% and 10% for Asset A and Asset B, respectively. Now as per the formula to calculate, the Sharpe ratio, you will find the excess return that the risk asset generates, compared with the risk free rate and then divide it by the standard deviation of the risk asset. So in our example, we divide the excess return of Asset A, which is 10%, by the standard deviation of Asset A, which is 5%. The Sharpe ratio or the risk adjusted return for Asset A is (15-5)/5 = 2. Similarly, the Sharpe ratio or risk adjusted return for Asset B is 1.5.

So there we have it. When we had only the returns of Asset A and Asset B, we would have picked Asset B. However, we did not know the additional risk we were taking to hold Asset B. With Sharpe ratio, we could quantify risk and calculate the risk adjusted return. And based on the Sharpe, we will chose Asset A because we now know that for the additional risk that we are taking Asset A compensates us better than Asset B.

Performance measurements such as Sharpe ratio are very useful when making your investment decision. As an investor, it is not just important for you to know how much return an asset generates, but how much risk you are taking to generate that return. Sharpe ratio is one of simplest tool to find that out.

Value investors always look for stocks that are trading below their intrinsic value. And most value investors will tell you that the best time to look for such stocks is during a bear market. This is because participants in the markets may not always act rationally. This results in investors dumping some genuinely good stocks during market downturn. These stocks would probably have strong fundamentals but investors sell them as the market sentiment is low. However, this offers a good buying opportunity. Because markets work in a cycle, long term investors can get some good bargains during a downturn and once the markets turnaround, which invariably happens, they can make a decent return.

Of course, there will occasions when a particular stock you are holding is seeing some huge sell-off. Again this may only be because the market sentiment is bearish and the sell-off is not justified based on the stock’s fundamentals. In instances where you are confident that the sell-off is not justified, it is good idea to hold on to your investments and in fact even increase your stake since you may get a good bargain. Eventually when the market sentiment turns bullish, there is every chance that you will make a handsome return.
Another way you can make money in a falling market is by short selling. Although this strategy is a little risky, there are chances of generating some solid returns in a short time. However, short selling strategy should only be employed by seasoned investors because of the risks associated with it.
In the end, you have to be patient in a bear market. Markets work in a cycle. Eventually a downturn will be followed by frenzying buying activity. In order to make money in a bear market, you have to make buy and sell decisions that are justified fundamentally.

So why do investors make such mistakes tine and again? Although difficult to put a finger on anyone point, one reason is that most investors do not conduct a proper research before they invest. In this article, we will look at the ways you can conduct research on a stock.

If you are a long-term investor then ideally you should do a fundamental analysis of the company before you invest in its stock. So what things should you look at when you do a fundamental analysis? The best place to start is the company’s balance sheet. Here are there a lot of indicators that can help you in making your investment decision. In the balance sheet, if you see that the company has a very debt to equity ratio then it may be a risky investment. The other thing that you should look at is the company’s cash position. If the company has strong cash position then it may be a safe investment. From balance sheet, you can move to the company’s cash flow and see how much free cash flow the company generates. Apart from these, the other things that you need to look at when you conduct fundamental analysis are the company’s competitive positioning, its future growth strategy, its product pipeline and the macro environment.

Although fundamental analysis is more useful in long-term investing, you can use this type analysis for short-term investments as well.

Another way to conduct analysis on a stock is through technical indicators. In this type of analysis, we are not really looking at the company’s business, financials etc but at the stock’s movements. This type of analysis is used more often by daytraders and short-term investors, who look to profit from daily swings in stock. In technical analysis, one of the things that you can look at is the stock’s support and resistance level. The support and resistance level help traders and investors in deciding at what level they should buy or sell the stock. If the stock is close to its support level then it is an indication to buy and if it is close to its resistance level then it is an indication to sell. The stock’s 50-day, 100-day and 200-day moving averages can also be helpful in making buy or sell decisions. The stock’s MACD is also very good indicator.

With a little bit of research, you as an investor can go long way in investing.

In recessionary times, consumers will avoid making purchases of items that are considered a luxury. This will include high technology gadgets, cars and other such items. However, consumers will not make any cuts in any spending that is deemed a necessity. This will include food items, utilities. In recessionary times, go for companies that are dealing in products or services that are deemed a necessity. Some sectors that you can look into during recessionary times are Healthcare, Utilities and Consumer Goods/Non Cyclical.

One very important investing rule to remember during recessionary times is to not overpay for stocks. In such times, you should always invest in stocks that are trading below their tangible book value.

Another important rule is to avoid stocks of companies that have been consistently reporting bad news. Avoid such stocks even if you feel that the stock is undervalued. This is because during a recession the bad news may continue. So even if you bought the stock at a bargain, the continued bad news can see the stock sinking even lower.

Penny stocks often have better investment potential than large caps during recession. Penny stocks do not have strong correlation to the broad market. More important, a single news item – granting of a patent, a new product in the pipeline, a good SEC filing – can completely revamp the outlook of a penny stock.

Investing in stocks is a risky business. In recessionary times, the risk increases even more. However, if you are patient and disciplined, you can survive such down periods and even come out on top.

Every new investor who begins trading is advised to buy those stocks that are from well-known companies to minimize their risk. They should take proper advice and should have self-control and understand the market thoroughly. As there are many risks involved in every stock market transaction, new traders should be careful in trading until they learn the tricks of the market. Once they acquire confidence then they can increase their portfolio a little more, and try day trading more stocks.

In case you are new to day trading, then it is important to understand the activities of a day trader and know how different they are from a trend trader or swing trader. Theoretically, day trading means a practice of buying and selling shares, within the end of day. This means that a day trader would buy stocks with the idea of selling them as soon as possible to make profit. Although the day trader buys different kinds of stocks throughout the day, their goal is to sell them all by the end of the day, even if it incurs a loss.

To become a successful day trader, you should know how to pick stocks during the day that are different from the longer-term swing trades and trend trades and have to understand the strategies of day trading that would stop you from buying unsellable stocks at the end of the day. All day traders have to trade in the direction of the current trend, and buy those stocks that are at the beginning of the trend, and sell them as soon as they notice the growth trend is beginning to weaken.

It is risky to trade as per the chart activity; but many investors pick stocks based on insider’s information, stock market news, and rumors. Every investor should acquire self-confidence in making the trade on a split second’s notice. This is not suitable for new traders as it is very dicey.

Penny Stocks are slightly different from other stocks and are traded below $5. If you are planning to invest in penny stocks then do subscribe to free penny stock newsletter offered by Penny Stock Pick Alert. We keep track of those penny stocks which are poised to make huge gains.

If you are fully aware of penny stock trading, then opt for full service penny stockbroker as they give individual attention in discussing your investment. They give their advice on what to buy and when to sell. The only drawback is that many full service brokers charge as high as $100 per trade.

Important things to look in an online broker

Brokerage charges are the charges levied by the online broker for buying or selling stocks through the online account. The rates are usually based on a sliding scale. The more stocks you purchase, the lesser the “cost per unit.” This can differ and are negotiable for larger purchases. Choose the broker as per your budget.

Account fees – Avoid brokers who charge hidden costs within their terms and conditions.

Phone connections – Online services can be affected by interruptions in broadband services, power outages, and computer problems that cause delays in accessing information at the critical time. Therefore, it is important to have telephonic access to your online broker.

Accessibility of money should be instant even though the broker holds it in a cash account. Most brokers have a cash account linked to the trading account. Have a MasterCard account that can help you get money anytime through an ATM or make a payment using a MasterCard. There are many options and good online brokers would provide all these options for successful trading.

Additional benefits – Look for brokers who give you extra incentives to open an account with them. Some of them provide a limited free brokerage period while others provide free reports on penny stocks. These can help you setup a lucrative trading account.