1. Wait until the trade comes to you, do not force the trade. 2. Traders employ
strategies that result in following the move up with an exit that is activated
on a pre-determined turn down for a bullish play triggers. 3. Successful Traders
do not keep their eyes glued to the money. Instead they concentrate on making
good trade. 4. Successful Trader emotions should be calm, comfortable with self,
logical, patient, and realistic. Understanding Penny Stocks Chart The stock
market can be can be very intimidating to the novice investor, especially in
times of high volatility. Learning the basic skills in penny stock trading, such
as how to read stock market quotes is very important. This is because once you
have this basic skill; it will be a lot easier and quicker to understand the
more complex areas of penny stocks trading. A penny stock chart shows the
changes in the price of a particular stock. The patterns in this chart are
helpful to a person who wants to make the right move, whether to buy or sell,
when investing in penny stocks. A penny stock chart can relay different kinds of
information. There are charts which center on the price modifications of the
stock. Other charts concentrate on a specific penny stock's moving average. It
is imperative to monitor and check, on a daily basis, the prices and volume
charts of the penny stocks that you intend to buy and trade. You will be
surprised to discover how frequently a stock trading pattern repeats itself.
Studying price and volume charts that go back as far as three years ago may show
vital patterns. Familiarizing yourself with the way penny stocks have been
traded in the past may be beneficial as well, as this will give you a good feel
of the way the stock might move in the near future. A guarantee of a pattern
repeating itself is not 100% sure, but it does happen, and when it does it may
mean instant profit for your investment. There are different items to look for
and analyze in a penny stock chart. The support level for a penny stock points
out the lowest price drop in a certain period. On the other hand, the resistance
level of a penny stock is the point in the chart wherein the price is much
greater than the demand. It is also important to look at the trading range of a
penny stock as shown in the chart. A trading range is a price range at which the
value of a penny stock remains inactive for an extensive period of time. Once
the stock chart pattern goes beyond the highest point of this range, it may
possibly set a new resistance level. Conversely, if it goes lower than the
bottom of the price range, it is possible that the penny stock is on its way to
establishing a new support level. The following steps may help to understand
Penny Stock Charts 1. The volume bar The volume of the stock is indicated by two
vertical lines in the charts. One is at the bottom and the other is located a
bit above it. Often there is a line at the lowermost part of the chart that
corresponds to the one above. The lower bar is the volume of the stocks at a
given point. 2. The High and Low Value Indicator Look out for any trend lines
within the penny stocks chart patterns. Trend lines may possibly designate the
future prices of the penny stocks. If the trend line is going upward, it may be
a sign of future growth, while decline on the other hand might signify the
opposite. It is also imperative to establish a comparison trend line as it will
help determine if stocks are following the market and would have nothing to do
with future price indicators. 3. The Open and Close Marker Some stock trading
charts have short and stout bars with a thin line inside it. This thin line is
called wick or tail. This is where the name candle stick is derived. The thin
line or the wick signifies the low and high values, as explained above. The fat
line, which also looks like a short bar covering the thin line, indicates the
open and close values. To differentiate the open from the close, the bar is
shaded. If it is filled with black, the close was lower than the open, so the
top of the body indicates the open and the bottom marks the close. If the body
is filled with white the close was higher than the open, so the top shows the
closing point and the bottom is the open. The shadows are thin lines that extend
above and below the body to show the range between the days's high and low.
Understanding Technical Analysis Technical analysis can be defined a security
analysis to predict the future directions based on the price and data available
from the past stock performance. Technical analysis employs various
sophisticated models and trading rules based on price and volume transformations
like RSI, Moving Average etc. Technical analysis is widely used among traders
and financial professionals, and is very often used by active day traders,
market makers, and pit traders. Technical analysts believe that prices trend
directionally, i.e., up, down, or sideways (flat) or some combination. Technical
analysts believe that investors collectively repeat the behavior of the
investors that preceded them. Sector Diversification Diversification is a
technique to minimize the risk by investing in multiple asset classes in a
single portfolio. Multiple asset classes means different types of investment
like stocks, bonds, derivatives, warrants, gold certificates and real estate.
The main motive of diversification is to reduce the risk and yield a higher
return compared to other portfolio that invests in one stock. Diversification
is a method to smooth out the volatility of a
portfolio. To create a
diversified portfolio various factors need to be considered: • Time
horizon • Risk Tolerance • Investment Goals • Level of
Investment Experience Example For example, there are two different portfolio of
equivalent investment money. The first portfolio constitutes of real estate and
technology stocks and the second portfolio comprises of high yield bonds,
retail, technology and banking stocks. The first portfolio may provide high
returns in a booming economy while create huge losses if the technology sector
is in severe downturn phase. However, the second portfolio may not provide as
good return as the previous portfolio in a booming economy. The second portfolio
is safe and less prone to big money losses in a specific sector downturn. If the
technology sector is hit badly, the retail or the banking stocks could
compensate for that loss and even produce larger returns. In addition, the high
yield bond is a sure way of gaining return in a diversified portfolio versus the
previous one. Benefits An investor can derive benefits from a diversified
portfolio only if the securities have low degree of correlation with each other.
They should not be perfectly correlated to each other. Diversification is very
beneficial in the long run as it minimizes both the upside and downside
potential risk. Investment in different asset classes responds differently to
the same market conditions. This means if one part of a diversified portfolio
does weakly it can be offset by other investments that do relatively better. A
diversified portfolio performs consistently under a wide range of economic
conditions. A well-diversified portfolio helps to limit taxes such as capital
gain tax or income tax Beta Diversification To get a better understanding of
beta diversification, it is essential to understand the concept of beta. Beta is
an indicator that describes the relation between the movement of a stock price
to a specific market movement. A stock with a Beta of 0 indicates its price has
no correlation with the market or it moves independently irrespective of the
market movement. A stock with a beta of 1 or positive beta means share price is
moving in line with the market. A negative beta indicates the price of stock
declines as the market moves up. Therefore, negative beta implies inverse
relation between the stock and market movement. Diversification is an important
tool to minimize risk in a portfolio. Mixing disparate investments so that the
upward movements of some securities will offset the downward movement of others
during different time period creates a well-diversified portfolio. Beta
diversification in a portfolio means securities that have different beta or low
degree of correlation to each other. In other words, beta diversification means
investment in securities whose returns do not move at the same time. Therefore,
an investor should maintain a portfolio that has different beta to protect the
price of various securities not to decrease at the same time period. Example For
example, there are two situations, the first situation market is up and in the
second situation market is down. In the first situation, some of the stocks of a
particular portfolio are performing in tandem with the market and others may
reflect a downward trend. In the second situation where the market is down the
above securities will reflect the opposite movement. Hence, a beta diversified
portfolio helps to stabilize the return in both the upward and downward movement
market. Benefits • Beta diversification helps to minimize unsystematic
risk of a portfolio. • A beta-diversified portfolio helps to gain
maximum return by investing in high beta assets with low beta assets.
