Given how much they have fallen in the past month, it is tempting to buy these companies at their currently depressed prices.  This is natural, because we ground our concept of “value” according to price.

If a stock falls from $10 to $5, we at some level, still view it as a $10 stock. Thus, the temptation is to buy a stock that has recently fallen, because we believe it should naturally gravitate back to where we perceive its value to be: $10.

Fear of bottom picking

So, what does this have to do with bottom picking? Fear, both your own and the market’s, is closely tied to the way we treat stocks when they fall. The fear of missing out on an ‘easy’ trade might cause you to take a position in a falling stock too early. So, how do you avoid pulling the trigger too early? Look closely at the market’s behaviour: is technical divergence indicating the selling is easing?

Bottom picking is usually an unpleasant habit. But if you can watch the market, and identify when bearishness is in decline, you can be prepared to take a position when the price starts moving in the right direction.

The technical analysis signs of divergence should tell you to get ready, but the price action should tell you when to go. Once again, patience, and control of your emotions, are the keys to successful trading.

Reversal patterns

Reversals are more technical than simply a stock going up after having fallen and so on. First of all let us confirm that there are only two types of price patterns – a continuation pattern and a reversal.

Continuation patterns are temporary corrections or minor pauses in the market before it continues on in the previous direction. Reversals, as the name implies, are a complete about face of the trend that had been in existence.

These are the common traits of all reversals.

Reversals at the bottom take longer to build and the price movements tend to be smaller. Price movements at the turn of a long-term downtrend will tend to be smaller and gradually build over a longer period as the market gets more convinced of a reversal the volume and price will accelerate.

Volume is an important consideration in determining the power of and stage of the trend. Volume should rise as the trend accelerates and should surge at the completion of the pattern.

In the early stages of a trend the volume is not so important, however, as the momentum builds we need to see the volume rise with it – this shows us that there is true depth in the market, there are more and more buyers on the way up or more sellers as the price drops.

When looking at a potential reversal at the bottom of a trend it is imperative that volume spikes. If the prices begin to rise but there is no discernable change in volume then we’re probably not looking at a reversal.

If you are looking for more information on share market education and how to buy shares click on the corresponding links.

Carl Capolingua
Follow Carl on Twitter @CarlCapolingua
Head of Education
Australian Stock Report

Bottom Picking And Reversal Patterns is a post from: Australian Stock Report How To Buy Shares

Most individual trading styles are either a combination of techniques or positional in nature. It’s pretty uncommon though for a trading style to be both.

There are a number of dominant trading styles that occur despite the differences in personality, education, experience and all the various facets that go into the preferred style of a trader. Let’s take a look at the common ones below:

Positional traders

Positional traders take a certain number of positions within a certain price area when the market is looking favourable to their strategy.

These can occur on short term weakness when the long-term trend is a bullish one. A known risk is assumed for a certain profit-taking area, and positions remain in place until profits or losses are taken, or the price action nixes the trading strategy.

Such traders hold their trades from a few weeks to a few months, which is ideal is a trader cannot watch the markets all day, or if the trader wants to avoid entering and exit markets on a frequent basis.

Combinational traders

These traders are known for being less ‘patient’ than positional traders in that they seek immediate results or will exit trades quickly.

These traders usually take on extra orders as the market moves in their favour, thus building up big positions for quick 2 – 6 day price moves. They then take their profits and exit.

Those who favour combinational trading enjoy putting options together into various combinations, resulting in some unique risk/reward profiles.

However, this form of trading may not necessarily be lucrative, as there is no magical combination that allows a trader to consistently produce positive returns.

System traders

These traders follow a trading system discipline whereby a series of analyses are conducted to determine whether to buy or sell based on signals derived from technical or fundamental analysis.

Usually, system traders use technical signals to create a buy or sell decision, when such signals point in a direction that has historically led to a profitable trade.

System traders use either manual or automated systems. The former involves sitting at the computer, searching for signs to buy or sell; the latter revolves around the trader teaching the software what signals to look for and how to interpret them. Automatic systems are good in that it removes the emotional component of trading that can cloud a trader’s judgment.

Method traders

The method trader is different from the system trader in that a method trade can follow a system with no discretion or be traded with discretionary intervention.

A method trade allows a trader the ability to change parameters. The method system also gives full disclosure of all its parameters and the logic behind the trading method.

The method trade isn’t exactly based on rationale, rather it is based on statistics. That is, when a certain pattern or setup occurs, and the trader behaves in a certain manner, the result is statistically in harmony with the probable outcome.

The complete trader

This trader can combine all or parts of the above approaches with an individual, personal style.

But in order to be a complete trader, one must be a master of observation and judgment, and have the ability to take decisive action when it is called for.

Carl Capolingua
Follow Carl on Twitter @CarlCapolingua
Head of Education
Australian Stock Report

If you want to get the latest recommendations and learn more on how to buy shares, access our research and educations files free for 7 days by clicking below.

Which Type Of Trader Are You? is a post from: Australian Stock Report How To Buy Shares

High volume panic buying occurs because people are following price, not fundamentals. And this is a grave mistake for any trader to make!

What happens

Panic buying can be signaled on a stock chart by a sudden spike in volume. The spike is decided and signifies a very sharp increase in volume.

The spike indicates that high volume buying is driven by panic because of a) the short time frame in which buying occurs and b) the lack of a solid fundamental reason for buying.

This form of buying is driven by the fear of not acquiring securities before price rises even further. The problem with this is when can you tell that the price is going to stall?

And even though a panic buyer may get “in” on a trade before price peaks, who’s to say that the investor will be smart enough to get out of the trade before the inevitable fall comes?

In fact, since the panic buyer has bought without thinking in the first place, it follows that they’ll fail to smartly get out in time, too.

Beware the trend?

We’ve all been subject to panic buying before. The term doesn’t just relate to the stock market, but in all forms of buying. If we see that an asset is gaining value, the natural instinct is to buy along with the trend.

That’s where the trader has to be careful, because we are all taught from day one that, when it comes to the stock market, we should follow the trend.

However, a trend should be established and sound if we are to rely upon it. Panic buying doesn’t really signal a trend – it’s too short-term and irrational in nature to constitute the term.

Even charts pooh-pooh the idea of panic buying as a trend, as such events appear as short (though violent) blips on the chart’s radar, so to speak.

Black Friday

One of the most famous examples of panic buying is that of “Black Friday”, also known as the Fisk-Gould Scandal. Black Friday – 24 September, 1869 – occurred when the market crashed after investors tried to corner the gold market unsuccessfully.

A group headed by James Fisk and Jay Gould capitalised on market rumours at the time that the US government would be putting a lot of money into gold. Fisk and Gould used their social connections to get close to Abel Corbin, a financier who supported the pair’s arguments against the government sale of gold. Through Corbin, the men obtained assurance that the government would tip them off when it was about to sell gold.

So Fisk and Gould began buying up massive amounts of gold, sending the price up. Soon, gold was up by around 30%; and then the government’s gold flooded the market. The premium for gold plummeted literally within minutes, as ruined investors tried to sell their holdings. (And, no, culprits Fisk and Gould weren’t financially ruined by their meddling – just everyone else.)

Don’t panic

We realise that events like Black Friday only happen rarely – this, of course, is an extreme example, and not intended to make you see a conspiracy in every instance of panic buying.

The fact is that panic buying swarms the market from time to time and that will probably never change. It’s not often that market-wide panic buying occurs, but panic buying can certainly occur on damaging enough scales, usually based on unfounded market rumours concerning different companies, stocks, commodities, etc.

Panic is driven by human nature; and as the market is driven by human nature, panic will always be part of the market. However, the smart trader will recognize market panic for what it is, and not indulge his or her own tendency to panic.

Carl Capolingua
Follow Carl on Twitter @CarlCapolingua
Head of Education
Australian Stock Report

If you want to get the latest recommendations and learn more on how to buy shares, access our research and educations files free for 7 days by clicking below.

Panic Buying is a post from: Australian Stock Report How To Buy Shares

Does that situation sound all too familiar, perhaps happening too often? Yes, you may have in fact timed your entry perfectly and picked ‘the bottom’ but you failed to take profit and lock in the gains you could have made.

Set targets

One of the most difficult steps in trading is to find a good entry and exit point. It is definitely not easy to do, and those traders who can do this will be finely rewarded.

There are traders who are better at entering a trade but worse at exiting a trade and vice versa. It is your responsibility to define your weaknesses and work on improving them.

However, to become a successful trader, you have to learn to take profits based on for example, pure technical analysis key resistance points or moving average crossovers as a reference for an exit price.

It is important to set a specific price target and make sure you stick with it. However, it does take courage to execute taking profits at the target price. Remember, once the profit is locked in, it cannot be taken away from you.

Sometimes greed is not good

Let’s take for example a situation where you purchased a stock on a breakout of $1.00 and you anticipate the stock to reach up to $1.50 based on a major resistance up ahead.

After several months, your analysis proves correct and the stock rises to $1.50. There are two actions you could take.

When you first made the decision to purchase, you told yourself to sell out at $1.50, locking in an outstanding 50 cent profit given the technical evidence which is one action.

On the other hand, the emotional side of you kicks in and tells you not to close out because you may be limiting your chances of further profit, irrespective of what the logical technical evidence tells you.

This is the second action, to wait and see what will happen with the price. This is where the greed and hope factor kicks in.

You decided with the second action to wait and selling pressure begins to mount, sending the stock price lower over the coming weeks, showing evidence of lower highs and lower lows. You start feeling regret, wishing you could have sold at $1.50, and in hindsight it would have been a good idea.

Once again, taking a profit at an already predetermined set price based on logical technical evidence is easier said than done. So when a target hits, take the courage to sell out at least half the amount and trail up the stop level for the remainder of the shares to lock in a profit, and leave some exposure to catch further potential upside.

Carl Capolingua
Follow Carl on Twitter @CarlCapolingua
Head of Education
Australian Stock Report

If you want to get the latest recommendations and learn more on how to buy shares, access our research and educations files free for 7 days by clicking below.

Locking In Profits is a post from: Australian Stock Report How To Buy Shares

As an exercise, type in the words ‘trading’, ‘profit’ and ‘easy’ into Google and see what comes up.

You will be bombarded with tag lines such as “we will give you a simple strategy which can make you big profits in around 30 minutes per day and anyone can learn it quickly” and “Trading for Profit – Make Money Fast” and “Learn how to create consistent monthly income trading stocks and options like a Wall Street Pro”.

Now, I cannot say that the strategies taught by the people/companies using these tag lines are rubbish, because in truth I have never used them, but what I can say is that in my opinion, such tag lines are misleading and indeed dangerous.

The simple fact of the matter is that trading is a difficult pursuit and that the clear majority of retail traders end up leaving the game with less money than when they started. If it were so easy, everyone would be doing it and everyone would be making money.

So, coming back to expectations, new traders MUST be mindful that the odds are stacked against them and that unless they are very careful when they start out they will lose money.

As hard as it may be to avoid the hype, understand that you are not going to take $10,000 and turn it into $1,000,000, you are not going to be sailing the Whitsundays in your private yacht, and you are not going to be driving your new Ferrari around anytime soon.

To put it in perspective, I give you the example of Warren Buffett. Admittedly Warren is not a trader, he is an investor, but he is widely regarded as the most successful market participant the world has ever seen. I repeat, he is widely regarded as the most successful market participant the world has even seen. In 2006 Forbes reported that over a 40-year period, Buffett had delivered an annual compound return of 22%.

Below is a table highlighting what you would return if you started with $10,000 in your trading account and matched Warren’s returns over a 10-year period;

 
So, as can be seen from the table above, if you start with $10,000 and average 22% return per annum, compounded, at the end of 10-years you will have $73,046.31. As mentioned above, this will not get you a yacht and it will not buy you are Ferrari (unless you are looking for one without an engine!!!)

The point of all of this is not to scare you away from trading. It is simply to keep your expectations in check. I have seen many new traders come to the market thinking they will make huge amounts of money or having spent their winnings before they have even earned them. This is an extremely dangerous attitude. In my experience it is indeed the new traders who are most cautious and who have a healthy fear and respect for the market that tend to achieve success.

If you want to get the latest recommendations and learn more on how to start trading, access our research and educations files free for 7 days by clicking here

Share Trading Expectations is a post from: Australian Stock Report How To Buy Shares

1. What is the process I need to go through in order to actually purchase shares?

and, far more importantly…

2. Which shares should I buy or which companies should I invest in?

The answer to the first question is simple enough. Everyone who wants to purchase shares must either do so

Whatever the method, you will need to set up an account with a broker. Setting up an account is not particularly difficult and most people simply set up an account with their major bank (i.e . Commonwealth Bank customers typically use Comsec).

Most stockbroking firms require you to provide funds before they accept your first order to buy shares. Many brokers will require that you set up a client account or trading account before you can start trading. This can take up to a week to finalise but can usually be done in 24 hours. Many brokers will require you to establish a cash management account with a bank or financial institution, to which they have access. This is to facilitate the transfer of funds to pay for your purchase of shares and to allocate proceeds to you from the sales of shares.

When you place an order to buy or sell shares, you have a choice of two ways to tell your adviser what price you will accept. You can place your order ‘at market’, meaning you will accept a price at or about the market price of the shares at the time you place your order. Alternatively, you can place your order ‘at limit’, and inform your adviser of the highest price you are prepared to pay or the lowest price at which you will sell.

When placing an order with your adviser, make sure you are fully informed and that your order is confirmed. Ask for the current market price and write it down. Then tell your adviser the details of your order (i.e. the amount of shares to be bought or sold and the price at limit or at market). The adviser should then repeat the order back to you.  Internet based stockbroking websites provide confirmation screens for you to double check your order before it is processed.  Your adviser will not necessarily call you as soon as your order has been filled. However, if you place an order very near the current market price, it may be filled quickly.

When you buy shares in companies listed on ASX, you are buying them from investors who currently own them. Shares bought and sold on the sharemarket can only be done so through the services of a stockbroker.

So, all of that is fairly straightforward stuff. It’s a matter of simply dotting your i’s and crossing your t’s and making sure you understand the process.

What is far, far more challenging and of exponentially greater importance is what one should buy, now that they are able to do so.

Which companies one chooses to invest in and when, will of course determine whether or not one makes money or loses money. As such, it is at this point that new entrants to the market should seriously consider the guidance of some professionals.

That might sound costly or time consuming but it really needn’t be. It does not mean that you have to have a dedicated financial planner or full service broker who charges you an arm and a leg for his advice.

It could be as simple as picking up the Financial Review each day and reading about companies, or regularly visiting a free financial website in order to educate yourself about what is affecting the market.

As long as the bodies from which you source information are credible, reliable and trustworthy, you’re on the right track. Those who are prepared to outlay some capital should also consider buying research reports from independent research companies or engaging the help of a seasoned investor.

In short, you MUST conduct research – as much of it as possible. Reading all the information you can on a company will help you to see how all factors affect the price of its shares and subsequently help you determine whether or not to invest.

Once you’ve conducted enough research to satisfy yourself and you’re comfortable with a company, then you can go ahead and buy the shares through your broker. Always remember though, the sharemarket is not a casino. Sound, well reasoned research will trump hopes and dreams every time.

Get started with what share to buy with 7 days of free guidance- click here

Beginners Guide – How To Buy Shares is a post from: Australian Stock Report How To Buy Shares

Why Technical Analysis?

Written by: Chris Conway – Head Of Research & Trading – Australian Stock Report

In simple terms, technical analysis is the study of a financial instrument’s price and volume movements. It contrasts fundamental analysis, which is a study of a company’s earnings, dividends, product innovations, management team, research and development, etc.

Technical analysis discounts all of these factors by examining what investors believe about the aforementioned fundamental factors and, most crucially, whether or not investors/traders have the courage to back up their beliefs with their money. If that sounds like mumbo jumbo, let me put it in perspective for you.

I personally might believe that stock XYZ is a great company with strong earnings and growth potential, solid management, and a fantastic R&D department that has numerous quality projects in the pipeline. In believing all this, I think XYZ should be trading at $10 per share. When I search for XYZ’s price, however, I discover that it is only trading at $3 per share.

Faced with this startling discrepancy between my beliefs about the value of the company (however they are arrived at) and the actual market price, I consider the possibilities;

Faced with these options, I simply decide that I am not confident enough to invest in or trade XYZ. I’m not so arrogant as to think that I am the best fundamental analyst in the world and there is a good chance that I messed up my calculations. Furthermore, and this is the kicker, I don’t believe that markets are that inefficient that they will misprice an instrument so badly.

So, my fundamental analysis has left me in no better a position than I was before.

To continue reading the remainder of this article please click here

What Is Technical Analysis is a post from: Australian Stock Report How To Buy Shares

This half-day forum will deliver the best information you’ll find anywhere for investing in the share market. In addition to this you’ll also enjoy complimentary refreshments and post-event drinks and canapés plus a FREE book – Futures made simple (RRP$29.95), by professional trader and panellist Kel Butcher. Regardless of whether you are an experienced investor or a complete novice this event will be the smartest and most prosperous way to start the New Year.

Participants in our last What’s Hot, What’s Not Forum were provided with a number of investing tips which have proven to be extremely rewarding, see for yourself below.

 
Our team are constantly identifying stocks with big potential, so we’re sending them on the road to show you which stocks are set to sizzle and those set to fizzle. Our team will cover topics that include;

What’s Hot & Whats Not In The Share Market For 2013 is a post from: Australian Stock Report How To Buy Shares

The most popular method for retail investors to gain exposure to gold has been by buying shares in gold miners or gold explorers. This is often a poor method for making money out of gold price movements as gold companies are not only influenced by commodity prices, but also operational issues, management decisions, mining cost pressures, exploration success and development progress. Gold mining companies are also often involved in mining copper and silver (and often other minerals), so you are being exposed to many more factors than just the gold price.

Newcrest Mining (NCM) is a great example. While gold prices have risen almost 400% in the last 10 years, NCM shares have only risen around 250% (plus a little more in dividends). NCM has had a litany of operational problems across several of its key mines and these have seen NCM shares fall even in some times when gold prices have been going up.

The following chart compares gold prices over the last 10 years to four well-known gold companies – NCM, Santa Barbara (SBM), Kingsgate Consolidated (KCN) and Panaust (PNA).

The red line shows the gold price rally over the last 10 years, and how the four gold stocks mentioned have failed to keep up with the commodity. It is our belief that if you want exposure to gold prices, you are best to invest or trade gold directly, rather through gold miners and all their added issues.

So what is going to be best for you?

If you want to invest directly in gold for the long-term, you can go down the ‘old school route’ and buy a gold bar. As simple as this seems, it’s probably not the best solution as you will pay more than market prices, you have to find (and possibly pay) for somewhere to store it and there are risks such as it being stolen.

If you would like to trade gold prices actively, then the best solution is likely to be through a CFD broker, such as IG Markets. IG Markets allows traders to trade gold positions from as little as 10 ounces, and on margin of only 1%. So, you can trade 10 ounces of gold (worth around $17,000 in late 2012) for only $170. And for experienced traders, it also offers the advantage of placing stop losses and profit targets.

In our opinion, the best way to invest in gold over the long term would be through a gold ETF. An ETF (Exchange Traded Fund) is like a managed fund that is tradable on the ASX. Essentially, you are investing in a fund that invests in gold. The gold ETF listed on the ASX trades under the ticker GOLD. Each unit represent one-tenth of an ounce, so you can invest in as little as $170 worth of gold.

Whatever option you choose, remember that investing in gold miners may not be the best choice for making money out of the gold market.

Buying Gold Stocks Or Buying Gold Bullion? is a post from: Australian Stock Report How To Buy Shares

The Education Multimedia program has been designed with both the beginner and experienced trader and investor in mind.

Learn to Trade @ Home allows you to access education material, review workshop notes and watch live video examples. When the time is right we’ll even help you open your trading account and help you place your first trade, just to make sure that you are comfortable with what you have learnt.

View the content as many times as you like in your home, office or on the road. Interact with all the online education support tools and access our support forum and “Ask the Presenters” to ensure that any of your questions are answered.

View the video below and register your interest.

Learn to Trade @ Home covers 8 Modules, incorporating the following topics:

Australian Stock Report Launches Learn to Trade @ Home is a post from: Australian Stock Report How To Buy Shares