Let’s not waste time discussing the dreamers and ignoramuses. Rather, lets look at the fellow who knows what it takes and is ready to work for it. Let’s look at the fellow who sincerely wants to learn all you should know about this business but is unable or unwilling to get a formal education for it. It is often argued that one is able to learn about trading by reading books and obtaining information through the internet.

So if it is that simple, why do so many still fail? The reply is just as simple; Learning the wrong thing without realizing it.

Most of the books available, either at bookshops or at the library are about INVESTING and very few are actually about TRADING. So what happens is that most people don’t realize the real difference between investing and trading and will assume the two to be the same with slight variances. That could not be farther from the truth.

Investing is less difficult to learn – like learning to drive a Honda Jazz. It doesn’t take much to learn it and it is easily understood and put into practice without much difficulty. The trick thereafter is not to crash.

Trading , however, is an extremely different skill and mind set. It is akin to driving a Formula 1 car. Unlike the Honda where the manual version has the clutch on the left foot, the F1 car’s clutch is an extremely different mechanism and is controlled by the right hand. Unlike the Honda which packs less than 80bhp, the F1 car stacks up an earth-shattering 900 bhp which, in untrained and inexperienced hands, could end up killing the driver.

There is so much more to trading than investing. The skills involved are very different, the psychology is worlds apart, the knowledge needed requires way more weeks and even months to acquire and the quantity of research needed to become good investor is nothing compared to the daily research and monitoring the trader is required to do to survive the market day in and day out. Where investing requires minimum practice, trading demands never ending hours of practice time to hone the skill. The financial management skills are also extremely different in that the investor protects his capital by how much he invests while the trader requires a different skill set to manage his finances – its called “cutting loss” – something easier said than done.

So without realizing it, most beginners will pick up an investment book or visit sites hosted by investors or have contributing members who are investors and assume that all that knowledge gained will stand him in good stead as a trader.

And when things don’t work out, it gets confusing. The common query that follows is always, “Why is it others can make it but I can’t?“

You can’t blame the poor fellow because there isn’t much literature on this subject and even some so-called gurus don’t know the difference. But all you’ve got to do to know that this is true is to just look at Wall Street – how come the investors don’t have to be on the floor of the exchange everyday while the ones on the floor everyday are known as traders?

Knowledge … a bit of it can kill you quickly while the wrong kind will slowly bleed you to death.

Now we look at a controversial reason why most traders fail – The Attitude

It starts right in the beginning where most newcomers think that the market can be quite a get-rich-quick plan. This is akin to thinking that the market is like a casino. Consider this fact – the house ALWAYS wins. So if you treat the market like a casino, it will cause you to feel like most gamblers do. Gamblers always win a few but lose a lot.

Some trade like the market is a system to be beaten. Such traders ought to give themselves more credit. You’re insulting yourself for those who have this attitude. To think that the market is a system is to include yourself in that system. Therefore, the system you are looking to beat includes you. Give yourself some respect and while you’re doing that, give the market the same respect – we’re not robots in the market and we’re definitely not part of a system. We’re humans that are driven by emotions. The market is an emotional place, not mathematical. You cannot have a system to beat an emotion because there is no math that can factor emotional irrationality.

Then we have those that don’t realize how unscrupulous the market is. Their ignorance is evident when they correctly assume the market is not that clear cut but will still buy into the hype. What is obvious would be that the market is made up of a myriad of people especially those who will do anything to get an edge, even through illegal and criminal means. It’s also full of experts who have spent years in Harvard and Princeton and then more years with established institutions such as Goldman Sachs, Morgan Stanley and so on. They have hugely experienced mentors to guide them to become generation x of world class traders. These people have so much leverage and influence on market sentiment and to make their advantage more unfair, they collude with their competitive counterparts so that you can corner the larger market for their own gains. With such power, how is a three-day workshop graduate expected to beat the odds? Yet increasingly more look past the obvious and end up throwing their hard earned cash to the power-brokers.

These are also those who buy into the concept that the market can be analyzed fundamentally with valuations. Such valuations do aid in reducing risk. But that is an investment-styled strategy and not suited for trading. Trading is way faster and seldom allows the security time to flex its fundamental muscles before the next gyration takes out the profits. Read the previous lesson to know the difference between the investor and the trader and you’ll have a clearer understanding of this.

Others rely purely on technical analysis. I can’t deny that I base lots of my analysis on technicals. But that is not the end all. It just takes one bit of macroeconomic news and all that technical analysis is out the window faster than you can say “Cut loss!” TA is great as long as there isn’t any news to upset the prevailing sentiment if volumes don’t dip. But the market is never so generous. So ultimately, TA is only a “best guess” … and contrary to common belief, TA is not the best guess of when to buy or sell – rather it is most reliable when used to guess the best potential against the least risk or the most risk against unfavorable potential.

Then there are those who believe that a good tip from a trader is the key to easy money without putting in any effort. For this, I have only one analogy; Would you take a heap of hard-earned money from your wallet and give it to someone you hardly know and expect to get all of it back after a few weeks? And if that person was trustworthy, would you still do it? And do you really believe that it will come back with more than you gave him? If in life we don’t make such practices, then the same principles should be applied in the financial world and first and foremost, in the market. The desire to get-rich-quick-and-easy makes simple people do really silly things with their money. Which is always only after getting burned that you hear those famous last words, “ … if only I knew …“. Yes, you’ve heard the horror stories time and again and so has everyone else. Yet people continue to write new chapters into this horror story ever so frequently … all in the name of greed, gluttony and sloth.

The financial markets are like an office block in a busy business district. The people who go to work there are serious professionals who take the things they’re doing very seriously. They are highly experienced, very influential and extremely powerful. It is also like a hospital where the surgeons, doctors and nurses are highly qualified and trained professionals. People put their life in their hands everyday.

Then one day, some over-zealous graduate with three days of workshop knowledge comes into this office block and expects to beat everyone out of their jobs. Or this hyped-up graduate with only three days of experience comes into the hospital and expects everyone to trust him with their former lifestyle.

Okay, maybe that’s a tiny stretch but the implications are no different. Every professional takes years to study his craft and then spends more years honing the skills with hours and hours of practice and hard work. There is no easy path to success and you will see failures along the way. The financial market is to be respected and feared. There is no other attitude except humility that will help a trader survive it.

It is stated that more than 80% of the market is made up of those who lose and less than 20% are winners. The truth is that those statistics apply to any profession – how many top rated lawyers, engineers, surgeons, etc are there when compared to many also-rans?

The big money is always at the very top where there are few who have it while the small money is at the end where most have to fight for it. And there are only two ways to be at the top – either you are already there or work hard to get there.

By Conrad

Numerous events had an effect on yesterday’s session, driving Wall Street and the major currency pairs higher. The Bank of Australia surprised the markets, increasing their central rate from 3% to 3.25%. Gold jumped above the $1000 mark and rumors that the Dollar might lose its status as a major currency in the oil trade, helped to push the indices higher.  The S&P500 closed the session with a gain of 1.37%, while the Nasdaq finished higher by 1.77%.

The trading day started on a positive note, as the RBA mentioned that they expect the Australian economy to return to a normal state during 2010. The bank took certain measures against future inflation, raising their central bank rate.  The RBA finished their speech by mentioning that with inflation now around stable levels and growth likely to be close to trend over the year ahead, they feel that it is now time to start to remove the stimulus provided by monetary policy from the markets.

Even though all the Australian Dollar crosses felt an impact from the bank’s decision the AUD/USD showed the most movement, continuing higher within its recent trend. After bouncing off trend line support last week, the AUD/USD climbed during yesterday’s session reaching the middle of its current channel.

Gold Climbs to new Levels.

The buzz of the day was Gold, reaching an intraday high of $1042.32. Already during mid-day, European hours, this hot commodity broke its prior minor range and headed higher. Within a matter of a couple of hours, Gold broke all resistance levels and climbed higher. Gold finished the day around its highs and held at $1040 during the overnight session.

From a technical point of view Gold has now breached its prior high formed in early 2008. When taking a glance at the weekly chart below one can see that even though this commodity is trading around high levels, indicators aren’t yet pointing yet to an overbought situation. According to some analysts including J.P Morgan, Gold could see higher levels in months to come due to the current situation. With the Fed expected to keep interest rates at low levels, investors are now heading out of the U.S Dollar, rushing to counterparts, which include Gold.

Market Data to Watch Out For

Looking forward, today’s session will be characterized by investors preparing for tomorrow’s interest rate decision. Even though the markets are expecting a ‘no change’ statement from both the banks, recent actions by the RBA have shocked traders, showing them that anything can happen.

GDP is scheduled to be released shortly in Europe and is expected to show a -0.1% figure. In addition, Australia will continue to shake the market, releasing their employment figures later on during the trading day.

The Crisis of Credit Visualized

And then we have Steve Forbes from September last year with a reminder about the importance of a strong USD and what, in my opinion, is the only way to get the U.S. back to greatness; Value Adding and Innovation …

So now that you know the crux of the problem, this is where we are, one year later …

And finally, for your viewing pleasure, on the eve of two of the worst market crashes in history, let’s go back 80 years with two series of documentaries to see how the market destroyed so many lives then and how close the similarities are to our current time …

1929 – The Great Wall Street Crash & Great Depression: Part 1 of 6

1929 – The Great Wall Street Crash & Great Depression: Part 2 of 6

1929 – The Great Wall Street Crash & Great Depression: Part 3 of 6

1929 – The Great Wall Street Crash & Great Depression: Part 4 of 6

1929 – The Great Wall Street Crash & Great Depression: Part 5 of 6

1929 – The Great Wall Street Crash & Great Depression: Part 6 of 6

Here’s the other series on the same subject:

1929 Stock Market Crash Part 1 of 5

1929 Stock Market Crash Part 2 of 5

1929 Stock Market Crash Part 3 of 5

1929 Stock Market Crash Part 4 of 5

1929 Stock Market Crash Part 5 of 5

So that you don’t leave my blog uninspired and unmotivated, take this last video with you … if anyone knows the value of failure, I do and I can appreciate this message. Have a great day!!

[Conrad Alvin Lim]

The price relative can be used to show relative strength or relative weakness. While the S&P 500 moved to new lows in March, Broadcom (BRCM) held support around 16 from mid January to early March. As a result of relative strength, the price relative (BRCM:$SPX ratio) surged higher in February and March. Relative strength preceded absolute strength as BRCM surged from 16 to 24. Note: This is an educational post featuring a technical analysis technique.

Market Analysis : Week 34/09

At their core, most price patterns are combinations of several trendlines. The simplest pattern is the Rectangle Pattern.

In a rectangle pattern, price moves between two horizontal lines of support and resistance. In order to qualify as a rectangle pattern, both support and resistance lines must be touched at least twice. Rectangle patterns have a narrow or wide price range and last from days to months. The pattern ends once the line of support or resistance is broken.

A price break through resistance may be anticipated if volume expands when prices rise and contracts when prices fall within the rectangle pattern. An imminent price break above resistance may exist if prices don’t fall to the support line before rising again.

A price break through support may be anticipated if volume expands when prices fall and contracts when prices rise within the rectangle pattern. An imminent price break below support may exist if prices don’t rise to the resistance line before falling again.

As illustrated above, as soon as the pattern breaks down, the top (or bottom) of the rectangle changes into a support (or resistance) line for the stock.

Rectangle patterns clearly show the battle between bulls and bears with the bulls repeatedly buying when prices hit the support level and bears repeatedly selling when prices hit the resistance level. At some point, one of those groups will “win” and prices will breakout of the pattern. The longer prices have been in the pattern then the larger the “breakout move” will be and the more significant the new support/resistance line becomes.

Another common price pattern is the Triangle Pattern. The triangle pattern is very similar to the rectangle, except that the upper and/or lower trendlines that define the pattern are sloped instead of horizontal.

Go back to the rectangle diagram above and imagine that bearish sentiment about the stock was growing over time. What would that look like? Well, in that case, more and more sellers would not wait for prices to return to the level of the red resistance line before selling. Instead, they would sell sooner. That would cause the red resistance line to become a downward trendline forming a Descending Triangle Pattern.

Alternately, what if buyers started getting impatient and started buying before the stock got back to its green support line? Then a Rising Triangle Pattern would form.

And what if both the bulls became more bullish while at the same time, the bears became more bearish? Then both the red and green lines would be slanted and we’d have a Symmetric Triangle Pattern.

By the way, triangle patterns are also referred to as “coils.” Can you see why? As the upper and lower parts of the triangle get closer together, the battle between the bulls and the bears gets more intense and the suspense builds. Obviously, at some point, prices are going to move outside of the triangle’s boundaries – but will they move higher or lower? Psychological energy coils up like a spring inside of the triangle and the closer the lines get, the bigger the inevitable breakout will be.

As you probably guessed, the diagrams above are not realistic. Typically, triangle patterns have a breakout well before the apex of the triangle is reached. It is the direction of the breakout that is the key question when watching a triangle form. Will the bulls win? Will the bears win?

A couple of clues can be found in the price action that precedes the triangle. If the stock was in an uptrend prior to the triangle, there is a good chance it will break out of the triangle pattern on the upside and continue the uptrend. In addition, rising triangles tend to breakout to the upside while descending triangles often break lower. Symmetric triangles are usually not completely “even” – i.e., the support side may be stronger than the resistance side making the triangle “point up” or, if the support side is weaker, “point down.” In that case, the triangle often breaks in the direction it is “pointing.”

Next time, we’ll look at how to confirm these patterns with volume and examine some real-world examples.

The choice of indicator depends on what you are trying to measure. Momentum is best measured with momentum oscillators like Rate-of-Change and MACD. Overbought/oversold levels are best measured with banded oscillators like Stochastics and RSI. Money flow is best measured with volume-based indicators such as On Balance Volume and the Accumulation Distribution Line. Trend is best measured with trend-following indicators like moving averages and Kelter Channels. Volatility is best measured by using Standard Deviation or Average True Range. There are even a few hybrids that combine factors. MACD combines trend following and momentum by measuring the difference of two moving averages. The Chaikin Oscillator adds momentum to the Accumulation Distribution Line.

It is important to avoid mulitcolinearity when using indicators. In other words, do not duplicate your efforts by using indicators that measure the same thing. RSI, CCI, MACD and Stochastics are all momentum oscillators that are highly correlated. It is not necessary to use all four to measure momentum. All four will rise when momentum is bullish and fall when momentum is bearish. Give them all a try, but try to focus on one or two when analyzing charts. If you favor trend, then perhaps MACD is best suited. If you favor overbought/oversold readings, then perhaps CCI fits best. It boils down to a personal preference. The chart below shows RSI, CCI and ROC moving up and down together.

Timeframe is also important when using adjustable indicators. On Balance Volume and the Accumulation Distribution Line are cumulative indicators that are not adjustable. One size fits all. However, most indicators are adjustable. Traders focusing on shorter time frames require shorter settings. Investors focusing on longer time frames require longer settings. The chart below shows Amazon with the 10-day SMA and 100-day SMA. The 100-day SMA was touched once, but the 10-day SMA was crossed numerous times. Also notice the different Stochastic Oscillators. The 14-day Stochastic Oscillator (green) became oversold four times in the last four months, but the 28-day Stochastic Oscillator (red) became oversold one twice.

There are four components to the head-and-shoulders pattern: the left shoulder, the head, the right shoulder and the neckline. The uptrend is in full swing as the left shoulder and head form (higher high). Now the trouble starts. The decline from the head high returns all the way to the left shoulder low. This is the first clue that selling pressure is increasing. Lows should continually rise in an uptrend (higher lows). An equal low shows a modest increase in selling pressure. After forming roughly equal lows, a rally evolves and peaks below the low of the head to form the right shoulder. This lower high is the first clue that buying pressure is decreasing. Buying pressure was not strong enough to push prices back to their prior high (head). Ideally, the peak of the right shoulder should occur near the peak of the left shoulder to create symmetry in the pattern. In reality, emotionally driven markets do not always oblige. In fact, perfect patterns are the exception rather than the norm.

With the equal low showing an increase in selling pressure and the lower high showing a decrease in buying pressure, the head-and-shoulders top has formed. We can now draw a line from the lows to define neckline support. Even though the pattern is clearly present, it is not confirmed until there is a break below neckline support. Once confirmed with said break, the reversal is confirmed and further weakness is expected. Using traditional technical analysis, the height of the pattern is subtracted from the neckline break for a downside target. Take these targets with a grain of salt. A trend reversal has occurred and it remains in effect until proven otherwise.

Volume is also something to consider when validating a head-and-shoulders reversal. For a bearish reversal, we should see lower volume on the advances. This means volume should decrease on the rallies that form the head and the right shoulder, especially the right shoulder. In addition, an increase in volume on the declines would further validate the pattern. The S&P 500 ETF (SPY) and the Dow Diamonds (DIA) both have head-and-shoulders reversal patterns right now.

[by Arthur Hill]

Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions will usually (not necessarily always) be closed before the market close of the trading day. This is different from After-hours trading. Traders that participate in day trading are called day traders.

Some of the more commonly day-traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures.

When we have definite day trading techniques and pre-determined strategies, Day Trading in Stock Markets is a highly profitable Business. In both rising and falling markets, profits can be earned regularly everyday. All traded stocks registers four price levels every day i.e., the opening price, intra day high price, intra day low price and the closing price. And a Day Trader can earn nice profits by playing in these price difference, whether with Buy Strategy (buy call option) or Short Strategy (buy put option).

Trading Frequency

Although collectively called day trading, there are many sub-trading styles within day trading. A day trader is not necessarily very active. Depending on one’s trading strategy, the number of trades made in a day may vary from one to dozens or more.

Some day traders focus on very short or short-term trading, in which a trade may last seconds to a few minutes. They buy and sell many times in a day, trading very high volumes daily and therefore receiving big discounts from the brokerage.

Some day traders focus only on momentum or trends. They are more patient and wait for a ride on the strong move which may occur on that day. They make far fewer trades than the aforementioned traders.

Many day traders sell their positions before the market close of the trading day to avoid the risk of price gaps (differences between the previous day’s close and the next day’s open price) at the open. Some day traders consider this to be a golden rule to be obeyed at all times. Other traders believe they should let the profits run, so it is acceptable to stay with a position after the market closes.

We can use some day trading techniques identify the exact entry price level and exit price level of the recommended stocks in real time, then we can earn profits on every day in bull or bear market. We should know also how we should approach the Stock Market as a Day trader to earn daily profits.

Profit and Risks

Because of the nature of financial leverage and the rapid returns that are possible, day trading can be either extremely profitable or extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses. Some day traders manage to earn millions per year solely by day trading using their day trading techniques.

Because of the high profits (and losses) that day trading makes possible, these traders are sometimes portrayed as “bandits” or “gamblers” by other investors. Some individuals, however, make a consistent living day trading.

Nevertheless day trading can become very risky, especially if one has poor discipline, risk or money management.

The common use of buying on margin (using borrowed funds) amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time. In addition, brokers usually allow bigger margins for daytraders.

We can not totally avoid risks and losses are in Day trading. We have to manage risks to avoid losses in day trading. We can reduce the risk on our day trading activity by implement proper money management and learning to manage risks involved in day trading.

Day trading techniques is analyzing and interpreting the real time price action (price movement) along with price level of the selected stocks. Usually the profits are small and the comes very fast (vanish very fast too). The theme behind this technique is  a small and confirmed profit in a very short time. Day trading techniques is analyzing real time price movement of the stocks, and catch up double confirmed small up moves and take advantage of that confirmed up moves to earn the profits.

In Long (Buy Stock or Buy Call Option) trades, you buy stocks first, and expecting the price increases and sell it at the higher price for profit.

In Short trades (Short Stock or Buy Put Option), you sell stocks first (you can borrow from from your broker), and expecting the price decrease and buy it at the lower price for profit.

Go to Basic Knowledge

On the other hand making money consistently from buying stock is very difficult – the fact that most managed professional funds do not beat the index, tells you that even professionals dont find this easy. So take everything you read with a grain of salt.

STEPS

1. Do nothing until you have chosen a system, rules for buying and rules for selling. So read widely and study. Watch the market and then paper trade ( that is pretending on paper you bought the stocks!) : prove you can make money at stock speculation before you ever part with a single dime. Once money is in your account, the temptation is too high to spend without careful thought.
2. Decide on a system. And then decide on the best vehicle to trade. If stock speculation, not long term investment is what you are after, maybe contracts for difference , spreadbetting or binary betting could be a better way – depending on local laws and tax rules – and how quickly you intend to get in and out of the market. Investigate all of the options.
3. Then if you have decided on trading raw stocks. Sign up with a stock broker on their website. A broker is registered with one or more “stock exchanges” (e.g. NYSE, NASDAQ, etc.) to execute stock trades on your behalf within that exchange’s market.
4. Send the broker an initial deposit of funds. (Your broker needs this money to purchase your stocks.) The usual minimum is $2000 but can be as little as $500.00. Some websites don’t require a deposit at all.
5. Your broker must report your stock trades to the IRS. You will need to fill out the required forms and mail them back to the broker, possibly even before they will allow you to make your first trade. (Your broker will send you the forms.)
6. Select your stock, notifying your broker of the company’s “symbol” (a 1-4-letter code), the price you’re willing to pay per share, and the length of time for which your offer will be valid.

TIPS

• Before you buy anything - stop. Watch. Learn. Paper trade. Don’t trust anyone’s advice until you have confirmed that what they say works consistently. If you are considering buying a trading system from anyone, look at some of the reputable financial forums such as trade2win or moneytec. You will find most of them there….and a heap of dissatisfied customers.
• Decide before every trade on a stop loss. And exercise it ruthlessly. Don’t make decisions on the fly!
• Don’t buy too much of one investment, so you be better able to deal with temporary setbacks; balanced portfolios increase in value in the long-term.
• Index funds provide a balanced, low-cost (low/no management fees) way of investing, and have consistent long-term gains.
• Instead of offering a specific amount (and a timeframe) for the stock, you may purchase the stock “at market value”, which executes immediately.
• Although you should “diversify” your stock portfolio by owning stock in several industries, buy stock primarily in industries you are familar with. (tech stocks if you’re a geek, auto stocks if you read a lot of car magazines, etc.)
• Search for “online discount brokers” on a search engine to find a list of brokers that you can use to buy and sell stocks online. Scottrade, Etrade, and TD Waterhouse are just a few of the many options. Be sure to compare their fees and see if they have any hidden fees before signing up.
• “If in doubt, do nought”.

WARNINGS

• Before buying stocks, make sure you have a decent idea of how to choose which stocks to buy.
• There is plenty of free advice from reputable people. There is also plenty of free and seemingly credible advice that is both misleading and wrong.
• Many of the established text books and bibles on trading – particularly on technical analysis – contain assumptions repeated so often they have gained the status of fact without ever being proven! If you find that hard to believe then download a stock price into a spreadsheet and test the moving average crossing methods repeated in every book on technical analysis and shudder at how much money you would have lost! It just isn’t as simple as it is painted.
• Make sure your broker is registered with the SEC. Stick to the brokers advertising on network TV if you are unfamiliar with the industry.
• Depending on the brokerage fees, it will be difficult (or take a long time) to recoup an investment of less than $1500 on any single stock purchase.
• In addition to the price-per-share that you offer for the stock, your broker will charge you a flat transaction fee, as well as an SEC insurance fee. The SEC fee is about $5. You pay these extra fees when both buying AND selling a stock.
• Realise that people who promote a stock often do so because they want to sell it. In other words they hype a product in order to sell it. This way of looking at things is called “Contrarianism”. So when people say “BUY”, its actually time to “SELL”, or if you don’t hold stock already, it maybe not the time to buy at all! Always DYOR (Do Your Own Research) and then some.
• Most day traders lose money, and very few fund managers beat the indexes over any length of time. Stock trading is easy. Making money is hard. So look for a system, prove it to yourself, and then dont deviate!

How to Get Rich

It seems that everyone wants to get rich. There are books out on that subject, classes that are headed by someone who can show you an easy way to get rich, rich people willing to drop advice on how to get rich, and many other schemes that guarantee you will get rich fast. Getting rich is one of the main goals of most people, and while it is never easy, there are some sensible techniques that will increase your chances of getting rich.

STEPS

1. Define “rich”. It’s one of those subjective words that everyone uses but no one defines. What are your standards for being rich? In other words, what do you envision when you think about being rich? This can be different for everyone. Usually it whittles down to a few common goals:
   
   
   • Prestige. For many people, the idea of getting rich is tied to getting respect. It’s not so much about how much money you have, but about maintaining a luxurious standard of living–exotic vacations, nice cars, swimming pools, etc.
   • Retirement. Some people want to get rich so that they never have to work another day in their lives. In this case, the standard of life one wishes to maintain once retired is critical to understanding how much money is needed to get rich.
2. Keep your eyes and ears open. All the time interesting people and chances appear and disappear. Get a feeling when to step forward and when to wait.
3. Delay gratification. If you’re looking for information on how to get rich, then you’re probably not rich right now, and there’s a reason for that. Are you spending money on things that won’t get you rich? Are you sticking with a job that doesn’t make that much money to begin with? In order to get rich, you’re going to have to give up some of the things you enjoy doing now, so that you can enjoy those things without restriction later. For example, you might like having free time, so you give yourself a few hours a day to do nothing. But if you were to invest those few hours into getting rich, you could work towards having 20 years of free time (24 hours a day!) with early retirement. What can you give up now in exchange for being rich later?
   
   
   • Cut expenses
   • Get a job that pays more or get a promotion
   • Downgrade or give up your car
   • Downgrade your apartment or house
   • Reallocate your spare time
4. Save money. You’ve heard the phrase “It takes money to make money.” So start socking away the extra money you’re making now that you’ve delayed gratification as outlined previously. After all, what’s the point in giving up the stuff you like if you have a hole in your pocket? Start building a “get rich fund” at the bank. Always pay yourself first. This means before you go and blow your pay check on a new pair of shoes or a golf club you don’t need, put money aside in to an account that you don’t touch. Do this every time you get paid and watch your account grow.
5. Invest. Once you’ve stockpiled your savings, start thinking of ways to invest it. This is where your definition of “rich” really comes in handy. If you’re looking for prestige, for example, a good investment would be education. Save up enough money to attend an Ivy League school and obtain a degree in something that will make decent money but, more importantly, earn great respect (doctor, lawyer, dentist, any kind of professional). If your goal is to retire early, on the other hand, invest that money in stocks, bonds, or other vehicles of investment that will give you an annual return on investment (ROI) that’s enough to maintain you in your retirement. For instance, if you have one million dollars invested and you get a reliable 7% ROI, that’s $70,000 per year! Invest in relatively stable assets – rental properties or potential development land in steadily growing areas is a good example. Put your money not in luxuries that will be worth nothing in a couple of years (a fancy car, for example), but in things that will increase in value over time, and that will earn you supplementary income in the interim.
6. Stay rich. It’s hard to get rich, but it’s even harder to stay rich. Your wealth is always going to be affected by the market, and the market has its ups and downs. If you get too comfortable when times are good, you’ll quickly drop back to square one when the market hits a slump. If you get a promotion or a raise, or if your ROI goes up a percentage point, don’t spend the extra–save it for when business is slow and your ROI goes down two percentage points.
7. Network with the Rich It’s always an excellent idea to surround yourself with other rich people; whether you have already become very rich or whether you are just starting out and clueless. Understand how the rich think and the way they manage their money. Fly first class or business class once in a while, spend a weekend at a luxury golf course; if you can’t afford to do too much traveling and spending, then use the internet instead.

TIPS

• Surround yourself with self-made millionaires. Learn from them. It’s been said that “like attracts like”. Get all the information you can about how rich people started making big money and what they are doing now.
• Every night before you go to bed, empty all of your spare change (coins in particular) into a jar. This takes time but after about one year you may have at least $150 saved up in coins.
• If money is burning a hole in your pocket for something specific (a new car, for instance, when your current model works fine), force yourself to wait a month before buying. Ask a family member or very trusted friend to hold your money for you if it’s that much of a temptation. Spend time considering the real cost of what you want to buy, the pro’s and con’s, how much it will set you back in your aspirations versus the immediate satisfaction, and how that money might be put to better use. If you still can’t live without it after a waiting period, it’s yours, but often you will find that an immediate desire looks less and less attractive once you stop and think about it.
• If you find yourself wanting something big to gratify you immediately, divert yourself with a small indulgence rather than giving in to the large one. Walk away from the designer suit or purse, but on your way home, buy an ice cream cone or catch a movie instead. The $8 movie ticket is a lot less expensive than the $800 purse, but gives you the same feeling of doing something “just for you.”

WARNINGS

Get rich quick schemes are invariably scams. Avoid them. There is no such thing as free money unless you inherit it. Then you must handle it wisely, or you will lose that as well.As there is no free lunch, nothing can be obtained without struggling for it.The best way to get rich quickly is having a plan and able to implement the plan successfully,if possible with a team that is well experienced and interseted in helping you.

Welcome to the futures market – and relax – it’s not as complicated as you might think!

The futures market can provide opportunities that other financial markets simply cannot offer. If you were to write down the perfect investment, it would probably go something like this. I wish I could invest in:

• A product that would always be in high demand.
• Something that can’t be ruined by a greedy CEO and Board of Directors.
• Something that would move enough to make lots of money every day.
• Something where I didn’t have to put very much money down but could still make a huge return!
• Something I could buy or sell whenever I wanted – not just 9-5pm!
• Something that would always go up in value.

Yes, we have seen this wish list before, and we have some good news for you and some bad. The bad first. Unfortunately, such an investment does not exist – it’s the always going up part that ruins it every time. The good news is that there is an investment that comes pretty close: futures!

The futures market provides unparalleled access to the most basic and in-demand products in the world. Among the many investment opportunities in the futures market are commodities such as gold, oil, wheat, and orange juice (these are the kinds of products that are always in demand!). It also includes currencies such as the US Dollar, British Pound, and Japanese Yen (also high demand!). It also includes financial market indexes such as the Dow Jones Industrial Average, Nasdaq Composite, and the S&P 500 (again high demand!).

When you trade the stock market, you have a lot to consider in terms of who is running a company, what the company offers, whether the product or service has longevity, how the company performs in different economic cycles, etc.

In the futures market, you deal with the world’s most basic and fundamental products. Rather than worrying about who is running a particular aluminum company or whether they will be in business next year, you can just buy aluminum – with a level of comfort knowing there is always a market and use for aluminum.

Every day, banks deposit and lend money to customers. Instead of finding a bank with a strong fundamental balance sheet and solid management, why not invest in the product a bank makes its living from – currency. As you may be aware from recent world events, the values of currencies are constantly fluctuating, creating the opportunity to make money from the ever-changing value of money.

When it comes to success, mutual fund managers have one major challenge in life – to provide a better return than the market index. Some are successful, while others fail. Market indexes provide a baseline or fundamental benchmark for performance in the financial world. You could give your money to a money manager and give them a crack at outperforming the markets – or you could just invest in the over 25 different index futures! Chances are good that these indexes will still be ticking when your money manager has come and gone!

In addition to these advantages, futures have many other benefits over other financial instruments, including:

Leverage

Futures are one of the most efficient investment vehicles in existence. What do we mean? Simply stated, with futures you can make a large investment with a small amount of money. This concept is known as “leverage.” Leverage can be a boon to investors on the winning side of the market, as gains can be greater with futures than with other investments (this is how you invest in something that doesn’t require a lot of money but still has upside potential). However, leverage can be a double-edged sword, inflicting a lot of pain if you are on the losing side of the trade.

Diversification

With leverage, a little bit of money goes a long way. This means that excess funds in your account could be used for other purposes, including investing in other assets. Diversification is a good thing when it comes to investing since it helps to average things out! Portfolio diversification is something we will cover in detail later in the course.

Volatility

Futures are known for their considerable price movement, which is another key benefit. Like leverage, volatility can work for or against you. However, most traders want markets that move – and futures move! Just take a look at where the price of crude oil has gone over the last year, and you’ll see what we mean (didn’t you want an investment that moves enough to make lots of money every day?).

Trading Hours

Most futures markets today trade around the clock. It’s easy to get in and out of positions in popular and liquid futures markets, and you can do so at the click of a button, with lightning-fast speed. Futures markets are investor-friendly, and that has helped drive the incredible growth these markets have experienced in recent years.

Tax Benefits

Not only do investors like futures, the IRS smiles favorably on this market as well. Futures enjoy unique tax treatment not available to the equities market. Generally, securities transactions are taxed as either short-term capital gains, or more favorably as long-term capital gains. Futures transactions, however, are simply lumped together and reported on a single Form 1099 at year-end. Profits are then taxed at the “60/40″ rate – 60 percent taxed at the favorable long-term rate and 40 percent taxed at the short-term rate. We’re not tax advisors, so please consult your tax specialist about your individual circumstances.

Information

In the futures market, supply and demand form the basis of price direction – not quarterly earnings, corporate filings or management changes. Instead, the data that moves futures markets often comes from government reports that are found in the public domain. For example, the U.S. Department of Agriculture estimates crop sizes and international demand for wheat, corn and soybeans. The economy also plays an important role in futures pricing, and most economic reports are also public domain and come from central banks and various government agencies.

Not a Whole New World

Unfortunately, many people have never heard of futures trading or, worse, they have heard of futures and the stories have not been pretty. Put the horror stories aside for a moment and consider this: every time you invest you assume some level of risk. Futures are no exception. You can and many people do lose money investing in futures. However, just like any risky venture, there are steps you can take to minimize your risk.

First and foremost, if you have ever traded stocks or options, you’ll want to keep in mind what you have learned related to risk, portfolio management, discipline and emotional control. In fact, many of the concepts and knowledge you have gained trading stocks and options will translate nicely to futures. Concepts such as long and short, order types, margin, etc. all have similarities to futures trading.

Another similarity between equities and futures trading is the fundamental objective. When buying stocks or options, your objective is to buy when prices are low and sell when prices are high. This is the same objective in the futures market. There are some twists in “how” to buy low and sell high, but the objective is the same (the twists will be explained in greater detail in Module 3).

Futures traders are also able to build on the skills they have learned trading stocks and options. Concepts such as discipline, trading plan, psychology, etc. all play a role in your success as a futures trader.

A review of the characteristics of successful futures traders reveals three common factors that have more influence on their success than any other:

• Financial Resources
• Knowledge
• Discipline

The futures market can be risky, but people just like you are able to manage the risk and find success trading futures. How do they do it?

The futures market can be risky, but people just like you are able to manage the risk and find success trading futures. How do they do it?

Financial Resources

First, they have money. More specifically, they have enough money to stay in the markets long enough to make money. Experienced traders will try to get specific and tell you that you need $10,000 to $30,000 to get started. Rather than giving a specific dollar figure, it is important to understand why futures traders need significant financial resources to be successful.

Most futures traders will experience a drawdown – a streak of losing trades that reduces the capital in one’s trading account. Your account must be large enough to withstand the inevitable drawdown. Drawdowns are perfectly correlated to the amount of risk you take on each trade. If you are swinging for the fences, you’ll have larger drawdowns. If you are looking for small but consistent profits, you will have smaller drawdowns.

Knowledge

The second characteristic of successful futures traders is their trading plan. Rooted in sound financial principles, your trading plan should be simple to follow, simple to understand and simple to implement. If you were to survey the country’s most successful futures traders, you would discover that they all use different strategies; in other words each trader has his or her own unique trading plan. A successful trading plan helps you identify a competitive edge in the markets. You will also notice that each trading plan has its own set of flaws. A successful trader’s plan should include detailed instructions to compensate for these shortfalls.

Unfortunately, this type of trading plan is not created overnight. There are ample resources available to help you get started creating a simple trading plan (optionsXpress has a repository of professional lectures, forums, and discussions with ideas that will help you). However, the success of your plan depends on refinement. It is refined with time. It is refined with experience. It is refined with knowledge. When you first delve into the futures market, your trading plan must make accommodations for the acquisition of experience and knowledge over time. Time is needed to get over the learning curve. Experience is needed to learn the intricacies of the futures market. Knowledge is needed to understand the definitions, structure and boundaries of the futures market.

Discipline

Finally, if you don’t have the discipline to manage your trades according to plan, you won’t last very long in the futures market. They say that pride precedes the fall and nowhere is that more true than in the futures market. Your trading plan helps you keep your trading objective. When you fail to use discipline, your trading becomes subjective without rhyme or reason. It will be difficult for you to improve your trading success if every decision you make is according to your whims, passion and emotion. Historically, people who experience large drawdowns in futures do so because of feelings, opinions and not admitting or believing they might be wrong.

Disciplined traders are aware of the following emotional pitfalls and seek to avoid them:

• Trading for the thrill of it
• Trading to make back lost money
• Lack of money management
• Lack of a defined trading plan
• Inability to admit mistakes

Your success in the futures markets has as much to do with your financial, intellectual and emotional preparation as it does with your execution. This course will help you prepare to trade futures, but you will also need to work on preparing yourself in these other ways as well.

Your success in the futures markets has as much to do with your financial, intellectual and emotional preparation as it does with your execution. This course will help you prepare to trade futures, but you will also need to work on preparing yourself in these other ways as well.

The Investor Life Cycle

For many of the reasons we have already mentioned, over time, traders naturally gravitate to the futures market. In fact there is a growth cycle most investors go through as they develop knowledge and understanding of the financial markets.

First investors look toward mutual funds to provide growth and financial independence. For the daring few who choose to progress beyond the mutual funds, they seek the financial returns of the stock market. Traders will generally cut their teeth in this exciting financial market for 2-3 years when they naturally gravitate to the derivatives or options market. Those traders who endure the learning curve of the options market tend find a home in the futures market some 5-7 years into their trading career.

Today, however, investors are trumping the learning curve and short-circuiting the time curve to discover the wonderful opportunities that are available in the futures market much sooner – and for good reason, too.

Today’s futures markets have grown beyond the traditional commodities market of yesterday. Today, grains, gold and oil have yielded ground to a broader range of instruments including stocks, indexes, currencies and even carbon emissions futures! Today’s futures markets have grown beyond the boundaries of American borders to include a global financial market; futures trading in England, Germany, Japan and Australia has exploded as new global trading networks have evolved.

But what does this mean for you? Traditionally, the futures market was for that elite class of traders with RISK tattooed across the bicep. To set your stress at ease, today’s futures trading has made huge strides away from that stigma. Today, new products are being released with variable definitions, sizes, multipliers, etc. You can purchase “mini” futures that reduce your exposure to risk and make investing more palatable.

Who’s in charge of the Futures Market?

Like the stock market, the futures market is a highly regulated industry offering excellent protection to individual investors like yourself. Companies or individuals who handle futures money or give futures trading advice must apply for registration through the National Futures Association, a self-regulatory organization approved by the U.S. Commodity Futures Trading Commission, or CFTC.

In 1974, Congress created the CFTC as an independent pseudo-governmental agency with the mandate to regulate commodity futures and options markets in the United States.

When the CFTC was created, the majority of futures trading took place in the agricultural sector, which is why this industry is often referred to as the “commodities” industry. Today, the futures industry has become increasingly varied to encompass a vast array of highly diverse specialties including agriculture, metals, consumer staples, currencies, financial indexes, stock equities, and more.

The CFTC assures the economic utility of the futures markets by encouraging competitiveness and efficiency, protecting market participants against fraud, manipulation, abusive trading practices, and by ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk.

The CFTC’s mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the purchase and sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and futures options markets.

The CFTC seeks to protect customers by:

• requiring companies and individuals to disclose market risks and past performance information to prospective customers,
• requiring that customer funds be kept in accounts separate from those maintained by the firm for its own use, and
• requiring customer accounts to be adjusted to reflect the current market value at the close of trading each day.

The CFTC also monitors registrant supervision systems, internal controls, and sales practice compliance programs.

In addition to federally mandated regulation offered by the CFTC, the futures industry also self-regulates through the National Futures Association, or NFA. The NFA develops rules, programs and services that safeguard market integrity, protect investors and help firms and representatives meet the CFTC’s regulatory standards.

In today’s global financial markets, it is important to identify companies that are registered with the NFA and instruments that are created and managed under the CFTC’s jurisdiction. The global financial markets have literally opened access to a whole new set of challenges related to regulating the global futures market.

Dispute Resolution

If you have a dispute arising out of your commodity futures or options account, first try to resolve the problem with your broker and his or her supervisor at the firm that employs or guarantees the broker.

If that fails, commodity futures customers have several options for resolving disputes:

• The CFTC Reparations program
• NFA sponsored arbitration
• Civil court litigation

In selecting a particular approach, you may want to consider the cost, length of time involved, and whether or not the assistance of an attorney is required.

Where are futures traded?

Futures, like stocks, are traded on exchanges. A commodity exchange is an organized market where traders meet to buy or sell various futures contracts. The exchange may be a physical location, like the Chicago Mercantile Exchange, or it may be an electronic gathering place such as GLOBEX. Either way, the exchange acts as an important part of the futures industry by:

• Providing an organized location (physical or electronic) for trading futures
• Regulating the trading practices of their members
• Gathering and transmitting price information
• Gathering and governing commodities traded on the exchange
• Supervising warehouses that store the underlying commodities
• Providing a means for settling disputes between members

History of the Futures Market

It is helpful to begin a discussion on the futures market with a historical sketch. Commodity markets have existed for centuries around the world because producers and buyers of commodities, such as rice, wheat, oil and other items have needed a centralized place to trade. In those days, cash transactions were most common, but occasionally a “forward” type arrangement was also made – deals to deliver and pay for something in the future at a price agreed upon in the present. There are records, for example, of “forward” agreements related to the rice markets in seventeenth century Japan; most scholars agree that forward arrangements actually date back much farther in time.

he immediate predecessors of futures contracts were “to arrive” contracts. These were simple agreements to purchase designated goods when they arrived by ship, and they were used for centuries when shipping was the primary mode of international trade.

The first organized grain futures trading in the U.S. began in places such as New York City and Buffalo, but the development of “modern” futures, which are a unique type of forward agreement, began in Chicago in the 1840s. With the construction of the railroads, Chicago began to emerge as a center for transportation between Midwestern producers and East Coast population centers. The city was a natural hub for trade, but the trading that took place was inefficient and unorganized until a group of Chicago-based businessmen formed the Board of Trade of the City of Chicago in 1848. The Board was a member-owned organization that offered a centralized location for cash trading a variety of goods, as well as trading of forward contracts. Members served as brokers who facilitated trading in return for commissions.

As future trading of forward contracts increased, the Board decided that standardizing those contracts would streamline the trading and delivery processes. Instead of individualized contracts, which took a great deal of time to negotiate and fulfill, people interested in the forward trading of corn at the Board, for example, were asked to trade contracts that were identical in terms of quantity, quality, delivery month and terms, all as established by the exchange. The only thing left for traders to negotiate was price and the number of contracts.

These standardized forwards were essentially the first modern futures contracts. They were unlike other forwards in that they could only be traded at the exchange that created them, and only at certain designated times. They were also different from other forwards in that the bids, offers and negotiated prices of the trades were made public by the exchange. This practice established futures exchanges as venues for “price discovery” in U.S. markets.

In contrast to customized contracts, standardized futures contracts were easy to trade since all trades were simply re-negotiations of price, and they usually changed hands many times before expiration. People who wanted to make a profit based on a fortuitous price change, or alternatively, who wished to cut mounting losses as quickly as possible, could “offset” a futures contract before expiration by engaging in an opposite trade: buying a contract which they had previously sold (or “gone short”), or selling a contract which they had previously bought (or “gone long”).

The usefulness of futures trading became apparent, and a number of other futures exchanges were established throughout the country in the decades that followed. The Chicago Butter and Egg Board was founded in 1898 and evolved into the Chicago Mercantile Exchange (CME) in 1919. Futures exchanges also opened in Milwaukee, New York, St. Louis, Kansas City, Minneapolis, San Francisco, Memphis, New Orleans and elsewhere. Chicago, however, became the most influential and predominant location for futures trading in the U.S.

In recent years, the commodities exchanges have experienced tremendous change by way of mergers and acquisitions. Most notably, the Chicago Mercantile Exchange has redefined itself as the Chicago Mercantile Exchange Group – a conglomeration of the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange. Otherwise know as the “Merc,” the Chicago Mercantile Exchange Group also controls the world’s largest electronic futures exchange: Globex.

In addition to the Merc, there are many other commodity exchanges both domestically and around the globe. The industry is in a state of significant growth, and change is announced almost daily. As of this writing here are some other exchanges you may come across:

Kansas City Board of Trade

A commodity futures and options exchange that specializes in hard red winter wheat – the principal ingredient of bread.

Chicago Climate Exchange

A relative newcomer to the futures industry, the Chicago Climate Exchange is North America’s only voluntary, legally binding greenhouse gas (GHG) reduction and future trading system for emission sources and offset projects.

Intercontinental Exchange

An electronic based marketplace which trades futures and over-the-counter (OTC) energy and commodity contracts as well as derivative financial products. While the company’s original focus was energy products, recent acquisitions have expanded its activity into the “soft” commodities, foreign exchange and equity index futures.

One Chicago

A subsidiary of the Chicago Mercantile Exchange, One Chicago is the home of single stock futures (SSF’s), which are futures contracts with the underlying asset being stock.

Futures trading is also growing around the world with many notable exchanges including Canada’s Montreal Exchange, Britain’s London Metal Exchange, Eurex, and many more.

How futures are traded on exchanges

Trading at the futures exchange is conducted in two ways: an open outcry format and the electronic trading platform.

Open Outcry

The open outcry method consists of floor traders standing in a trading pit to call out orders, prices, and quantities of a particular commodity. Traders on the floor of the exchange wear different color jackets to indicate their position and affiliation. In addition, complex hand signals (called Arb) are used. These hand signals were first used in the 1970s. The pits are areas of the floor that are lowered to facilitate communication, sort of like a miniature amphitheater. The pits can be raised and lowered depending on trading volume. To an onlooker, the open outcry system can look chaotic and confusing, but in reality the system is a tried and true method of accurate and efficient trading.

Electronic Future Trading

Approximately 70 percent of total futures volume is conducted via electronic trading platforms. Fully electronic trading systems allow market participants to trade from booths at the exchange or while sitting in a home or office thousands of miles away.

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