Articles on Investment Matters:

FX Trading Psychology

With all the potential for profit and lifestyle there traders must also realise that success only comes with learning, consistency of approach and experience.

There are three separate areas that must be addressed and dealt with in any successful approach to trading the markets.

Price analysis
Trading account
Management
Methodology

There are two types of market price analysis. They are:

FUNDAMENTAL ANALYSIS – The use of information gathered about news and events before or after they occur which have a causal effect on price movements.

TECHNICAL ANALYSIS – The use of mathematics, logic and or trend following techniques to study patterns and or trend momentum in price behavior.

Other requirements when analyzing prices includes Automatic Surveillance to monitor currency markets from Monday morning until Saturday morning 24 hours per day, as well as Stop Loss and other risk control

Price analysis is not the only discipline to be addressed. There is no method which can possibly show currency trend changes successfully all the time. There will always be a significant percentage of losing trades. There will be alternate successful and not so successful periods. This is your “performance cycle.”

Account control, growth and management are where the largest returns are in trading

TRADING METHODOLOGY is the set of procedures you will use every time you trade, and it will require a great deal of thought. Method rules allow you to neutralize your personal psychology. One of the worst problems for traders is second guessing.

Method rules allow trading management to effectively manage growth. Trading management methods rely on consistency, mainly because the mathematics in them work on percentages. Selective trading is the practice of trading only a percentage of available trades based on criteria other than trading method rules, but it is important to remember that in trending markets, profitable and losing trades may alternate. Objectivity is an essential ingredient for successful trading. Your approach should be automated, scientific, free of emotion, and consistent.

Method rules allow you to incorporate your strategic plan with your trading. This is the blueprint you design for yourself which has all the details of your goals subject to all the constraints that exist in your situation. Your plan must consider all the inputs which will be necessary for you to achieve your trading goals.

LearnToBeWealthyNow.com
www.learntobewealthynow.com
12 Jun 2007

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The Perfect Mutual Fund

Is the Mutual Fund you build yourself! 

The perfect Mutual Fund you build should have the objective of owning no more than 12 to 15 companies; owning shares in 12 companies would allow the diversity needed to sleep well at night and would provide a cash dividend every week of the year. The 12 companies (with staggered dividend payout dates) in your perfect Mutual Fund should not only provide a cash dividend every week of the year, each company should also have a historical record of raising their dividend every year for at least the past 8 years (to eliminate risk). 

The perfect Mutual Fund would have no fees attached, every cent put into the Fund would work toward your return on investment (ROI). There would not be any commission fees, load fees, management fees, operating or advertising fees, and there would be no illegal trading practices, hidden fees abuses or any type of hidden fee. The perfect Mutual Fund would benefit only you and your family and no one else. 

The perfect Mutual Fund would require a savings plan to add to your holdings every quarter, until retirement. This would allow your perfect Mutual Fund to dollar-cost average (buying the same stock at different prices through the years) into your holdings every quarter (your dividends from the companies would be doing this already, commission free; and in the perfect Mutual Fund your quarterly investments into more shares of each company would also be commission free). With this in mind, every dividend received every quarter from a company in the Fund would be higher than the previous dividend from that same company (as long as the company, at least, maintains their dividend and in the perfect Mutual Fund every company has a history of raising their dividend every year). 

In the perfect Mutual Fund, when prices of your stock holdings in the Fund decline, the cash dividend income from the perfect Mutual Fund would simply accelerate. The reason for this is simple - the lower the stock prices in the Fund, the higher the dividend yields. A company, for example, may pay a quarterly dividend of 50 cents a share. Whether that company’s share price is 70 dollars a share or 40 dollars a share, the company pays a quarterly 50 cents a share dividend. At a lower stock price the reinvested dividend and quarterly investment purchases more shares. 

In the perfect Mutual Fund your money is not spread too thin. For example, putting $5,000.00 into, lets say, the S&P 500 Index Fund, you would end up owning around $10.00 worth of 500 different companies. Other than the obvious fact that your money is being spread too thin, any dividends from the companies in the Index Fund could possibly be eaten up by management’s operating expenses, advertising fees and whatever other Mutual Fund fees (they’re called ‘hidden fees’)are involved. 

In the perfect Mutual Fund the valuation of a stock is based on how often a company raises its dividend and the company’s stock appreciation in the market place for the past eight years. It is this valuation that earns it its place in the perfect Mutual Fund. The perfect Mutual Fund ignores all the other elaborate techniques of security analysis to find value in a stock. I guess you could call it a Jerry Maguire, ‘show me the money’ security analysis. 

(Also, in my opinion, too many people spend too much time looking at technical charts trying to predict what a stock or the stock market is going to do tomorrow. Just because thousands of people on Wall Street make a living doing ‘technical analysis’ doesn’t mean you have too jump off a building, too.) 

In the perfect Mutual Fund it is the belief that the dividend is the one measure a company cannot fudge. The money has to be there to pay the shareholder. The earnings, P/E ratio (trailing or forward), price to sales etc. will all fall into place if the company still has enough earnings every year to continue raising its dividend.

The perfect Mutual Fund assumes that if a company, for example, that has a history of raising its dividend for the past 35 consecutive years; it must be doing something right!  In the perfect Mutual Fund the dividends from the companies are also a safety factor that will put a bottom (support) on a stock. The dividend yield/return will keep the price of a stock from falling too far, in case of a severe drop in the stock market. And, of course, in the perfect Mutual Fund, the lower stock prices accelerate your income. 

The perfect Mutual Fund is real! 

How to begin and invest in your own perfect Mutual Fund can be found in (blush) my book ‘The Stockopoly Plan’. 

Excerpts from the book can be found at www.thestockopolyplan.com  

Charles M O'Melia

An individual investor with almost 40 years of experience and passion for the stock market. Author of the book ‘The Stockopoly Plan’, soon to be released by American Book Publishing.  "You have permission to this article either electronically or in print as long as the author bylines are included, with a live link, and the article is not changed in any way. Please provide a courtesy e-mail to charles@thestockopolyplan.com telling where the article was published. The author retains full copyrights!"