Advanced Trading Tips

50 MA stands for 50 day moving average -- a term every investor should know and understand. In a nutshell, the 50 day moving average is just what it sounds like: the average movement of a stock over the past 50 days.

There are two common types of moving averages to be aware of:

1. The SMA or Simple Moving Average. The SMA will have a time lag.
2. The EMA or Exponential Moving Average. The EMA will capture change faster.

Because the 50 day moving average has a longer duration, it is typically associated with the SMA or simple moving average. Obviously, it will not provide as precise a measure or the ability to capture quick changes. The EMA or Exponential Moving Average is a much more precise measure used to capture quick changes and chart support and resistance levels.

The 52 week low stock price is a valuable bit of information if you understand how to use it. When researching a specific security, one of the first nuggets of information you will likely come across is the 52 week high/low indicator. Just as the name implies, the 52 week low is the bottom price the stock has traded at during the past 52 weeks.

Use the 52 week low indicator as follows:

1. Establish an initial indicator of value. Is the stock below the intrinsic value? Why?
2. Compare to year-over-year results to measure overall value, growth and other metrics.
3. Track seasonal fluctuations in the stock or industry (to use as an industry measure, obtain 52 week lows for multiple stocks in the same industry).
4. Forecast seasonal fluctuations in the industry.
5. Remember, when a stock makes a new 52 week low, it is typically considered a bearish sign indicating an unhealthy stock that will probably trade even lower. It represents a possible shorting opportunity.

In the past, after hours market stock trading was the domain of professional traders but the advent of the Internet has drastically altered the access to after hours market information.

For those who decided to conduct business in the after hours market stock trading sector, there are a few things to keep in mind:

1. Lower volume. Should you decide to sell during off hours, the volume will likely decrease. Not every stock trades during off hours so be sure you can actually execute the sale.
2. Bigger Spreads. Less volume can translate into larger spreads between bid and ask prices.
3. Greater Volatility. The uncertainty of the after hours market, reduced volume and greater spreads all lead to greater volatility.

Arbitrage stock trading is when an investor buys or sells stock while simultaneously buying or selling an off-setting stock-index future or option. Clear as mud? Hang in there; it's easy once you understand the basic idea.

The strategy behind arbitrage is simple enough -- profit from the difference in price between the buy and sell. For example, let's assume you find stock ABC that trades on both the NYSE and NASDAQ. You see it is trading for $10 on NASDAQ and $10.50 on NYSE so you buy 1,000 shares from the NASDAQ and simultaneously sell 1,000 shares on NYSE. You profit by taking the .50 difference on the 1,000 shares for a quick $500 profit in a matter of minutes ... if everything goes as planned.

It sounds great and sometimes it actually works. In fact, traders do this repeatedly throughout the day with vast sums of money (much larger than the example above) but there is inherent risk to this strategy.

For example:

1. The buy order goes through, but the sell order wasn't executed. Now, you suddenly own a lot of shares that you may or may not really want to be holding.
2. The sell order is executed, but the buy order wasn't. Ouch. At the end of the day you might be forced to buy at a higher price in order to satisfy the position ... a potentially costly mistake.
3. Partial orders were executed. Similar to both or either of the above but to a lesser extent.

	Book: Risk Arbitrage: An Investor's Guide
	Book: The Complete Arbitrage Deskbook

The golden rule of investing dictates cutting your losses when they fall 10 percent from the price paid, but common wisdom just might be wrong. Instead, use some common sense to determine if it's time to hold or fold.

1. Diversification. If your total portfolio is down 10 percent, but diversified then the diversification itself is one layer of protection. Don't automatically assume you need to sell all of your stocks and start over.
2. Dividends. If the stock pays dividends, then calculate the total dividend plus stock price in your estimates before making the decision to sell.
3. Dumb Pricing. If you paid too much to begin with, then a 10 percent correction will often work it's way out if you hold a bit longer. Just stop buying high and learn your lesson in the future. Then again, extra caution is advised because if you bought wrong to begin, then there is little chance you have the required savvy to know when it's time to fold.

The final rule of investing is to make informed decisions so instead of blindly following the 10 percent rule, use the following recovery estimates and averages.

Remember, a 25 percent return on investment is a strong return, 100 percent is very rare. Beyond that is a long tail that cannot be relied upon or properly forecasted. With that in mind ...

As this table shows, cutting your losses quickly in a losing stock and reinvesting in another stock is often the smart play.

If you are fortunate enough to be seriously contemplating a partnership with a well-known hedge fund then you don't need to be reading this. For the rest of you, a hedge fund is one of the investment tools you will aspire toward as a serious investor.

The typical hedge fund is designed to be a partnership arrangement with the fund manager acting as the general partner responsible for making investment decisions. To join, you must be an "accredited investor" which is defined as a person with a net worth of at least $1 million (or an annual income of at least $200,000 for the past two years and expectation of continued income in that range). These levels are due to increase.

These private investment funds are usually not registered with the SEC and use complex investment strategies in order to secure a targeted rate of return. For this reason, they are not marketed to the average investor, but instead to high worth individuals and professional investors.

For those aspiring toward this goal, here is what you will need to get started:

1. An average starting investment of $250,000 - $500,000 USD. Although some "so-called" funds start as low as $10,000 it is uncommon. Top hedge funds require as much as $10,000,000 or more to play.
2. The ability to lose money. When it comes to hedge funds, you have to pay to play. Even if the hedge fund loses money, you will owe management fees and other costs and of course, your principal is at risk.
3. Acceptance. Remember, hedge funds are typically formed as partnerships. There are over 6,000 funds available, but they don't take just anyone. By law, you must be a qualified investor and able to meet specific guidelines.

	Book: Hedge Funds Demystified
	Book: Create Your Own ETF Hedge Fund: A Do-It-Yourself ETF Strategy for Private Wealth Management
	Book: An American Hedge Fund: How I Made $2 Million as a Stock Operator and Created a Hedge Fund
	Book: Hedge Hunters Hedge Fund Masters on the Rewards, the Risk, and the Reckoning
	Book: Hedge Fund Masters: How Top Hedge Fund Traders Set Goals, Overcome Barriers, And Achieve Peak Performance

Moving Average Convergence Divergence or MACD measures the difference between two Exponential Moving Averages or EMAs. EMA's are a type of moving average where the most recent data is given more importance and thereby, are able to more accurate reflect recent movement in the market.

For example:
Positive = 12 day EMA > 26 day EMA
Negative = 12 day EMA < 26 day EMA

Keep in mind, moving averages are lagging indicators; they track what has already taken place and because MACD uses absolute differences rather than percentage changes. It doesn't provide a sensitive measure over long periods of time.

Book: The Advanced Moving Average Convergence-Divergence

Selling short is a popular method of profiting when stock prices fall and many investors have made tidy profits of betting against a company. In fact, it has become such a significant portion of the market that stock exchanges now track and report the amount of shares sold short in most stocks. Here is a quick tutorial on short interest stock.

High/rising level of short interest = Stock is anticipated to drop

Low/declining level of short interest = Stock is anticipated to rise

Notice, this doesn't indicate when or how high or low the stock is expected to go. In fact, it doesn't mean it will rise or decline as expected. It is best used to track buyer sentiment and market psychology rather than as a predictive tool. Of course, you can always take a contrarian stance and bet against the nay-sayers.

To find short interest data begin with NASDAQ and the NYSE; both provide short interest data for the past 12 months. Pay attention to the following:

• Number of shares shorted
• Days to cover
• The short position as a percentage of float

Veteran investors know it is possible to make money in any market and any situation if you understand the fundamentals. Don't believe it? Here is a quick question. How do you make money on a stock you do not own when the price of the stock is falling?

The answer? Simple. It's called a short sale.

Short selling stock is a popular method of betting against a stock by borrowing the security. It works like this:

1. Borrow the stock from your brokers inventory, margin account or another firm.
2. Sell the stock.
3. Sale proceeds are credited to your account.
4. Close the short by "covering" or buying back the same number of shares of the same stock and returning them to your broker.
5. Pay transaction and other fees to broker.

Although it sounds simple, there are risks to contend with including:

• It is possible to lose more money than you invested
• Short selling stock uses margin trading which requires a minimum amount of cash as collateral (typically 25 percent). If your position slips to that level, it is subject to a margin call where you must come up with the cash or liquidate your position.
• Short squeeze phenomena can take place if the stock actually begins to increase rapidly while short sellers all try to cover their positions.

	Book: Short Selling: Strategies, Risks, and Rewards
	Book: A Beginner's Guide to Short Selling with Toni Turner
	Video: Effective Short Selling: Profiting in Bull and Bear Markets

The tax implications of stock trading is a topic few investors spend time contemplating, but a sure fire way to wipe out profits is to fail to take tax consequences into consideration.

1. Understand how earnings will be taxed: Long-term capital gains, short-term capital gains, or ordinary income. For the purposes of taxation, long-term is considered anything over one year. One day less and you don't qualify. In most cases, ordinary income will be taxed at the highest rate and investing profits can actually bump you into a higher tax bracket eliminating a major portion of what you earned.
2. Understand when to pay taxes. Estimated taxes are due on the profit of stock sales by the end of the quarter in which the sale was made.
3. AMT. Did a shiver just run down your spine? With good reason. If your profits were sizable enough then it might trigger the Alternative Minimum Tax. Be prepared.
4. State Taxes. Unless you are fortunate enough to reside in Florida or one of the few states without a state income tax, then don't forget to include state taxes into your calculations.
5. Adjusted Gross Income. Depending upon your specific situation, your total earnings and investment profits might offset other deductions or anticipated tax shelters and benefits resulting in higher than anticipated taxation.

Finally, the tax implications of stock trading should be fully understood before undertaking any investment.

Few investors pay attention to the power of institutional investors in the stock market -- a major mistake considering the immense influence institutional investors have in the dynamics of the stock market. Research estimates institutional trading represents 70 percent to 80 percent of market volume - clearly the power of institutional investors is a force to be reckoned with.

First, it is important for the individual investor to understand who these institutional investors represent. You might be surprised to learn that the majority represent you or people just like you. The largest segment of institutional investors are comprised of pension and retirement funds from large corporations, government, school systems and other employment-sponsored retirement benefits.

This is important to the average investor for two reasons: if you invest in the same stocks that your pension fund is investing in, you are at double the risk should the market decline. Not only will your company-sponsored pension or retirement lose money, but so would your individual investment portfolio.

Next, as an individual investor, keeping an eye on the purchase and sale of stock by major institutional investors can provide a tremendous advantage to understanding market trends impacting domestic and foreign stocks.

Finally, keep in mind that as an individual investor you can see the percentage of a company's stock held by Institution investors. A company whose stock is thinly held by institutions has the potential to soar higher when those institutions buy in. When institutional investors buy a stock, it has the same effect of when a fat lady gets into a bathtub.

There are a lot of fantasy stock market games out there, but what should you search for when signing up for one? Here is what to look for when signing up for a fantasy stock market game:

1. Social networking. The fact is you will be a lot more successful in investing if you have someone to knock some sense into you every once in awhile. You aren't looking for lifelong friends or hot tips, but rather criticism that will keep you sane on those trades you just fall in love with.
2. Tools, Tool, Tools. Think of fantasy stock market games as a free education. If you enrolled in college and went down to take a look at the library, computer lab and other facilities then you expect to see a well-equipped range of products and services designed to teach you what is needed in the real world. The same applies here. A fantasy stock market game is only as good as the tools provided. This is where you will learn to use and test research, reports, charting models and more.
3. Learn and Earn Real Money. Yes, cold-hard cash is not just for virtual accounts. Nothing provides more incentive than winning real money for testing out your own strategy.