Your Questions About How To Pick Stocks To Trade

Thomas asks…

If I wan’t to invest 100 dollors a month in small companys that I think will do well who do I call?

I don’t know how to actually invest but I can always pick the companys that I know will do we’ll . If I learn how to buy and trade quickly Id be rich already. I also have wanted to find out who do I call for information on a stock or mutual fund or Index fund or whatever . Can anyone help me?

John answers:

E-Trade.

Mandy asks…

Help me understand penny stock trading?

this is all i know, you buy a share and when it goes up you sell it, how do i buy/sell them? how do i pick a company to buy a share from? im all up for taking risks so just explain how i do this

John answers:

Stocks that trade for below $5 a share are considered “penny stocks”. If you’ve got 3-5 years of very successful trading experience you may consider them. Chances are you won’t since more money can be made trading stocks priced above $5 a share.

Charles asks…

Missed out on $500 trade because my trade didn’t go through on TD Ameritrade?

I think it was my fault. But I still don’t understand how it happened. I watched a stock closely and timed my entry at the bottom, it shot up $500 in no time. But my buy trade never went through. Apparently my “funds available to trade” account didn’t have enough money in it. The stock purchase was $3500, my funds available was $1500. However, my cash account had 8 thousand in it, and my money market account had 7 thousand in it. So I had money, it was just tied up, I guess. Does all this sound legit, or do I have a bone to pick? I am mad at myself for missing out on that nice profit.

John answers:

Sorry about the missed opportunity but when you place a transaction, you do it from within one of your accounts, so you have to make sure you’ve transferred funds into that account. I’m surprised it let you enter the order in the first place if funds were insufficient in that account… Maybe you should do another purchase and carefully trace every one of your steps… Maybe you missed something? And if you didn’t, their helpdesk people will assist you, they’re not bad.

Joseph asks…

Stock Market?

I don’t get how trading stocks work. Say I buy a stock. That means I can sell it to someone else. Do I get to pick the price that I want to sell it at?

Another question is how can companies keep producing stocks. I heard about stock splitting, but doesnt that mean that you have to reduce the prices of the original stock owners??

Apprecieate any help.

John answers:

Well, technically, you don’t usually trade stocks. You buy and sell stocks. And yes, you can pick the price you want to sell a stock at, if you own it. But that doesn’t mean someone else will buy that stock from you at that price. The market determines the current stock price. And the market is basically all the people who own or might want to own a certain stock in the future. The market bases it’s value judgment on news, earnings, emotion, etc. If you go to yahoo finance (see link below) and put in the stock symbol for General Motors (which is GM), you will see the current market price for a share of GM stock (currently $16.22). So let’s say you like that price and buy it. You can decide to sell it at any price, but typically people will only buy it from you at the current market price. So if you want to sell it to someone at $40 a share, you have to wait for the market price to go up to $40. Nobody would be willing to give you $40 for a share if they can go to the market and buy it for $20. So you can choose your selling price, but the stock may or may not ever get there.

As for “producing” stocks: A company doesn’t produce stock, they issue stock. Stock is just a piece of ownership in a company. When a company first goes public, it sells (issues) stock in an initial offering (an IPO, or Initial Public Offering). That means the company is selling some ownership to the public. The public pays their money to the company, and the company gets a bunch of money for it. From now on, all those shares trade on a secondary market, like the NYSE. That means people buy and sell them to and from each other. But the company isn’t usually involved in those transactions, and doesn’t make any money from it. Later, if the company feels like they need more cash, they may issue more shares, in the same way as the IPO. But they dilute the ownership of all the current shares, which tends to send the price down, and make current shareholders unhappy. So they tend to not like to do that. Conversely, they can buy back some shares from the market, meaning there are less public shares, and so each one now owns more of the company. This makes shareholders happy and generally moves the price up.

As for stock splitting: It is usually just something done to keep the price in a certain range, but doesn’t actually do anything to the value of shares you own. If you own 1 share of ABC company today, and it is worth $100, and they do a 2 for 1 stock split overnight, then tomorrow you will have 2 shares worth $50 each. It is simply a way to keep prices in a certain range.

Sandra asks…

day trading for dummies?

i have a few questions about trading stock. 1st how do ppl loose money day trading/trading stock, is it because as soon as the stock starts to fall they sell it at a lower price before they loose anymore $? if so why not just wait till the stock goes back up, 2nd if i brought 100 shares of stock at $10.00 & the next day there up two $15.00 why shouldn’t i sell half? or should i? 3rd would it be smart to invest in long term stock & short term stock(day trading)<<< i think there the same…..at the same time, if not why? im just trying to learn to trade, also are there any good books out there i should pick up? or any suggestions on the matter…thx…p.s what is a good amount of cash to start out with? p.s.s lol also im simulating trading stock on Investopedia.
yes im unemployed & i sure im not going anywhere for awhile.

John answers:

I would revise the percentages a little bit.

20% Technical Analysis
25% Money Management
55% Psychological

After you’ve spent a year or two learning to trade, and are still just getting by, then you dump everything you think you “know” and start over from deep inside. It helps to have a mentor to point things out, but you can do it if you can be honest and true to yourself. Most people would rather lie to themselves. We all carry around psychological baggage that makes us react emotionally to greed and fear. We are wired to lose, or rather, the markets are geared to take advantage of our wiring. This is something you will have to discover for yourslef, but the best book I’ve seen on it is “Trading in the Zone,” by Mark Douglas.

In order to day trade, you must have at least $25,000 in your account. Otherwise, you’ll have to trade the emini or the Dow mini futures if you want to day trade; or you might want to take a look at forex or forex futures.

If you want to trade futures and currencies, download Ninjatrader for free. The data feeds are free (not free for stocks), and the margins are the lowest anywhere.

Http://www.ampfutures.com/index.php

Read the books and develop a trading plan — setups and triggers, entry price and target, and the maximum you’re willing to lose on any one trade, which will include position size. Trade the simulator according to your plan precisely, otherwise you’re just playing another video game; entertaining, but of no practical use.

You have to treat trading like a business, otherwise it turns out to be another trip to the casino. Your trading plan is a blueprint to preliminary action, and keeping a journal requires you to adhere to your plan. Answer the questions daily, did I follow my blueprint today? Did I maintain discipline? Did I do the research required? Did I recognize Support & Resistance levels through volume? Was my methodology correct? Did I exit on fear or logic? Would I do the same again? Did I have confirming indicators?

Rules of the Trade, by David Nassar — “Nothing is more expensive to a trader than trying to make something happen that is unrealistic.

Most traders have learning curves that have cost them between $15,000 and $70,000 and up to two years in time.

Here are the steps for proper money management I use for futures contracts:

1.Measure your account value on the first of the month – the total of cash, cash equivalents, and open positions.
2.Calculate 2% of your equity. This is the maximum you may risk on any given trade.
3.Calculate 6% of your equity. This is the maximum you are permitted to lose in any given month, after which you must close out all trades and stop trading for the rest of that month.
4.For every trade, decide on your entry point and a stop; express your risk per contract in dollars.
5.Divide 2% of your equity by your risk per contract to find how many contracts you may trade. To get a round number, round it down.
6.Calculate your risk on all open positions by multiplying the distance from the entry point to the current stop by the number of contracts. If the total risk is 4% of your account or less, you may add another position, since you’ll be adding 2% with your current trade, bringing the total to 6%. Remember, you do not have to risk 2% per trade; you may risk less if you like.
7.Put on a trade only after meeting all of the above conditions.

Establish the size of your trades on the basis of how much money you can afford to risk, not how much you want to make. The beauty of this money management system is that it clips your losses when you are cold and lets you go forward at full throttle when you’re hot.

Droke, Clif – Technical Analysis Simplified

Kahn, Michael N. – Tech. Anal. Plain & Simple

Kamich, Bruce M. – How Technical Analysis Works

Lefevre, Edwin – Reminiscences of a Stock Operator
about Jesse Livermore

Lofton, Todd – Getting Started in Futures

Lowenstein, Roger – Buffet (Warren)-The Making of a Capitalist

O’Neil, William J.- How to Make Money in Stocks

Oz, Tony – How to Make Money From Wall Street

Rotella, Robert P. – Elements of Successful Trading, The

Schwager, Jack – Stock Market Wizards

Sperandeo, Victor – Trader Vic-Methods of a Wall Street Master

Wasendorf, Russell – All About Futures

Slutsky, Scot and Darrell Jobman – Complete Guide to Electronic Futures Trading, The

Extraordinary Popular Delusions and the Madness of Crowds” by Charles Mackay

The Intelligent Investor, by Benjamin Graham

One Up on Wall Street, by Peter Lynch

Common Stocks, Uncommon Profits, by Philip A. Fisher

Stocks for the Long Run, by Jeremy Siegel

Bulls Make Money, Bears Make Money, Pigs Get Slaughtered, by Gallea

Trading for a Living, by Alexander Elder

From Riches to Rags, by I.C. Freeley

Millionaire Traders, Lein & Schlosberg

You can get any or all of thee books at your local library through the Interlibrary Loan system for free.

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