Your Questions About How To Pick Stocks To Trade

Mark asks…

Dear Veteran Investors, I’m New to Stocks and Investing; got some questions.?

Do “retail investors” and “home gamers” (especially beginners like me) even stand a chance at making a profit?

With what limited knowledge I have about stocks and investing I feel like I picked some great stocks to invest in; companies with fairly low P/E multiples, strong quarterly earnings (all beat and raise for recent quarter), as well as strong future growth potential. Yet, I’ve been getting hammered on all of them, except AAPL.

So veteran investors, is this market too dangerous for a beginner like me right now?

Also, with the rise of the machines and high frequency trading, is technical analysis more important than fundamentals in this kind of market?

Can anyone point me to a good source on learning technical analysis?

They say “buy and hold” is dead, does that mean you should just be actively trading for quick gains?

Are there any rules of thumb regarding how you should determine when to cut losses?

Thanks.

Oh, one last question. What are your opinions on Jim Cramer? I love his show, but I’m very skeptical as to his motives and ability to help the “home gamer” make “mad money.” Is this guy respected on Wall Street? Has anyone made any significant profits by playing one of his recommendations?

John answers:

The market is not a friendly place right now, anyone can be a genius when the market is rising but in a sideways or falling market, amateurs can get their hats handed to them.

The effectiveness of technical analysis is not enhanced by high volume trading. Fundamentals are the key and will always be. How come technical analysis always looks backwards for their success stories? Hindsight is 20/20 and that is always what technical analysis looks at to support its methods.

Buy and hold is definitely dead. But that doesn’t mean you should just be looking for short term trades. It means you need to constantly review your holdings and sell those that are not working.

I believe in the technique you should sell any stock if you lose 8% or more on it – no questions asked. That way you’ll avoid most huge losses you might incur.

I like Cramer’s show. And generally his advice is excellent. But when it comes to his tips I have been burned a couple of times. Always remember he is first and foremost a TV show – he has to fill up 60 minutes in spite of how he actually feels about the market on a given day.

Ruth asks…

i’m interested in stock options or some one who trades them?

i want to use my stock picks and back test it with a Professional option trader just to see how well i would have done by trading the actually stock or the options and just see the difference granted the options would win by far but just want to see by how much. any traders here that could help me with this

John answers:

To back test you need historical data. The only free sites I know providing any historical option price information are

http://www.crimsonmind.com/options/Histo…

And

http://bigcharts.marketwatch.com/

Note that at the second site to enter an options symbol you need to put an “=” before the last two characters of the option symbol. For example, HOVNA would be entered as “HOV=NA” or GEAC would be entered as “GE=AC”.

If you are willing to pay for historical data, you can buy it at

http://www.marketdataexpress.com/

I also feel I should warn you that the wide spread between bid and ask prices are likely to distort your results unless you limit yourself to the most liquid options. For example, you might say “By my analysis I should have bought this option on day X and sold it the next day.” If you looked up the trade quotes you might see on day X it traded at $0.10 and the next day it traded at $0.30. That does not mean you necessarily would have made a 200% profit. For example, the bid/ask quotes might have been 0.10/0.30 both days, but on day X someone sold at market and the next day someone bought at market.

Thomas asks…

Can one connect via wireless connection for online @ work while still using the ethernet for my work program?

I would like to go online at work but don’t like the fact that my employer can trace the websites I visit. I enjoy browsing and investment boards and doing the odd stock trade, along with ebay….etc.
In my work area there is an open wireless signal which my wireless laptop picks up.

The problem is when I connect my ethernet to the back of my laptop I believe the ethernet overides the wireless signal and I back to going thru my work server.

How do I get the computer to work only thru the wireless connection for the internet? While still being connected on my work server thru the ethernet for my work program?
Any solutions out there? regards tcmazz

John answers:

The only thing I can suggest is when at home log on to google and search for PROXY SERVERS. To use one type the address of the proxy into the address bar this brings up a title screen with a another address bar, use this to browse your sites, the proxy will disguise the sites visited as long strings of meaningless numbers. When you have finished and have shut down the proxy go to your employers Internet home screen click tools, delete cookies and temporary Internet files and clear your Internet history.
This should prevent your employer from knowing where you have been whilst allowing you to browse and have work site up at the same time. Sorry but don’t know about the override problem, it may be due to settings on your laptop, have you tried opening a run window and and running services.msc, go to the bottom of the resulting list and find WIRELESS ZERO CONFIGURATION, right click on this and select start from the list, then follow the on screen instructions. Then try and connect to the wireless from the networks screen in control panel.

Hope this Helps, all the best. A

Betty asks…

where should I start buying online stocks?

I’m looking to start buying some stocks in a few months and I was wondering where I should start out? I already have a compiled list over several markets of which stocks I’d like to pick.

I can’t figure out which site is the best. So far I’m looking at Sharebuilder.com and Scottrade.com as those are the only two I could possibly afford. I’m looking at long term investing and maybe a few trades a month at the most. Are these sites good for that?

Also I’m confused. for example sharebuilder says 9.99 per trade. So if I bought a stock share for $2.00 then I’d get charged $9.99? How does that work out? I’d be in the red all the time just by the fees! That seems like a rip off, I don’t think Im understanding it right.
oh I’m 21 btw, not much money so I’m just going to start investing a little bit at a time.

John answers:

There are a lot of discount brokers out there you just need to do a little searching around to find them. Since you are just going to invest a little bit at a time you want to focus on brokers that offer cheaper per trade commissions.

Some brokers to look at are
1) Trade King: $4.95 per trade, No act minimums
2) Zecco: $4.50 per trade, No acct minimums
3) Scottrade: $7.00 per trade, $500 initial deposit

*THESE ARE NOT IN ANY ORDER*

The $9.99 per trade in your example is on the whole trade. So no matter if you buy 1 stock or 500 you will still get charged $9.99. Same goes with selling. As you can see it is beneficial to buy more stocks if you’re going to get charged $9.99 anyways.

Going back to your example if you bought 1 $2.00 stock your cost per share will be $11.99 [($2.00X1 share)+$9.99)/1]. In other words you will have to wait for your stock to hit 11.99 to break even in your investment.

On the flip side if you bought 500 shares at $2.00 your cost per share is [($2.00X500 shares)+$9.99)/500] which will be roughly $2.02. So your investment will break even at $2.02 as opposed to 11.99 if you bought only one share/stock.

Linda asks…

What made you a successful stock investor?

Please only answer if your an experienced and successful stock investor. I want to know exactly how to be like you. I want to idol you, study everything you do, and maybe dream of being more successful than you.
I am only seventeen years old, I have much to learn about stocks, and will continue to learn. I am just really interested in the field because of the buy and sell methods of video games. Yes I know stock trading is not like a video game, but this made me interested in it. Buy low right when something comes out hold it….dump. I know all of the methods to become a wealthy investor, I just need to know what exactly you do. A source? A book? How do you find these stocks. You cannot just pick the stock out of “nothing” simply because you need something to rely on. You look and say “oh this stock is at a all time low, lets buy in.” The question is…how in the world do you get there to find that stock that is at that low. A stock list? A website? This question might be a little repetitive and messy…but I would like a thorough answer please. Much thanks appreciated!

John answers:

Experience and reading. Sometimes losing money teaches you alot, I think almost everyone lost money in the market before making money. Put it this way, 7 or 8 years ago I remember thinking how much more I knew about investing then I did in the 90s, and how I understood so much more about it all. Today I look back and realize that when I was thinking about that 7 or 8 years ago, I really knew nothing. You never stop learning.

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