Broadening Horizons -- By: Bill Kraft
Copyright 2009, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Experience has shown that many subscribers are like most retail
traders in that their trading is limited to buying stock and hoping it
will go up in price. As most regular readers know and as anyone who
has read "Trade Your Way to Wealth" is aware, I am a believer in
playing the direction the market is moving. Roughly 80% of the stocks
will be moving in the direction of the market, and if I want an edge,
it makes sense to me to try to select candidates that are going in the
same direction as the overall market. I don't mean to say that
contrarian plays can't work; it just seems less likely to provide the
edge we seek if we try to grab from the 20% rather than from the 80%.
It is hardly a secret that the markets have been extremely
bearish for some time now and so far the bearishness continues. If we
are determined to be bullish players, it seems obvious that a bearish
market is a great time to stand aside. We should be aware, however,
that there are now many vehicles available that permit us to buy
shares that are specifically designed to move up as the markets move
down. I often buy positions in the short and ultrashort vehicles
provided by ProShares that enable me to profit on downward moves.
These devices are closed end funds that seek daily investment results
that correspond to the opposite (or inverse) or in the case of
ultrashorts, twice the opposite of the daily performance of a market,
sector, or index. The ProShares UltraShort Dow30 (DXD), for example,
seeks investment results that correspond to twice (200%) the opposite
of the Dow Jones Industrial Average Index. These ETFs (Exchange Traded
Funds) trade like stock and can be bought and sold throughout the day
and can be traded on a technical basis. Many are now available
including the ProShares UltraShort S&P500 (SDS) and the ProShares
UltraShort QQQ (QID). There also are closed end funds that allow a
trader or investor to play sectors to the downside since they are
designed to move up in price as the sector moves down. The ProShares
Short Oil & Gas (DDG)is just one example.
Traders, as always, should be aware of the risk in taking
positions in these vehicles. Some, for example, are thinly traded and
may have liquidity issues as a result. For that reason, it is worth
checking average daily volume, particularly on the shorts and
ultrashorts that are tied to sectors rather than to whole markets.
Control of size of potential loss is also critical, as always, and the
trader needs to be aware that the ultrashorts while providing the
possibility of a return equal to double the opposite of an index, also
can lose money at double the move of the index (in other words, really
fast) if the index starts to move up. Stops and exit strategies are
important here as in all trading.
The point here is that there are ways other than shorting a
stock or buying a put that a trader or investor can profit from a
downward move in a market or a sector. As is always the case, the
trader and investor needs to gain education and practice before
putting money at risk.
On another subject, in order to make sure I have notified all my
personal coaching students, I am having a free event for them in
Scottsdale March 21st and 22d where I'll do a full day presentation on
the 21st on volatility trading and dinner will be on me. On the 22d,
we'll have a laid-back time where everyone can exchange ideas and the
students can get to know one another. If you haven't already
contacted me, please make sure to let me know whether you are coming
or not. I am hoping to make this an annual event. Those who are
interested in individual coaching sessions can contact my office at
480-248-9996. I am still offering a subscriber special for a one day
one-on-one session for $2,500 ($2,100 for paid subscribers). There
are no openings until April and I do limit the number of students
significantly each year. The offer will only be open to those who call
before February 15th to schedule a session later in the year.
Finally, I am honored to have been selected as the featured
author this month by Better-Trades.com. Check out their website
(better-trades.com) where you can see my recent interview and explore
some valuable information in their stock reviews and analyst exchange.
Good Trading!
Bill Kraft
Success Trading Group -- by the Success Trading Group Team
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Option Trader -- by Bill Kraft
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The Option Trader service utilizes standard trading in Puts and Calls as well as strategies using Leaps, Straddles, Credit Spreads, Calendar Spreads, and Naked Puts. But no matter how sophisticated a strategy may be, we ALWAYS know our downside potential on every trade.
Here's a look at a trade Bill is currently working on:
Apple Inc. (AAPL)
With the announcement that Steve Jobs is taking a leave of
absence for health reasons, AAPL gapped down to the area of the
November lows. It bounced off that support and though the stock was
down Friday, I am looking at the possibility of a bullish put spread,
selling the Feb 80's perhaps and buying the 75's as a protective leg.
Good Trading!
Bill Kraft
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Trend Trader -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Here's a look at a trade Bill is currently working on:
Matthews International Corporation (MATW)
MACD just turned positive on MATW and it broke above the
10 day EMA. There is a little resistance just above $37 that I would
like to see broken before I would enter and the earnings announcement
is due shortly. Often there is a dip after the announcement sometimes
even when the announcement is positive. While a little patience may be
required before jumping on board this one, it is definitely on my radar.
Good Trading!
Bill Kraft
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$10 Trader -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Here's a look at a trade Bill is currently working on:
eResearchTechnology Inc. (ERES)
I closed about a three week position for a 4% gain before
commission on this one on Monday. It has reversed to the upside when
the bears have tried to take it below about $5.80 so it is on the
screen for a re-entry. It looks like there is a potential target in
the $10 area if it can break above the recent high around $7.25.
Good Trading!
Bill Kraft
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Dividend Investor -- by the Dividend Investor Team
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