How to Invest : Averaging Down

Averaging down refers to adding to your position if it decreases considerably in price after your original entry. This will bring down the average cost of your position. If it works it will bring you big profits, but if it doesn’t it will lead to a bigger losing position. There are conflicting opinions on this strategy. Supporters of the strategy see averaging down as an efficient approach to generating profits, while those who oppose site it as a formula to disaster.

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Equity Mentor

Having the proper guidance every step of the way is crucial to your success. We, at Equity Scholar, understand that. That is why we give each of our members the opportunity to ask questions and get feedback from experienced Wall Street trading professionals. Moreover, in our Equity Mentor section, members can read through numerous constructive articles written to provide direction and support beyond learning the skills of trading. When it comes to learning complex financial material, there's no substitute for the guidance provided by our Equity Mentor team.
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How to Invest in stock market and retirement

There are two very different ways of anticipating what will happen in the market; technical analysis which is defined as forecasting the future price movement of a stock based on past market information, generally price and volume, and fundamental analysis which involves evaluating a company’s financial statements, management, advantages over other companies in the same sector, and the market itself.

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where to invest ? How about Indices

An index provides a measure of the value of a group of equities. Indices are used extensively to measure change and volatility in areas of economic interest such as currencies, cpi, or unemployment. Stock indices are typically compiled by firms affiliated with the securities industry or exchanges, and are generally ...

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Economic Indicators

The key to your success will be looking at these economic indicators, extracting what Economic Indicators and key statistics that show where the economy is headed by monitoring inflation.

The reason why inflation is of importance is based on the fact that it influences the level of interest rates. Stability within the economy is maintained as long as inflation is kept under control. Rising inflation reflects rising prices caused by increasing demand and decreased supply.

In other words, the increase in prices of goods and services would erode the purchasing power of the money you make, on the assumption that the money you earn does not increase in line with inflation. To put it simply, Governments use economic indicators as tools to ensure stability within the economy. Consequently the individual indicators of inflation like the consumer price index; unemployment and gross domestic product cannot be directly........

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Equity Trading Psychology

Emotions have no place in an Intraday Investor, swing trader, or even long term trader’s outlook on their investments. When we try and protect ourselves from fear, we end up resorting back to our habitual instincts to enter into a place of comfort, whether or not that place is reality. We stop taking responsibility for our own fears and start blaming others for our issues. At the end, we try and find an easy way out by searching for magic indicators, or Hail Marry solutions.When I think back to my career, I remember the times where I continuously changed my trading techniques to achieve the result that I was looking for. No matter what technical indicator or equity trading system that I used, I would yield the same result, losses. It didn’t matter what I did, I had to fix the real issue which was in my psyche.

I was trapped by the life principles that governed my life since I was a child. I was a perfectionist, I was the guy always looking to ace every exam in school. My equity trading reflected this as well; I refused to take a loss quickly due to my overriding obsession with being right on every single trade. I didn’t believe in myself; everyone else said the equity market was random, or gambling as many would put it. I would act as if this did not affect me but it did subconsciously and I carried that line of thought into my equity trading. I was heavily trained in mathematics in college and considered myself to be very analytical. Equity trading is an extremely fast game and requires lightening fast decision making skills;

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where to invest ? what makes up an index

An index provides a measure of the value of a group of stocks.Indices are used extensively to measure change and volatility in areas of economic interest such as currencies, cpi, or unemployment. Stock indices are typically compiled by firms affiliated with the securities industry or exchanges, and are generally developed to mirror the broad market, a foreign market, or specific Sector. An index is monitored or benchmarked against the value at which it was initially set, and will reflect the market or particular industry only to the extent that the underlying issues are representative of that market or a industry. The values of the indices on which options are traded are updated and disseminated continuously throughout the trading day on the CBOE.

Investors can obtain real-time values from a broker or through any of the on-line quote systems.Indices are typically calculated as capitalization weighted, modified capitalization weighted, price weighted, or equal-dollar-weighted. In a capitalization weighted (value-weighted) index, the market price of each issue is multiplied by the number of outstanding shares in that issue; the total market capitalization is then divided by the base market divisor to arrive at the index value. In a capitalization-weighted index, the more highly capitalized issues are weighted more heavily than the less capitalized ones, and changes in the stock price of highly capitalized issues have a greater impact on an index's value. Modified capitalization weighted indices are intended to maintain as closely as possible the proportional capitalization distribution of a portfolio of stocks, while limiting the maximum weight for a single stock or group of stocks to a predetermined maximum. This rebalancing is accomplished by occasionally artificially reducing the capitalization of higher weighted stocks and redistributing the weight to lower weighted stocks. The net result is a weight distribution that is less skewed toward the larger stocks, but still does not approach equal weighting. The total capitalization of the portfolio remains the same.Price weighted indices are calculated by adding the prices of the component stocks and dividing by the base market divisor, without any regard to capitalization. Typically, the higher priced and more volatile constituent issues will exert a greater influence over the movement of a price weighted index. Equal dollar weighted indices assign equivalent influence to each component stock by representing them in approximate equal dollar amounts. These indices are rebalanced once per quarter to ensure that the components continue to have equal influence.

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Elliott Wave Principle

The Elliott Wave Principle is a detailed description of how groups of people behave. It reveals that mass psychology swings from pessimism to optimism, are creating specific and always measurable patterns. The idea is that if you can identify repeating patterns in prices, and figure out where in those repeating patterns you are today, then you can predict where you will be going in the future. This principle interprets market actions in terms of recurrent price structures. The wave is a movement in the market, either up or down. The size of the wave depends upon the period of time that is being analyzed. Basically, market cycles are composed of two major types of Waves:
1. The Impulse Wave:
It is a wave that moves in the direction of the main trend of the market. Every impulse wave can be sub-divided into a 5 - wave structure (1 - 2 - 3 - 4 - 5).
2. The Corrective Wave:
It is a wave that moves counter to the direction of the main trend of the market. Every corrective wave can be sub-divided into a 3 - wave structure (a - b - c).
An important feature of the principle is that it is that the market structure is built from similar patterns on a larger or smaller scales. Therefore, we can count the wave on a long-term yearly market chart as well as short-term hourly market chart. The stock market has three attributes of the principle that make it quite applicable: One, It is a true free market. Two, It provides consistent and regular metrics that can be measured, and Three, It is manipulated by a statistically significantly large group of people.
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Thinking About LEAPs

When considering any options strategy, you may want to think about Long-Term Equity AnticiPation Securities (LEAPS) if you are prepared to carry the position for a longer term. While using LEAPS does not ensure success, having a longer amount of time for your position to work is an attractive feature for many investors. In addition, there are several other factors that make LEAPS useful in many situations.

LEAPS offer investors an alternative to stock ownership. LEAPS calls enable investors to benefit from stock price rises while placing less capital at risk than is required to purchase stock. Should a stock price rise to a level above the exercise price of the LEAPS, the buyer may exercise the option and purchase shares at a price below the current market price. The same investor may sell the LEAPS calls in the open market for a profit.

Investors also use LEAPS calls to diversify their portfolios. Historically, the stock market has provided investors significant and positive returns over the long term. Few investors purchase shares in each company they follow. A buyer of a LEAPS call has the right to purchase shares of stock at a specified date and price up to three years in the future. Thus, an investor who makes decisions for the long term can benefit from buying LEAPS calls.

Hedge

LEAPS puts provide investors with a means to hedge current stock holdings. Investors should consider purchasing LEAPS puts if they are concerned with potential price drops on stock that they own. A purchase of a LEAPS put gives the buyer the right to sell the underlying stock at the strike price up to the option's expiration.

What's the Downside?

If you are a buyer of LEAPS calls or LEAPS puts, the risk is limited to the price you paid for the position. If you are an uncovered seller of LEAPS calls, there is unlimited risk, or a seller of LEAPS puts, significant risk. Risk varies depending upon the strategy followed, and it is important for an investor to understand fully the risk of each strategy.

Stock vs. LEAPS

There are many differences between an investment in common stock and an investment in options. Unlike common stock, an option has a limited life. Common stock can be held indefinitely, while every option has an expiration date. If an option is not closed out or exercised prior to its expiration date, it ceases to exist as a financial instrument. As a result, even if an option investor correctly picks the direction the underlying stock will move, unless the investor also correctly selects the time frame that movement will take place, the investor will not profit as desired.

Options investors run the risk of losing their entire investment in a relatively short period of time and with relatively small movements of the underlying stock. Unlike a purchase of common stock for cash, the purchase of an option involves "leverage," whereby the value of the option contract generally will fluctuate by a greater percentage than the value of the underlying interest.

LEAPS are simply long-term options that expire at dates up to 2 years and 8 months in the future, as opposed to shorter-dated options that expire within one year.

LEAPS grant the buyer the right to buy, in the case of a call, or sell, in the case of a put, shares of a stock at a predetermined price on or before a given date. Equity LEAPS are American-style options, and therefore may be exercised and settled in stock prior to the expiration date. The expiration date for Equity LEAPS is the Saturday following the third Friday of the expiration month.

LEAPS are quoted and traded just like any other exchange listed option. In fact, many of the features of LEAPS are the same for shorter-term options:

Number of shares covered by the contract (100)

Exercise and assignment procedures

Trading procedures

Margin and commission costs

However, LEAPS® differ from shorter-term options in several ways including availability, pricing, time erosion vs. delta effect, symbols and strategies.

Several factors impact the availability of LEAPS. When options are listed for trading on a particular stock, most times LEAPS are not immediately available. After a period of time, and if interest warrants it, the exchanges listing the shorter-term options may decide to list LEAPS options, after consulting with the market-makers or specialists assigned to trade the stock options. The reason for this is that LEAPS options are difficult to price because of their long life. The exchanges ensure that sufficient interest is present in the market, and that market-makers or specialists are prepared to price and trade longer-dated options once they are listed. The result is that LEAPS are not available on every stock which has options traded on it. LEAPS are initially listed with three strike prices, at the current price and 20 to 25% above and below the price of the underlying stock. Strikes may be added as the underlying stock moves. LEAPS only have one expiration month: January in two different years.

As LEAPS draw within one year of their expiration and it becomes necessary to list new LEAPS series, the existing LEAPS options continue to be listed and traded until their expiration. However, because of the shorter length of time until expiration, they then trade as ordinary shorter-term options and they lose their distinctive LEAPS symbols. New LEAPS options with expiration dates in the future are then added.

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