Goals For beginner Traders

With all the information out there it can be hard to filter through and decide where to start. Setting goals can help, but often novice traders set the wrong type of goals when they decide to start trading. With this is in mind, as a novice trader your initial goals should help you to eventually make money, but making money should not be your goal. Instead, opt to make your initial goals about process and emulating traits of professional traders. By plunging into the market and expecting to make a certain amount of money, the goal becomes almost impossible to reach over the long-term. These types of goals require that the trader actually know the capabilities of the trading plan they are employing.

One must know the potential and pitfalls of the strategy they are employing. Based on the method being used, it may be impossible to reach a dollar or percentage goal, but it still could be valid and provide a good return; therefore, the trader must either abandon the strategy or deviate from it in an attempt to find more yields. For many traders this becomes an endless cycle of abandoning strategy after strategy or never being able to adhere to a plan. Greenhorn traders must not only become knowledgeable about the markets, but also about themselves. Focus on the process and attempt to perfect that, and results happen on their own. Attempting to achieve results without perfecting the process the markets will likely continually take your money.

Most businesses take quite a bit of time before profits come, and many, many more businesses fail completely. Trading is no different. Results will not come instantly, and if they do it is likely due to luck. Without understanding how the markets truly work and developing a winning process, the results are based on chance, not skill. In order to build a winning process for trading the markets, try using these three goals. Focus on mastering these areas from the very beginning, and positive results are more likely to ensue.

Have a Plan

The plan should include how trades will be entered, exited (profits and losses) and how money will be managed. The plan should be very detailed, outlining the markets that will be traded, risk parameters, if filters will be used on trade signals, what constitutes a trade and exit signal, position size and what market environments will be traded. Therefore, the goal here is to create a complete plan for trading the markets before making another trade.

What not to Trade

Beginners will push to achieve that goal even when opportunities are not present. The market does not present statistically probable trading opportunities at all times. In the markets this can erode profits that came during good trading times. When, and when not, to trade should be covered in detail in the trading plan. Make one of your goals to be as disciplined as possible, only making trades that are outlined in the plan.

Keep it Simple

A complex strategy can be very appealing. Many people believe that because something is complex it is more likely to work than something that is simple. Avoid getting too complicated with your analysis and trading strategies. Avoid the desire to make a winning trading plan more complex, usually this only results in destroying the profitability. If you like the stock market, stick with trading stocks. If you like commodities, then trade Futures. Focus on only one market and a couple of simple strategies when starting out. The goal here is to avoid constant tinkering in order to improve performance, or continually switching markets, strategies or analysis methods. Stick to the plan. If it occasionally needs to be reworked a bit that is fine, but keep the revisions simple.

Common Stocks for Income

The vast majority of these offerings trade on major exchanges and may include features that render them even more advantageous than plain vanilla bonds.

Real estate investment trusts (REITs) are companies that own and operate income-producing properties such as shopping centers, offices and apartments. They pay nearly all of their taxable income to shareholders and consequently offer regular, high-yielding payouts to investors. However, investors should be aware that dividends paid by REITS do not qualify for the reduced tax on dividends.

Master limited partnerships (MLP) are typically resource-related companies in which the advantage resides in the companies' pass-through financial status. All income, gains, losses and taxable events pass through to the unit holder. These shares are not eligible for regular dividend tax treatment.

A business development company (BDC) is essentially a mutual fund that invests exclusively in private companies rather than publicly-traded ones. Investors can therefore participate in the world of private equity without being "accredited" investors, and still enjoy the liquidity of a traditional mutual or closed-end fund.

Closed-end funds are mutual funds with a fixed number of units that trade on the stock market. Many of these are invested in income producing securities like municipal bonds or preferred shares. Investors should be aware that the price at which a closed-end fund trades may be above or below its net asset value (NAV). Tax treatment will vary depending upon the fund's holdings.

Index exchange-traded funds are instruments that seek to mirror the performance of a single market index. Therefore, these ETFs allow an investor to buy or sell shares in a widely quoted government or corporate bond index. There are also ETFs that mirror several municipal bond and junk bond indexes. Fees are generally very low on ETFs, and annual taxable capital gains are minimal.

Preferred stocks are traditionally structured as perpetual preferreds, which means that they have no stated maturity date. However, companies have started issuing redeemable preferred shares that have a specific lifespan. Most preferred dividends receive favorable tax treatment, except those issued by REITs, and are senior to the company's common shares.

Exchange-traded debt securities (ETDS) are "bonds" that trade like preferred shares, meaning that they have all the features of bonds, but are available for purchase on the major exchanges. They usually have par values of $25 instead of $1000, and pay interest, not dividends. ETDSs are therefore not eligible for favorable dividend tax treatment. Investors should be aware that most are callable after five years.

Convertible preferreds are unique, as they are convertible into the issuer's underlying common stock. They have the advantage of a higher dividend payout and the potential for capital gains should the underlying common shares appreciate. The higher yields also cushion any downside in the common shares. Dividends from most convertible preferreds are eligible for the lower tax rate.

Mandatory convertibles are like convertible preferreds, except that they have a fixed conversion date and are convertible into the issuer's common stock at variable rates - depending upon where the common shares trade at the time of conversion. Mandatory’s generally compensate better than regular preferreds, but are not eligible for favorable dividend tax treatment.

Trust preferred securities are an ingenious way for companies to raise funds under more favorable tax terms. They are essentially debentures with proceeds that are paid out to investors in the form of preferred share dividends. Investors should be aware that debentures are usually at the low end of the credit spectrum, and payouts may be deferred until the redemption date of the security. Third party trust preferreds (TPTP) are repackaged preferred share and debt issues which are distributed by Wall Street's major brokerages. Distributions are usually paid semi-annually. Investors should be aware that these securities are usually callable after five years, and are not eligible for the 15% dividend tax rate.

For income investors who require safe, fixed distributions for a predetermined period, the above investments offer an alternative to bonds. As these trusts trade on major exchanges, they also offer transparent and stable pricing.

6 Investing Guidelines

You are the most important component of your investing success. If you can unemotionally approach the market and adhere to your trading guidelines, then you stand a much better chance of being successful than if you let your emotions take control. To help you become your own best investing asset, we'll help you set reasonable expectations for your investing returns and understand your psychological biases.

1. Protect your investment capital

Have you ever wondered what the secret of successful investing really is? It is proper money management and diversification. The secret lies in the small, simple things that have the biggest impact on the end result. Proper money management and diversification can help you protect your capital so that you can achieve the most consistent gains.

2. Analyzing from the top down

Did you know that every stock belongs to an industry group? A critical step in the investing process is monitoring the movement of institutional money flow into or out of these groups. If a group is out of favor, it indicates that institutional money is flowing out of those stocks.

3. Conduct a thorough fundamental analysis

Whether you find stocks through a search or in the newspaper, or if you prefer to invest in a company with which you're familiar. By doing a quick fundamental analysis, you can confidently reduce or limit the amount of emotion that influences investment decisions: either a stock passes or it doesn't. Fundamentals tell you the good, the bad, and the ugly to help reduce risk. Good corporate fundamentals provide a great foundation on which stock prices are built.

4. Search for additional strong stocks

Now that you have performed top-down and fundamental analysis, you know what type of stock to look for. The next step is to search for other opportunities to complement your portfolio. Knowing how to look for these opportunities puts you in control of your investing. By using stock filtering tools on yahoo finance or finviz can aid you in this selection process. Make sure that the stocks selected pass all the previous tests.

5. Conduct a thorough technical analysis

After you have compiled a list of fundamentally solid stocks, you can monitor them for the opportune time to buy and sell according to technical indicators. Technical analysis is useful in forecasting a stock price's potential direction-allowing you to better time your entry and exit points.

6. Manage your portfolio

Investors looking for great stocks and watching for buy and sell opportunities, must manage that information effectively. The more stocks you're able to track effectively, the more opportunities you have to find good investments. Stocks in the same industry generally move in the same direction. If the group is strong, it's an indication that institutional money is flowing strongly into the group, causing most stocks to rise. The best-performing stocks in the group generally make the strongest moves, but even lower-quality stocks in a strong group will typically rise with the rest of the group. Industry group research allows you to better focus your attention on the very best market sectors and to make sure that a stock you are considering is in an up trending industry.