Stock Market Survival Tips: Avoiding Institutional Traders

By Steve Wyzeck

Unleashed on the individual trader for the first time...if you keep getting sniped by false breakouts in the stock market and are losing money, this article could change your stock trading forever...

This behind closed doors secret about institutional traders will save you from being ambushed. This secret has saved me thousands of dollars and now I'm breaking my silence to show you how to do the same.

You are about to discover the unfair trading tactics that institutional and professional traders use against you in the stock market.

It may upset you. It may piss you off.

You may even want to forget you ever read this...

Read this entire article...

And I promise you you'll be glad you did.

Because after you are done reading this article, you will have new insight into how to spot and avoid false breakouts...

First I will talk about what support and resistance lines REALLY are, and then I'll talk about false breakouts.

Knowing WHY support and resistance lines work will help you protect yourself against false breakouts.

When traders buy and sell a stock, they commit emotion to the trade. It is their emotions that will keep a market trending higher or send it into a reversal.

When stocks fall, a few traders will exit their position and take profits, a few traders will exit their position for a loss, and a few traders will stay in their position and hold on.

A chart is really nothing more than the result of emotions coming from the crowd of people in that particular stock.

Emotions Are Why Support And Resistance Lines Form

If a trader is holding on to a stock and hoping that it is going to come back, and it finally does, she is probably going to sell that stock. Staying in that loser of a stock is just too painful as she laments her entry. This selling to relieve the pain will momentarily stop a rally. These painful memories are precisely why support lines and resistance lines form at certain price levels.

Let us say that a $20 stock drops down to $18 and stays there for a few weeks. The longer the $18 level holds, the more that traders believe that this is a good support level and buy the stock. Now right after buying, the stock falls to $15. Skilled traders will sell quickly and exit their position at $17 or at $16. Amateur traders will stay in their losing position until, one day, it rises back to their original entry level at $18. They will then sell this stock never to return. They eagerly jump out at the chance to "get out even". Their selling will temporarily stop a rally and form a resistance level.

Resistance Lines and Support Lines Form From The Emotion Of Regret

Traders who come across a stock that has spiked up feel as if they have "missed the train." If the stock drops back to a certain level, these traders who feel regret for missing the first move will jump at a chance for a second move. Their buying forms a support level.

Take your stock chart and draw resistance and support lines at recent tops and bottoms. You should anticipate the trend to slow down at these levels. Use these support lines and resistance lines to either buy (at support) or to take profits (at resistance).

False Breakouts Are Caused By Institutional Traders

When the market rises about resistance and pulls in new buyers and then suddenly reverses and falls back below that resistance, this is called a false breakout.

A false downside breakout occurs when prices fall below support, attracting more bears just before a rally.

All stocks are fair game but especially any stock that has a high percentage of institutional ownership.

False breakouts provide institutional traders with most of their best trading opportunities which is why institutional traders most often are the ones who cause these patterns to form in charts.

All limit orders are displayed on the screens of Institutional traders. They have the exact number of buy orders above a given resistance level.

Institutional traders engage in what is called "running the stops". False breakouts happen when Institutional traders organize hunting parties to run stops.

For example, when a stock is slightly below its resistance at $30, the buy limit orders come flowing in near $28.50. The institutions calculate the liquidity ratio which measures how much the stock will go up if all buy limit orders are executed at $28.50. They calculate that the stock will run to $31 if all the buy limit orders at $28.50 are executed. They short the stock at $30 to push it down to $28.50. At $28.50 they cover their short position and go long as the wave of buy orders are automatically executed pushing the stock up to $31. If greedy traders start piling in, the institutional trader will stay long the trade. As soon as the buy orders start drying up, they sell short and the price falls back below $30. That's when your chart shows a false upside breakout.

If you are knocked out of a trade because of a false breakout, do not be afraid to get back into the stock. Amateurs usually make a single run at a stock and stay out if they are stopped out. Professional traders will make several runs at a stock before nailing down the trade they want. - 23218

About the Author:

Written by Steve Wyzeck. To turn your stock trading around go to stock market

System Trading - Do You Have a Trading System?

By Maclin Vestor

A trading system is a methodology of trading. An investor who uses one system and follows a specific set of guidelines when making a decision, follows system trading, and will usually never deviate. A trading system is only one method of trading, and usual requires no thinking. It is possible to have one system that is governed by multiple system.

For example, to have 10 different systems, and select only one stock from each system every month according to the main system's qualifications.

Someone that uses several Trading Systems is a multiple system trader. They have to either have an overall system that encompasses all of them, or make their own decision on which to follow. Doing so can be dangerous, as the purpose of system is to prevent human error. It is advised to be a system trader who trades one system at a time, or trade multiple systems within a larger core system, and avoid being a multiple systems trader.

Trading System - Trading can be awfully hectic without some kind of methodology. You can't expect to take on the best traders in the world who have teams and resources at their disposal just by throwing around money at will hoping that it works. You need an actually defined system in order to be able to trade effectively.

Many successful systems are based on earnings and high potential for growth. Stockbee's trading system often swings for the fences. As a result, it requires a solid degree of protection. Obviously you shouldn't limit yourself to someone else's system, you need to find one that is right for you.

There are two kinds of traders, technical traders, and fundamental traders, each has their own system. Of course there are some who use both.

Technical traders

Some system traders, are day traders. Others are swing traders. Still other people are more of a trend trader. Each will have it's unique system. The system will be based on the technicals. Is it volume that triggers the buy? Is it price movement? A combination of both? Or perhaps it's pattern trading.

Some people even have trading machines or robots that do the work for them. Others rely on pattern recognition done by a system. The method is to sign up for email alerts, or some form of alerts, then make a purchase based on the software's recommendation. There are some people that screen down a stock based on strong fundamentals, and only trade those stocks, but trade them based on the technical chart patterns and volume.

They will sell based on a trend break, or rules on when to take gains such as 20% gain according to their system. They will set a stop loss based on their system as well. It might be 4%, or 8%, or it may be a trailing stop.

Fundamental traders

Fundamental traders might do things a little differently. They are looking for improving fundamentals, or stocks that pass through a certain screener. Zacks.com is a great resource if you want to rely on fundamentals. Earnings is always a big part of a system, and the Zacks' ranking uses earnings revision to get in early when the earnings and company internals appear to be improving. Zacks' has several screens, and their software allows you to screen stocks according to many different options.

Regardless of your trading system, one thing remains important in every single system. Money Management and loss protection.

It doesn't matter what the upside is or win rate is, if you can't protect yourself from major declines, you shouldn't be trading. I don't care if your system is 90% effective (no system is and if they say they are, they're lying), and if the gain is 1,000%. If you put all your money on it repeatedly, eventually you will suffer a loss so catastrophic you will never be able to recover without borrowing money. By taking one loss, you hinder your ability to make money. That is more costly then the potential for greater gains that you would gain by taking additional risk.

Just to illustrate if your system causes you to take a 95% loss, you need a 2000% return just to make up for that loss. You cannot trade like this. No system is better then it's weakest link. That weak link unfortunately for many people is the ability to manage money. Fortunately, it is a skill that can be learned, and doing so will make you a better trader. Better yet, if you do not wish to be a better trader, you can simply follow the rules of a system that contains a methodology on how to manage money and how much to invest before placing a trade.

I recommend that you either have a trailing stop or a hard stop. You can also buy a protective put if you are afraid of a stock bottoming out overnight and plummeting through the stop. Protective puts are like owning insurance. Unfortunately, you have to continue to buy the insurance as it eventually expires if you don't use it. Don't trade options without learning everything about them.

Some puts are not good for some strategies. Longer term trades and Investments will require long-term equity anticipation securities, or LEAPs, where as you may not need to risk as much capital for short term protective puts. A trailing stop should be usually 20%, where a hard stop should be more like 7%. Different systems will require different stops so take this with a grain of salt.

A good investor or trader actually will rarely need to ever be fully invested. There are people that trade on complete margin for a few times the entire year, and the rest of the year they're on the sideline, but generally the best traders that have a career that lasts have lots of money on the side, even more so if they use options and are unhedged. If you are unhedged, that is only playing one side of the market, (all buys, or only playing one theme such as only playing inflation or only playing deflation), you need to have even more cash on the side.

The lower the win rate, the more money on the side you need, and the smaller your positions should be. Any good system won't require you to analyze. Having to do a lot of the thinking can cause you to panic and make incorrect decisions. Most people aren't cut out for that, and that's why it is a smart thing for many to use a trading system.

If you trade within a system, you have a much better chance at placing winning trades. A trading system will have a solid record of success, evidence that it works and has been working, an understanding of the decline and proper money management planning. If you trade within a system, you can estimate your results, and by doing so attain measurable success consistently with a trading system. - 23218

About the Author:

Maclin Vestor teaches about varioustrading systems. You can even learn about gold trading systems, and buying Krugerrand at his blog.

Introduction to Trading Systems

By Maclin Vestor

A good trading system is about much more than just selecting stocks. Certainly that is important as well. However, a good trading system will provide the ability for you to protect against losses, manage your money, add proper leverage when necessary, and also select a stock selection maximizing your reward and minimizing your risk.

The guess work is taken out of the way for you. The stock is purchased when criteria is met, the amount of stock purchased is also based on certain criteria. The stock is sold when criteria met, and there are protective measures against a stock's demise, and where possible and appropriate leverage is created to maximize the returns without taking on more risk than you can handle.

This trading system will be talked about in 5 additional parts in addition to this intro. This post is designed to explain the trading system, its functions and how it operates.

1) Exit strategy. Every good system trader will first know the exit strategy. It doesn't matter what vehicle selection you use, if you have no exit strategy, you're stuck. The trick is to understand that unless you want to get trapped in an investment you have to know when you're getting out.

A good exit strategy has both loss protection, and profit taking, and sometimes even a 3rd stop. The first 2 might be a maximum loss, and a maximum gain before taking profits, while the 3rd one will be a trailing stop that rides the gains up, and will sell the remaining shares. There are other exit strategies such as hold forever and write covered calls against it to collect income, or protective puts in place of a stop-loss.

2) Protection. Although #1 covers most of the protection, there are several other ways to protect yourself. Protection is vital to allow you to stay in the game. Many people know that if you lose 20% you need a 25% gain to make up for it. Losses not only can result in a series of losses that wipe you out, but they also hinder your ability to gain in the future. a 95% loss for example requires a 2000% nearly impossible goal to make up for this loss. So even if you flip a coin and have a 50% chance of gaining 200% or 50% chance of losing 95% of it, you should probably not take it if all your money is at risk, because it doesn't have the downside protection A series of wins followed by 1 loss would prevent your ability to stay in the game. Even though those odds SEEM fair, they are not without proper protection. Protection ensures that you won't have that 95% loss, and it absolutely restricts that loss to a fixed amount, rather than take 100% risk.

Such forms of protections are writing calls, in this situation you are given a premium so if the stock tanks to zero in a worst case scenario you'd still end up with the premium, this is minimal protection, and only protects a marginal amount of decline before the losses continue. The other form of protection would be buying a protective put. This actually in fact does protect against catastrophic losses. The lower your stock goes if/when it crashes, the more you make from your put or puts. You are the one paying a small amount in order to protect against any sort of decline below the designated price. The lower this price, the cheaper the option. If a stock is at $50 and you buy a protective put at a strike price of 40, you will NOT be protected against losses from 50 to 40, but beyond that you will be protected to the downside.

These are somewhat more sophisticated forms of protection. Basic forms of protection are diversifying, and perhaps being short. If you buy a stock at $100, and you short one in the same sector at $100, if the whole sector goes up, you are betting not that the market will go up, not that the sector will go up, but that stock A that you are long will outperform stock B in a bull market, and stock B will under perform stock A in a down market. This offers protection although it may limit the gains as well, Plus, you actually have to be right in your thesis.

In addition, if you are short, and the stock market booms, you may get a margin call and be forced to sell. Also, if you do not use money management, you are at risk of a short term swing requiring you to sell all of your shares of the stock that went up, in order to pay for those that you were short that went up, and if you can't cover your short, your entire account is in jeopardy of being wiped out.

So rather than being short, I recommend replacing it with buying put options, although this has lots of risks involving time decay as well that you must understand before investing. Using a business entity such as a C Corp or a LLC is another form of protection that can protect you potentially against higher taxes, and personal financial trouble such as a bankruptcy on your record if you intend on using forms of leverage such as loans.

3) Money Management and Control. A good trading system will have a form of control. it will allow you to not give up that control when things go bad. In other words, it allows you to manage your money. Money management is very important. Perhaps one of the most important things is position sizing. If you buy $10,00 of stock for one stock when you only have $10,000 in your account this is very poor money management. Continue to do this, and eventually you will suffer a large loss which will be great, and it will be very difficult to gain enough to make up for it. In addition, if the price goes lower depending on your system, you may want to give yourself flexibility. Extra cash on the sides is another form of money management. It doesn't have to be cash per say, but some form of safety. Various forms of currency, sometimes some gold, bonds, and money market accounts that are all fairly liquid would be a few examples.

4) Leverage Leverage is about using your abilities to gain, the strength of your trading system and various tools to minimize risk, and increase gain. When you take on leverage, you should be able to reduce your position size in comparison to your capital, and still have a similar reward or gain.

Forms of leverage include options, the further out of money option you purchase, the more leverage you have if that stock does make a strong move. You can also sell options to raise capital to invest in some cases.

Another from of leverage is a loan. Whether it's a credit card, a home equity loan, going on margin, or a business loan for an asset holding company, or even taking a company public and using the capital to invest, the idea is to gain money at x% and to invest it and make a greater return than x%. if you can do this, and manage money well, and protect yourself, Your gain is only limited to the amount of capital you can borrow at the maximum of slightly less than what you expect to gain. Generally however, if you use a loan, you should have a form of cash flow or income that will cover the costs of the loan just in case your investment goes wrong. That's another form of money management while using leverage. Money management should be treated much differently under different forms of leverage.

5) Finally, the stock selection vehicle. You need some method to select your vehicle, based on this and your other factors you will determine time horizon and a methodology of trading. The system will help you choose your trading stocks, and exactly what to do with them. You can play around with different trading systems, but generally you should first attempt a good exit strategy and make sure your controls on parts 1-4 of your trading system are sound, and try tweaking them

Stock Trading Systems that are well defined will leave very little room for error. If you learn to use a trading system, you can choose to enhance the essential skills it takes to making your trading system better.

Unfortunately, many day traders are slaves to the computer screen and can miss a moment. Focus on building the better trading system, and not placing the better trade, and you will give yourself some valuable time. If you are really using a system, you don't need to be the one to place the trades, and can instead higher someone to do the work for you. You can use that extra time to improve your system, or find new ways to invest, or learn how to become a better trader.

You can learn other tips like this at the System Trading|Stocks Trading Systems blog, which is full of tips for day trading, options, swing trading, momentum trading, and advice on building a trading system. - 23218

About the Author:

Maclin Vestor teaches about trading systems. You can learn more about system trading and find a Trading System that works for you at his blog.

How Can I Make Money With Penny Stocks? It's Not That Hard!

By Grant Dougan

One of the most exciting investments are penny stocks. There's a lot of people that don't consider these types of shares because they assume they are full of risk. In reality, there's tremendous opportunity to make enormous cash with these shares once you know what you need to look for.

Any stock under two bucks is what I see as a penny stock. When I consider stocks to buy, I look for a business that is up and coming. You will see numerous organizations that are now trading under two dollars because they have had difficulties. Instead of investing in these businesses, I look for upcoming companies that are growing. By focusing on these organizations I can make tremendous money in the future when the business starts to be successful..

So how do you find the stocks to invest in? This, of course, is the most important question!

Examining the industry that the business is in is an important first stage. Think about if a new business into the industry can succeed based on the competition that exists. This involves a top-down view of the industry to ensure that the organization is involved in an area that allows them the potential to be successful.

Of course you need to analyze the actual organization. Are you happy with the management team? You should also look at what the business offers and see if their product is different from what other businesses are providing. Maybe they make a specialized product, or maybe they are charging less expensive prices. If the organization provides a product or service that isn't just like what everyone else has then it is much more likely to produce strong sales.

Look at the financials of the organization to see if there is anything that stands out to you, however don't automatically worry if they aren't making net income as of yet. Quite frequently this is the case with developing businesses. However, I do want to determine that the organization has money available to them or financing so that the business can continue to push forward.

Also, search for a business that keeps strong communications with stockholders. I love being able to see a website where the business prints updates because this lets me have a manner to stay abreast on company news.

Once you start searching for penny stocks and investing in them, it's easy to find yourself earning some massive profits. There's fantastic money to be earned when you understand how to analyze these shares. - 23218

About the Author:

Make use of these penny stock tips and you will find yourself making great cash on your investments. Click Here to learn about a penny stock trading system that has been making great money for over three years now!

Forex Trading Tips for Newbies

By Bart Icles

Everyday, more and more people are joining the profitable world of forex trading. As thousands and thousands of traders go online everyday, perhaps you might be asking how they get to earn money. The truth is, all you need to start a career in forex trading is good research, a bit of nerve, and valuable forex trading tips. Forex trading opens a lot of opportunities that you would not have thought would be possible if you were just sitting in front of your computer the whole day.

If you would browse online, you would come across many different trading tips that you will find helpful. You can easily get overwhelmed with all the pieces of information that will help you learn about forex trading so it is important that you are able to take note of the most essential ones. Foremost of these tips is trade pairs and not currencies. This is one of the most reasonable tips that you will ever learn because just like any other relationship, you will need to know about both sides of forex trading. Your success or failure in the forex market greatly depends on how two currencies affect and have an impact on one another and not just the trend of one.

You also need to understand the power of knowledge. It is vital that you learn about the basics of the market and understand how they affect trading, as well as the different trading signals that you need to keep a close watch on. Your best resource would be the internet and TV - you will need to spare some time to catch up with global news and events.

Unpredictable as it is, you cannot afford to gamble all your money in the forex market. Once you engage in trading, you should learn to make reservations. You have to keep in mind that although the forex market presents a lot of profitable opportunities, market trends can also turn against you in as fast as a few seconds. The key here is to practice a method of trading that is overcautious and not ambitious.

Once you have started to invest in the forex market, you will need to understand the there are only two directions that you can go: up and down. It helps to keep an eye on the long term and to be aware of the real value of strategy. Most forex trading tips will reiterate the importance of strategy and it is vital that you keep this trading roadmap in mind. - 23218

About the Author:

A forex trading system is powerful when coupled with a desire to learn and a drive to become a great trader. Learning forex trading systems takes dedication and a good teacher. But once you learn how to trade and do so successfully your life will change and you have options and financial resources you never had before.