TheRiskBlog

Riskblogs Web Choice

ofreund — Thu, 15 Jul 2010 14:59:52 +0000

Political decisions are somewhat important for traders. Especially the guys at the Federal Reserve are important to us. What Ben Bernanke says about the economy will move the markets.

In order to stay in touch with the Federal Reserve and its decisions have a look at their homepage and subscribe to e-mail notification: www.federalreserve.gov/newsevents/

Disclaimer: This site is for educational and informational purposes only. Nothing contained here should be construed by anyone as an invitation or solicitation to buy or sell any security. This site does not contain personalized legal, tax, investment, or financial advice. Users of this site should consult with a qualified adviser to obtain advice suited to their personal circumstances. Any links provided here to other web sites are for informational purposes only. We take no responsibility for the accuracy or content of linked sites.

Stockscreener with lots of options

Detlef — Wed, 23 Jun 2010 14:26:56 +0000

We all know the situation. We are just looking for a good opportunity but nothing is available searching our usual research sites. So we need to fire up a stockscreener and screen the market universe for ourselves. The problem is we like to screen for institutional ownership, that is for the percentage of outstanding shares held by institutional investors. This is a bit special and not every stockscreener will let us do this search - but this one does
Just hop on over to Google Stockscreener

Disclaimer: This site is for educational and informational purposes only. Nothing contained here should be construed by anyone as an invitation or solicitation to buy or sell any security. This site does not contain personalized legal, tax, investment, or financial advice. Users of this site should consult with a qualified adviser to obtain advice suited to their personal circumstances. Any links provided here to other web sites are for informational purposes only. We take no responsibility for the accuracy or content of linked sites.

Volatility and long term trades – be patient and not greedy

ofreund — Thu, 17 Jun 2010 11:18:56 +0000

Volatility can be really bad for your long time performance. Before you can think, the market hits your stop only to bounce back a few minutes later.
The flash crash on May 6th was an awful example for this.
If your stop is close, you will surely get kicked out in one volatile move. But if you enlarge your stop too much, you hurt your Riskmanagement. A loss that’s too high for your account.
But how can our positions survive a volatile phase?

One of the solutions is position sizing.

It is no problem to enlarge your stop, but don’t enlarge risk. Define the Risk you take in your whole portfolio. Calculate the worst case and look at your account. The worst hit you have to take if it goes against you shouldn’t be high enough to hurt your account seriously. Best is, if you have gains in your account, you can take them as a risk bumper.

For example:
You have 100 HOG (Harley Davidson Inc.) in your Portfolio with a risk of 3$ per share (2 x Daily ATR). So, you would lose 300$ if your stop gets hit. Now even if the market is very volatile, but your trading idea for this stock is still valid stick to it.
Enlarge the stop to maybe 6$ a share and trade only 50 shares of HOG.
This will minimize your risk. But also, and that’s true, it will minimize your gains.
But sometimes it is more important to minimize risk and keep good stocks in your portfolio, instead of heading for fast and mostly little gains.

If you can keep your stocks during turbulent times, you will be in the position when the market rallies again with a strong trend and that is the time you build up your position.

This will keep your portfolio prepared for bad times.

Weekly Website Winner

Detlef — Wed, 09 Jun 2010 10:50:47 +0000

This weeks winner makes things a lot easier. Most of the times it is dreadful to find an exchange rate. You have to jump over to your favorite financial homepage, then click through to see all exchange rates and most of the times those are not live. This ends now there is a one stop site and the best thing is, this site has it all live…All you have to do is put it up on your favorite list and from there you have a one stop list of live exchange rates. The site does not only give you the actual exchange rate it also has charts, news about forex trading and a really nice feature with historical rate tables.

The site we have found for you this week is XE

I will take back what I’ve lost!

ofreund — Sun, 16 May 2010 21:30:25 +0000

It is common knowledge that sometimes we lose and sometimes we win as traders. That’s what happens and the only important thing is the result at the end. Did you earn more or did you lose more?

Let’s talk about losing. It’s not what you want, and we all hate it (I’m sure you do, at least I do)
But with losing comes a dangerous behaviour. The idea of winning your money back. Here is why it is a bad idea trying to get back your money right after losing it. Most of the time you will end up losing more.

For example

According to your risk management you can only risk a maximum of 300$ a day daytrading. You start trading and it gets pretty volatile, so your first trade closes out with a loss of 120$. You can take that loss. Mentally and physically (reason being it is within your risk management). But after a while your stock comes back and you think “Ok, I had the right idea about that stock. I just moved to early.” So you buy in again. The Stock rises and your portfolio begins to look good, but so far you only made 90$ back. The problem is, your loss was 120$. So you are not willing to get out of this trade until it shows “real” profit, that means more than 120$.
As the market moves your way again you make another trade in order to reach the “winning zone” faster.
But as I said, this is a volatile market. And soon the market and your positions lose steam. You could now stop out of your gains, but you want to get back the money you lost. All of it!
So you don’t think about stopping until you reach 120$+.

What can I say…? You already know what happens. It starts in the red. Trying to get something back from the market is always a bad strategy, because the market didn’t take your money and it can’t give it back to you. It’s you who lost that money. But the good news is that you actually can make money.
Your perspective regarding the market is very important as far as your trading is concerned.

My recommendation for you:

First:
Do not try to make back the money as soon as possible, it never works. Just see the next trade as a new trade with a neutral outcome. As long as the outcome is positive, you can take that profit, if it gets negative you have to be very careful and stop out the trade quickly.With a trading perspective like this you won’t get emotionally involved with your trades.

Second:
Stop, when you think that today is not a good day for trading! It doesn’t matter if it’s really a bad day for trading or if your feeling tells you that today is not good. Don’t trade. Wait and see and don’t trade just because you think you miss chances. There are so many chances everyday, you won’t miss much if you lose one day or a couple of hours.

Weekly Website Winner

Detlef — Thu, 13 May 2010 10:44:40 +0000

We will be adding another category “WWW - Weekly Website Winner” and this is our first winner

Our first site is Bankrate

This site is very helpful because you can compare all kinds of financial instruments on this site. You need a new credit card? No problem, just hop on over to Bankrate and compare all available credit cards for free on one page without having to search the whole internet.

That’s the last trade for today!

ofreund — Thu, 13 May 2010 10:30:56 +0000

Is it, that sometimes you find yourself making a statement like this: “That’s the last trade for today!”?
If Yes, then you also know that often this won’t be the last trade.
We close our “last trade” for the day and after that it doesn’t last long until we see another big chance in the market. And without hesitation we jump into the next trade. But, WHY?

When I start trading everyday, I define the maximum risk for my daytrades and set a profit target. I don’t stop trading immediately when I reach my target, but I get very cautious in order to keep that money I’ve earned. With a defined risk and win management it shouldn’t be a problem to avoid overtrading, but it is.

No matter whether we earned or lost money trading. The market often drives us into new trades. Why?

Because our mind tells us that we should give it another try. And sometimes we make money by trading more often which doesn´t allow us to stop . Is this good trading behaviour? No, it isn’t!

The best method to make sure that you don’t hurt your riskmanagement is to visualize it.

- Always display your numbers. Write them down in an excel sheet or on a piece of paper. Often throughout the trading day visualize those numbers. That will give your mind the right signals and prevents you from self betraying. It just turns the information about your riskmanagement from a thought into a fact.

- It is possible to do this without writing it down. But this needs a lot of experience. So, as a beginner, always write down your riskmanagement and the win/loss ratio of your trades.

- If you daytrade you won’t necessarily need these numbers the next day. They are only useful on the day you trade. Preparing statistics afterwards only tell you what you did wrong days or weeks ago, but they won’t help you to prevent those failures, while you are about to do them.

I hope this helps a bit t to avoid Overtrading.

Have successful Trading day !

About Recessions

ofreund — Tue, 27 Apr 2010 13:47:30 +0000

I read an Article that says a lot about Recessions and when they end. Peter Cohan from the Daily Finance Blog shows you what role the “National Bureau of Economic Research (NBER)” plays and what they are looking for to finally come out with a statement everybody wants to hear: The Recession is over.

Read the article at the Daily Finance Blog: When Does a Recession End? It’s Not Just an Academic Debate

When they get too big…

Detlef — Fri, 23 Apr 2010 20:13:41 +0000

Sometimes you get carried away by a moving stock and since you want to participate you add it to your portfolio. Most of the times you have watched the stock for a long time but didn´t have the guts to invest in it. Or you did invest in it only to find out that it turned south the very next moment. The market had just waited for you to jump in. Once in a time though you find that magic stock, you invest in it and to your surprise it goes on and makes money, lots of it. Shouldn´t you be a bit suspicious? Here is such a stock

Now this is an interesting story about a stock that made money, tons of it over the last couple of years. The problem is, it get too big now. Let´s look at Apple. When it hit its recent low of about $80 in december of 2008 nobody wanted it. But then it started to rise and soon people realized they need to be joining the party. Even though it was a slow moving market in 2009, it was rising up basically unnoticed by everybody because nobody could believe it. So Apple creeped up and doubled in a few short months. It is still going up and it is still a good company making lots of money as we could all see this week when they reported earnings. But when we start reading articles of adding it to the DOW, this gets a bit scary. Not that it probably didn´t deserve it, Apple probably does, but it becomes too big to make a substantial move. It now costs $270 and if it doubles it will cost $540 but can we expect a move like that in the upcoming months? Probably not, so what is my assumption?
I have an eye out for the risk management of Apple. It becomes more risky simply because it can move but it does it slower than it used to do it. That means that i can probably find better opportunitys out there. So do i sell the stock if i own it? Not necessarily but i move my stop a little closer to the price.

The risk in the stock is shifting slowly against us and that happens very often, when stocks get too big. You need to be aware of that if you own a stock like it.

SEC vs. Goldman

ofreund — Wed, 21 Apr 2010 10:17:49 +0000

The SEC said last Friday that it wants to charge Goldman with fraud. This has caused quite some turbulence in the markets. But what is the SEC’s charge against Goldman Sachs actually telling us?

Goldman is charged of not informing the public about a hedge fund betting against one of their own products - which they had sold to its customers. You can find an article about it here.
The SEC may be right in charging Goldman Sachs and that’s a problem for the company. But it isn’t the money they should fear. Goldman has enough money to pay a huge penalty and stay healthy. The main problem for Goldman is confidence. A charge like this is a big hit for consumer confidence, no matter how it ends. What will investors think if they find out that the company they dealt with did business against them?
Goldman doesn’t rely mainly on doing business with small customers. Ok, they have a lot of products and a lot of small customers, but the main business, the big business, they do with their bigger investors, institutionals and their own funds. So the company won’t take a hard hit if they lose a bunch of small customers or is found guilty of fraud. But their reputation will get a big hit and that hurts. Goldman has a good reputation. It does so because even Warren Buffett is involved in the company and that always helps.

What the SEC did, is setting a sign. They told people that they will call every company to justice that has done wrong before and during this crisis. This is a message for the people on Main Street to get their confidence in financial regulation back. But on the other hand it could devastate consumer confidence in financial institutions again.
Now markets are asking, which financial company the SEC will charge next. Worst case it could be one that is not in such good economic condition like Goldman and will be hurt seriously.

I think the SECs actions are a bit risky, but they may need this to gain back the respect they want and they did this in a time when economy and markets got stable enough to take this message. But we as traders have to look out for more news like this. Cause now financials are back in the main spot and that could be dangerous for market performance.

From a risk management point of view all bankshares out there in the market just got a bit riskier.