[Money Management] How to Test the Waters before Committing in Currency Trading, Fx Trading, and Forex Trading

The primary difference between the newbie and the veteran trader is awareness of risk.  People are attracted to trade currencies because they can start with very little capital. 

You can start with as little as $1,000 but need no more than $5,000. 

The least you need to succeed in futures is $20,000.  People can succeed in forex with 20 times less than in futures. 

The margin required to trade forex ranges from $100 to $380. 

A very simple rule I learned long ago is that you should never risk more than the initial margin of any currency lot you trade.  That means that you should never risk more than $380 as an absolute maximum you can risk trading currency per lot. 

Master futures trader Stanley Kroll found that the safest was to never risk more than about half the initial margin in commodities.  SPAN calculates the maximum a futures exchange can allow a trader to risk without throwing the pits into peril. 

If the maximum risk calculated by SPAN is $380 in the forex markets than it makes a lot of sense to limit risk to no more than about $190. 

That's half the risk considered acceptable by the exchange. 

The reality is that if you trade using this rule you will quickly master controlled leverage risk.  This will force you to be more observant and thus more precise with your entries. 

You will start to notice that your returns will firm up. 

In addition you will see your entry points more clearly.  This will allow you to have greater control over your forex trading process. 

Don't forget that if you are reading this and are afraid of trading currencies don't fret.  You can trade everything I teach in simulation. 

That means that you can see for yourself how the money management techniques I will reveal to you on tomorrow night's hangout will make you a more profitable investor. 

-Doc Brown

[EPS Rating] Meet your Stock Market Financial Ferrari Gas Gauge

When I was a doctoral student of finance at the University of South Carolina a momentous event occurred at the beginning.  I was assigned to Professor Eric Powers, Ph.D. 

Eric had just arrived from finishing his Ph.D. in finance at that Massachusetts Institute of Technology.  He studied under professors Gertner and Sharfstein. 

These are contemporary icons of academic corporate finance.  I was interested in market micro-structure.  

But Eric insisted that I learn the corporate side. 

I grew to love research in corporate finance.  Today I am the leading expert in the area on the faculty at the University of Puerto Rico Graduate School of Business on the Rio Piedras campus. 

I had a startling lesson in working on one of our studies.  We replicated a major study of internal capital markets and could get neither statistical nor economic significance. 

In other words we could not replicate the results. 

This taught me how "mushy" earnings data can be in terms of relating to firm specific variables.  The big lesson to me in this is that precise estimates of earnings are a waste of the time due to the mushiness of the data. 

We know that earnings are supposed to be directly related to firm value mushily at best. 

Firm value is the share price times shares outstanding.  This is also called the market capitalization or "cap."

The first law of finance is M&M theory.  It is proof that the only way managers can increase firm value is to increase bottom line earnings. 

Mergers and acquisitions won't help. 

I am constantly amazed at how investors I speak with will clearly show me that they remember all of this.  But when it comes to actually following this wisdom common sense flies right out the window. 

They go back to reading reposts of analysts who are supposedly tight with management in the know for future share price rises. 

Studies show that the truth could not be further from the truth.  Analysts are so biased in their reports that they almost never tell anybody when to sell a share of stock. 

The beat goes out every day to buy, buy, buy.  Never to sell. 

Here is an amazingly simple way to cut through the muck to get down with the best earning firms. 

-Doc Brown

Trend Analysis of Fx Markets

Imagine sitting in upscale home or condo in a city people go out of their way to visit.  There are a handful of cities worldwide that are leisure class destinations. 

Hawaii, Monaco, and many others are prime locals for the modern online trading revolution.  From your laptop, with an internet connection, you can access markets worldwide. 

And the very biggest is the currency market. 

The currency market has made billionaires.   George Soros and Jim Rogers made it happen in their Quantum fund for their investors in Fx. 

Both became billionaires.  They cued on long term fluctuations of fundamental data. 

What is interesting is that top finance professors have shown that these same fluctuations show up on long term price charts of the major pairs and crosses. 

Both men were able to do so because of their financial education. 

Soros hails from the London School of Business.  Rogers comes from the University of Southern California. 

That means that these men had access to professors of finance of the highest knowledge and repute.  Professors who publish in the top four; The Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, and the Journal of Financial and Quantitative Analysis. 

The power of the computer has only improved our ability to verify what works in the markets. 

Here is a "facts only" discussion of how to spot the same major trends that made Soros and Rogers billionaires. 


-Doc Brown

Replay

[Price & Volume] Ignore This Stock Signal at Extreme Peril and Detriment to Your Investing Returns

You watch your favorite stock investing show on CNBC.  Your study the latest $500 course on stock investing. 

Maybe you subscribe to an investment advisory service.  Do you ever feel like the party has left without you? 

Answer me truthfully.  Are you really getting the returns you expected? 

If you answered, "no" (and I know you probably did) then this Google Hangout is for you. 

Every Monday I give high level MBA investment lectures to a select group of retail public investors.  I only do it when I feel like it.  So sign up here, now...

That's because I make more money trading the markets then I do teaching you. 

But I didn't start that way.  In fact barely broke even for the first decade at least of my stock investing. 

This changed when I finally learned on my own how sift the valuable nuggets from the gravel myself. 

For years I thought that somebody out there must know more about the markets than I do.   I followed a lot of bad tips and recommendations. 

Worse yet some advisory service brought my attention to stellar stocks but didn't show me how to take care of all the details to make money on it.

For more see Lee, C., Swaminathan, B., 2000. Price Momentum and Trading Volume. Journal of Finance 5, 2017-2069.

Invest Stock Market Boutique Bank Popular Inc. (NYSE: BPOP)

You may have noticed that my analysis always starts from the perspective of all-stocks-are-bad-unless-they-make-me-money. This one is no different. Banco Popular (NYSE: BPOP) is the lead brand for the NYSE listed firm Popular Inc. The bank became highly profitable selling programming services to other banks in Latin America in part because nobody south of the border really wants to deal with "Mr Puneteiro" unless they have to.*  

Banks in other countries with governments toppled by the U.S. banking system depicted in such movies as "Missing" with Jack Lemmon are super-suspicious of large American banks like Bank of America or Citi Group.

http://www.imdb.com/title/tt0084335/

This gave Banco Popular an edge until Richard Carrion spun off programming to form Evertech (NYSE: EVTC). Today Popular suffers from lackluster earnings in the 41st percentile. Its price rise over the last year has been lackluster as well but has picked up recently. This is important because the firm has been the target of large mutual funds in the past. It is also rising up off of a 6 year consolidation base. The stock could be purchased today for $32.28. If purchased a prudent stop limit order would be set 5.5% behind at $30.50. The stop limit order protects investors from flash crashes induced by program traders and dark pools. A small stock such as this is always a possible candidate for such an attack.  
More Analysis Here:

* Watch the ingenious Molotov video "Frijolero."

Invest Stock Market Recommendation Atmos Energy Corporation (NYSE: ATO)

Atmos Energy Corporation (NYSE: ATO) is a raptor at the top of the food chain when it comes to all-natural-gas distribution. The company was founded by Charles K. Vaughn. Vaughn Center in Plano Texas (perhaps the most boring city in the world) is named after the founder of Atmos.

 Less boring is the fact that Atmos built a replica of a community to practice and teach natural gas safety. That community is Gas Town. Why would they do that? Natural gas is a clean energy source relatively speaking among the sooty, residue filth ridden oil industry.

Hopefully the entire industry will be forced out of energy production within a decade. Natural Gas Watch In the meantime we are stuck with these creepy petroleum companies still blighting our landscapes. Natural gas is responsible for a surprising number of deaths nationwide. An important website if natural gas companies infiltrate your community with lines is http://www.naturalgaswatch.org. 

This organization explains its existence in that a Google search of "natural gas explosion" generates 2.2 million hits because of the regularity of natural gas explosions in the country. Regardless of any further demonizing of the natural gas industry I can express Atmos Energy Corporation shares have been rising. This rise has been on moderate earnings. More details inside this all-stocks-are-bad-unless-they-make-me-money hangout.

Get More Analysis Here:

Invest Stock Market Leading Insurer Aspen Insurance Holdings (NYSE: AHL)

Aspen Insurance Holdings (NYSE: AHL) is under a proxy attack by rival Endurance.  No small wonder that the currently entrenched management doesn't want to give up this honey pot. 

in 2013 alone CEO Christopher O'Kane earned $4,672,077.  He earned just $887,085 as salary.  He also garnered a whopping $1,180,577 bonus.  The company was further drained by a $2,426,680 stock award as well as $177,735 from other dribbles according to EDGAR statements.

The board of directors headed by O'Kane recently had the balls to title their April 17th poison pill a "shareholder rights plan."  This is clearly a nod to the Moran v. Household International decision of the Delaware Supreme Court that upheld a same titled "shareholder rights plan" that acted as a poison pill. 

This particular use of a poison pill by Aspen Insurance Holdings (NYSE: AHL) is yet another example of a fat-cat entrenched board abusing its collective power. 

This is simply the truth of how the financial system works today.  Investors can only vote by selling out. 

What is very interesting is that there doesn't seem to be much selling out of this stock.  It has continued to rise.  This upward push is exactly what put this stock on my broad watch list. 

For more information check out this hangout here.    

Invest Stock Market Gold and Silver in Eurasian Minerals (NYSE: EMXX)

Invest Stock Market Gold and Silver in Eurasian Minerals (NYSE: EMXX) Here a real hair raiser.

It's called Eurasian Minerals (NYSE: EMXX). They are a bunch geologists, physicists, and mining engineers who run round the globe hunting down rare mineral deposits. For this reason they are smashed into a small class of high speculative stocks called prospect generators.

Eurasian Minerals (NYSE: EMXX) started out as an operation largely funded by Rick Rule's group. The team succeeded in bringing in the bacon to the degree that they jumped the border.

These Canadian financial wet backs are now in America! Eurasian started on the Toronto Stock Exchange (TSE) and flipped sides to the American Stock Exchange (AMEX).

Now they are on the New York Stock Exchange (NYSE) The company has enjoyed a recent surge in share prices but still has broken neither the intermediate nor the long term trend on either the weekly or the monthly price charts.

 The only reason I am discussing this stock now is that the surge in price is holding to the point that this may be the beginning of a bottom. This stock has traded as low as $0.65. With the stock trading in the low eighties (cents) the most risky stop loss level I allow for in my own trading is $0.74.

This is a gutsy trade because the stock is trading so low. I understand that very few of my students will have the courage to take this trade. For those who do it is really important to use stop limit orders. That is because stop limit orders are held in a flash crash should this stock come under attack from a dark pool.

 

Invest Stock Market Opthalmic Dissorder Company Allergan (NYSE: AGN)

How to Pull the Trigger: Allergan (NYSE: AGN) is currently trading below its 10 day moving average. Buy this rising momentum stock on a break above the 10 day moving average. Do not buy if this stock fails to rise above its 10 day moving average. Delete Allergan Incorporated from your watch list if the share price falls below $155.60. Why is this such sage advice? A recent study in 4th ranked JFQA shows extremely high returns to investors. The values for Jensen's Alpha are in the range that Warren Buffet garnered for his investors. We're talking annual average alphas above 18%. See Han, Y.; Yang, K.; and Guofu Zhou, "A New Anomaly: The Cross-Sectional Profitability of Technical Analysis." Journal of Financial and Quantitative Analysis (JFQA), 48 (2013), 1433-1459. Another big plus Allergan (NYSE: AGN) has going for it is strong earnings. The company stock surged in April when Valeant announced intentions of a merger. The upward price reaction of this stock indicates that the market has taken the news favorably. Just remember that this is a stock that is enjoying price highs based on a supposed future transaction that could evaporate at any moment. For that reason option positions are not recommended. Trade the company with shares of stock. Place a tight initial stop of no more than six point five percent of the entry price. This will protect the portfolio in the event of a drop in the share price. Do not buy this stock if the price languishes below the 10 day moving average. Always watch the trend on the S&P 500. The easiest way to do this is to simply run a 200 day moving average of the ETF SPDR S&P 500 ETF Trust (SPY). This allows you to see the trend clearly. By very cautious about adding new positions when the SPY is trading below the 200 day moving average.