[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.