Creative Stock Trading Tactics

Successful Investment and Trading Plans Require Innovation

Mar 18, 2008 D. Chen

This article provides a look at the risks of conventional investment beliefs along with suggestions for alternative, more efficient trading strategies.

The present financial environment calls for unconventional trading strategies to successfully exploit market inefficiencies. In other words, it requires free thinking and ingenuity.

Mainstream Stock Trading Beliefs and Inherent Risks

Historical finance has divulged that more often than not crowd mentality promotes losing expectancies. By the time a particular scheme has become conventional it has long lost the competitiveness, or from another perspective, statistical edge.

Still popular to this date among financial advisors and newbie traders, “trend following” asserts the concept of taking a ride on the existing directional bias and hoping for its persistence. This scheme does not always offer optimal performance, as stock price movements have historically exhibited quasi mean-reverting behavior.

Low winning rates via trend-following strategies offer a couple of points. It implies that these entries do not perform much better than random guessing, and there exists an underlying rationale that the losing entries often simply serve as liquidity for the shrewd winning traders.

Many novice traders embrace the expression “Cut the losses, and let the winners run.” Closing invested positions based on arbitrary paper losses and having absolutely no profit extraction plan could lead to devastating failure. Trends change, sometimes violently.

Example Financial Trading Novelties

As one of few certainties held by the markets, existing price trends inevitably change. Large holders may decide to dump massive quantities and break an upswing painfully, while the little guys could gap up via little public expectation. Adapting a new perspective toward the market where one EXPECTS change in the existing price movement could trigger new discoveries and concepts.

A stop order for loss cutting does not have to present the only method of an exit strategy. Many alternatives exist, and it simply requires an open mind and diligence in research. Signals with an oscillator, a sentiment indicator, volume, or volatility measurement function as just a few of many potential tools for an adequate plan of both profit taking and loss limiting.

As financial institutions usually perform better than the general crowd, a study of institutional traders and associated strategies could provide further enlightenment. Profiting off the markets does not always involve directional betting. With the growth of information technology today, arbitrage and market neutral trading schemes have become available to the retail traders.

The Learning Curve and Role of Statistics

The learning curve of market behavior remains steep; a massive amount of data lies within. Successful trading plans require profound understanding. A basic grasp of statistics helps speed up the process significantly. Once the fundamental knowledge is in place, associated creativity becomes easy to cultivate.

The copyright of the article Creative Stock Trading Tactics in Investment is owned by D. Chen. Permission to republish Creative Stock Trading Tactics in print or online must be granted by the author in writing.

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May 16, 2008 1:12 AM

Guest :

I would like to add the differnt type of stocks in this information.

Stocks can basically be classified into either common and preferred.

Common Stock

These are also referred to as equity, shares, or securities and represent the ownership of the holder in a company. The stockholder has a right to the company's profits, which are distributed in the form of dividends.

Preferred Stock

Preferred stock, like common stock, does represent some degree of ownership in a company but this type is different in the sense that it usually does not come with the voting rights, though this fact may vary from company to company.

Study the market and you will find there is a bewildering kind of common shares available for trading. Depending on the time period for investment and the level of risk involved you can choose from the following types of common shares:

Blue Chips

Shares of companies whose assets, sales turnover and profits continue to grow steadily are known as blue chips. These companies have got their names from the game of poker where the blue chips have the highest value.
Growth Stocks

These refer to shares of comparatively <a href="http://www.sogotrade.com">For More....</a>

May 16, 2008 1:16 AM

Guest :

Growth Stocks

These refer to shares of comparatively newer players in the market who are performing outstandingly well. These will eventually mature into blue chip stocks and gradually become leaders in their product-market segments.

Cyclical Stocks

As the name suggests these are shares of companies which are susceptible to fluctuations caused by economic and trade cycles. They do exceptionally well during the boom period but hit rock bottom during the bust time.

A turnaround is one whose market price is lower than its intrinsic value because the company has recently gone through a bad patch. The fortunes of these companies may change or they may be taken over by more successful companies.

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