Don't Overlook Three Symbol Stocks

One of the things a new trader learns within a few weeks or so of beginning his new adventure into the world of day trading is the difference between three symbol stocks and four symbol stocks.

The first thing to be learned, with a few exceptions, is that three symbol stocks are listed on the NYSE (New York Stock Exchange) or the AMEX (American Stock Exchange), while the four symbol stocks are listed on the NASDAQ (National Association of Securities Dealers Automatic Quotation System). You can read more about the three different exchanges and how they operate by visiting their individual web sites.

Next, the new trader usually learns that most day traders prefer to trade NASDAQ stocks over “listed”, a term that usually refers to AMEX and NYSE stocks but not NASAQ stocks.

The reason is quite simple. Historically, the root of it goes back to the hay days of day trading in the pre year 2000 bubble days. Most of the fast moving stocks were NASDAQ stocks. This is where the largest percentage of the high tech wonders were traded. It was then, and is today, where most of the day trading action is.

Clearly, the most prudent approach to investing is to evaluate each individual security in relation to all others, and only to consider the form of security insofar as it affects each individual evaluation.

A lot of tools were developed or made available to day traders for the first time, and many of them were based on trading NASDAQ stocks.

However, along with that action comes a much higher degree of risk. NASDAQ stocks are much more likely to give you huge moves up and down with tremendous spurts of volume, making them much more risky. Of course, with that higher risk also comes the potential of higher profits…or larger… much larger losses than slower, more orderly moving stocks.

That’s why I like three symbol stocks.

As a general rule they will move in a much more orderly fashion. You are less likely to get whip lashed all over the street on listed stocks. They usually move much more slowly, making it easier to read the potential move via such tools as Level2 and Stochastic charts.

However, even three symbol stocks with the right news or set of events can trade in huge volume, causing wide swings and added risks. Yet, as a general rule they will trade somewhat boring compared to their cousins on the NASDAQ.

Normal everyday events like analyst upgrade and downgrades usually do not send the average NYSE or AMEX listed stock into a mania move. Instead they will trade in a more orderly pattern. Depending on the news they will often slowly tick up or down, very often taking thirty minutes, an hour or even more to get a decent profit. They often make a number of stop and goes, minor pullbacks, but they usually do not make the drastic pullbacks that NASDAQ stocks so often do. In Daytraders.com I refer to that as a pop’n flop.

I find both Level 2 and Stochastics charts much easier to use in predicting their behavior. (See: Tools of the Trader at www.TraderAide.com and other information on Level 2 and Stochastics if you are not familiar with these terms.

Keep in mind I am talking in general terms here. Certain three symbols, NYSE or AMEX stocks, can trade every bit as radically as any stock on any exchange. There are few that have a huge day trader following and can be sent into a frenzy if the right news hits the tape.

Some these “high flyers” come out the high tech sector, which includes the Internet stocks and semiconductors. Other “high flyers” come from the biotech stocks, which have increased volatility from such news as FDA approvals. After a while you will recognize the symbols because there are fewer of them than on the NASDAQ that trade like a house on fire on the right news.

Give them a try and see if you don’t lower you blood pressure just a bit!

Happy trading!

No permission is needed to reproduce an unedited copy of this article as long the About The Author tag is left in tact and hot links included. Questions and comments can be sent to: floyd@TraderAide.com.

Floyd Snyder has been trading and investing in the stock market for three decades. He was on the forefront of the day trading craze that swept the nation back in the late 1990's, both as a trader and as the moderator of one of the Internet's largest real time trading rooms, http://Daytraders.com He is the owner of http://www.TraderAide.com and Strictly Business Magazine at http://www.sbmag.org

Against The Top Down Approach to Picking Stocks

If you have heard fund managers talk about the way they invest, you know a great many employ a top down approach. First, they decide how much of their portfolio to allocate to stocks and how much to allocate to bonds. At this point, they may also decide upon the relative mix of foreign and domestic securities. Next, they decide upon the industries to invest in. It is not until all these decisions have been made that they actually get down to analyzing any particular securities. If you think logically about this approach for a moment, you will recognize how truly foolish it is.

A stock’s earnings yield is the inverse of its P/E ratio. So, a stock with a P/E ratio of 25 has an earnings yield of 4%, while a stock with a P/E ratio of 8 has an earnings yield of 12.5%. In this way, a low P/E stock is comparable to a high – yield bond.

Now, if these low P/E stocks had very unstable earnings or carried a great deal of debt, the spread between the long bond yield and the earnings yield of these stocks might be justified. However, many low P/E stocks actually have more stable earnings than their high multiple kin. Some do employ a great deal of debt. Still, within recent memory, one could find a stock with an earnings yield of 8 – 12%, a dividend yield of 3- 5%, and literally no debt, despite some of the lowest bond yields in half a century.

This situation could only come about if investors shopped for their bonds without also considering stocks. This makes about as much sense as shopping for a van without also considering a car or truck.

All investments are ultimately cash to cash operations. As such, they should be judged by a single measure: the discounted value of their future cash flows. For this reason, a top down approach to investing is nonsensical. Starting your search by first deciding upon the form of security or the industry is like a general manager deciding upon a left handed or right handed pitcher before evaluating each individual player. In both cases, the choice is not merely hasty; it’s false. Even if pitching left handed is inherently more effective, the general manager is not comparing apples and oranges; he’s comparing pitchers. Whatever inherent advantage or disadvantage exists in a pitcher’s handedness can be reduced to an ultimate value (e.g., run value). For this reason, a pitcher’s handedness is merely one factor (among many) to be considered, not a binding choice to be made. The same is true of the form of security. It is neither more necessary nor more logical for an investor to prefer all bonds over all stocks (or all retailers over all banks) than it is for a general manager to prefer all lefties over all righties. You needn’t determine whether stocks or bonds are attractive; you need only determine whether a particular stock or bond is attractive. Likewise, you needn’t determine whether “the market” is undervalued or overvalued; you need only determine that a particular stock is undervalued.

A top down approach to investing is an unnecessary hindrance. Some very smart investors have imposed it upon themselves and overcome it; but, there is no need for you to do the same.

Geoff Gannon writes a daily value investing blog and produces a twice weekly (half hour) value investing podcast at:

http://www.gannononinvesting.com

Finding Stocks To Trade Shouldn't Be That Hard

Every morning the trader sits down at his computer to begin the day, and the dilemma faced is always the same - finding a stock or two or three to make a buck on for that day. This really shouldn’t be that hard, but for some traders it is. Let’s see if we can break it down and maybe make it a little easier.

First let’s start with a few basics about your work habits. The markets open at 9:30 EST, right? WRONG! Trading these days starts at 7 A.M.! That’s the very early morning action. Then you have what some traders call the official pre-market trading that starts at 8 A.M. Following that is the official market opening at 9:30 A.M. EST. This means that if you have been sleeping in, you could be missing some very interesting early morning trades. However, a word of caution here - pre marketing trading also has a higher element of risk attached to it because of a lack of liquidity.

Okay, so now that I have gotten you out of bed, you can start scanning the pages of Wall-Street Journal, Independent Business Daily and…… WRONG again! Oh sure, you may find a trade or two in one of these publications, but in all too many cases that news is going be too old to trade. In addition, the news in those publications, or the reaction by the stock, is going to show up in other places.

The first thing you may want to do in the morning is check the after hours action from the day before. This information can be found a number of places. I use the NASDAQ home page under the Extended Hours Trading link found on the left side of the page. This will give you a list of the stocks that were most active in after hours for the day before. In most cases these stocks are moving on news released after the close. These links as well as others can be found at www.TraderAide.com.

While you are on the NASDAQ page make sure you take note of the Pre-Market Most Active list. This is going to be another great source of potential stocks for you to consider. An additional source on the NASDAQ page is the NASDAQ-100 Pre-Market Heat Map. This is especially useful right at the beginning and for the first hour of so after the beginning of the 5 A.M. premarket trading action. In both cases, after-hours movers and pre-market movers, the action is usually news related.

An excellent source of this news is MarketWatch. You can find it in a hundred other locations on the net, but I find the MarketWatch site easy to use and even more important, easier to search. It is also less likely to be full of non-trading” news that you really don’t need to trade.

A few of the things you want to be looking for include events on stocks that take place nearly every day, such as: analyst up/downgrades; earnings reports’ and FDA actions which could include approval, disapprovals or merely making comments on application.

I also suggest you watch Bloomberg TV early in the morning, before the 5 A.M. premarket trading begins. I prefer Bloomberg over CNBC at this time in the morning because of their presentation of the futures and the news streamer on the bottom of the screen. Once the pre market opens I suggest you change over to CNBC simply because they have, what appears to be, a much larger audience. On CNBC the stocks reported on or mentioned are often sent up or down, offering excellent trading opportunities in many cases.

Once the markets opens, almost all real-time quote systems have an element built into them that will give you at least the top ten most active on the three main exchanges, both gainers and losers. Also, they may have a more advanced “screener” of some sort. With RealTick by Townsend Analytics, Ltd, it’s called Hottrend Realtime Radar. You can leave this running throughout the day. Stocks that show unusual volume compared to their historic volume patterns will show up automatically on the Radar. It is available for both NASDAQ and NYSE traded stocks. Check with your supplier to see if this feature, or something like it, is offered.

Last but not least, you want to be checking your Dow Jones news feed for the latest breaking news starting at about 6:30 A.M., New York time. Sorry “West Coasters, but as the bank robber said when asked why he robbed banks, “Because that is where the money is”.

Happy trading!

No permission is needed to reproduce an unedited copy of this article as long the About The Author tag is left in tact and hot links included. Questions and comments can be sent to Floyd at floyd@TraderAide.com.

Floyd Snyder has been trading and investing in the stock market for three decades. He was on the forefront of the day trading craze that swept the nation back in the late 1990's, both as a trader and as the moderator of one of the Internet's largest real time trading rooms, http://Daytraders.com. He is the owner of http://www.TraderAide.com and Strictly Business Magazine at http://www.sbmag.org

Deciding Whether Stocks or Bonds are Right for You

There are a vast number of investment opportunities available to potential investors, but not all of them are right for all purposes. The most common types of investments are stocks and bonds. Stocks are shares of individual companies, while bonds are government-issued investment funds. Both can be great for starting in the investing market, but you should know a little about the difference between the two before making your investment.

Stocks

Stocks can help balance out a bond-heavy portfolio by providing diversification

Stock dividends also receive more favorable tax treatment than bond payouts.

If you make the decision that stocks may be the place for you to put your investment dollars, you must now determine the primary purpose of your stock investment.

The two primary stock investment goals are income and growth. You can have a combination of the two in one stock investment, but the features are almost never equal. In other words, although growth and income may co-exist in a particular stock investment, the investment choice you make should take into account the primary strength of the stock.

Growth Stock vs. Income Stock

Growth stock is stock in a company that doesn't pay cash dividends, but instead reinvests its profits into the company. The idea behind this strategy is that the company will continue to grow and become more profitable, driving the stock price up.

Income stock is stock in well-established companies that do not need to reinvest their profits into their companies and therefore use their profits to pay dividends to stockholders. Income stock is often more expensive because the income stream and security of the investment is greater.

Mutual Funds

Many investors invest in the stock market through mutual funds. Mutual funds are professionally managed and are easier to diversify your investments in, which makes them less risky than investing in individual stocks. You still have to research what type of stock will best suit your goals, but the average investor finds it less stressful to invest in the stock market through this method.

Bonds

Bonds, though some consider them “safer” than stocks, still come with risks. Some bond funds offer enticing payouts but may take big chances to do so, including venturing into lower-quality and longer-duration credits; if your funds' bonds lose value, you could see your principal shrink even though you're pocketing a healthy yield. Checking a fund's quarterly losses can be an easy way to see whether you could stomach a given fund's short-term losses. There's nothing wrong with making room for some higher-yielding bond funds around the margins of your portfolio, but consider these income-heavy funds to be side items because of their greater potential for volatility.

And while paying for high-quality financial advice can be money well spent, think carefully before paying a sales charge for a bond fund. If you're paying a 3.75% load to buy a bond fund (and that's a pretty low load), you're surrendering most of your first year's income payments from the get-go.

Individual Bonds vs. Bond Funds

Many investors prefer to invest in individual bonds rather than bond funds. While that's a reasonable tack if you're buying Treasury securities or perhaps even extremely high-quality corporate bonds, it makes sense to opt for a professionally managed bond fund for every other type of fixed-income security. Not only will a mutual fund offer you much more diversification (and therefore lower risk) than you could obtain by buying individual bonds, but smaller investors who are buying and selling individual bonds are also at a big disadvantage when it comes to trading costs.

You may freely reprint this article provided the following author's biography (including the live URL link) remains intact:

About The Author

John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website.

Finding the Bottom on Micro Cap and Penny Stocks

Trading low priced Micro cap and penny stocks is a “High Risk High Reward” style of trading. I have found that one of the most profitable ways to trade these stocks is by finding the bottoms. If you are correct and find the bottom, the stock has nowhere to go but up. If you are wrong and miss the bottom, no one wants to “catch a falling knife”.

Over the years I have developed very successful strategies to find bottoming stocks, I have taken these strategies and created bottompicks.com. When searching for bottoming stocks, the first key is to understand what caused the stock to drop in the first place. The second key is to find out if there is any reason this stock should go back up in price. This can only be done with a complete understanding of technical analysis and the “due diligence” of fundamental analysis.

When a stock is bottoming, it has dropped to a new recent low. This could be as dramatic as the lowest price in years or something as simple as a 50% pullback from recent highs. At this point the stock may begin to stabilize (trade sideways). This could mean that the stock is now poised to rise again in price, but it could also be preparing for another move lower.

With micro caps and penny stocks it is always easy to find stocks that look like they’re at their bottoms. It seems that every night we are analyzing a hundred different stocks that have recently broken their downtrend. If you are unsure of how to find stocks in up trends or downtrends, try a stock screener.

Once you think you’ve found a stock that is technically ready to begin that profitable trend to new highs, it is now time to do your homework. Fundamentally there are many things to look for. There are so many that I can only give you a brief overview. You will want to read the filings and news to understand the companies share structure, current operation, and if there are any future events that may cause the stock to rise. Some of the more important items you will be searching for in the filings are operating shares, authorized shares, float and warrants.

When you have found a stock that is bottoming with a solid share structure and is due to release great news, such as a new product or strong earnings. This is probably a good time to buy. Prepare to hold on, stocks in this market have been known to rise thousands of percentage points in a short amount of time.

About the author:

Keith Guyette M.Ed, J.D. is a professional trader and the owner of a stock talk board http://www.thepennystockblog.com as well as the head stock analyst for http://www.bottompicks.com

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