Gold ETF & Silver ETF Recap For 2012

Well, we have come to the end of another year and we want to take a look back at what we have seen happen to gold and silver ETFs over the last 21 months.  Gold and silver have been quite the topic among many investors this year and many traders have turned to using it as a means of investing.  Gold and silver have been fairly range bound this year and seems to be moved quite a bit by the news.

Silver:

This chart below shows how the price movement has been ranging between the upper level 38 and a lower level of 26.  In the end we were basically trading where we were last year at this same time.  Currently silver is sitting near the 30 dollar area.

Gold:

Gold also has been trading in a similar range and is sitting where we were this last year.  The range for gold has basically been between 1800 at the upper range and 1500 at the lower range.  Currently we are ending the year in the mid 1,600’s.

As a word of caution, especially with gold and silver, it seems that many people have been talking about how everyone needs to buy it as a place of safety.  The problem with following other peoples advice is that it is often times late.  This does not mean that you should not invest in gold or silver, just that you need to make sure you  are buying it at the correct times and not just whenever some says to.  You need to take a look at where gold is sitting and whether or not it meets your criteria for entering into it as a trade.  Just buying to be buying can be a bad thing.  For example, if you were to buy gold or silver at their upper ranges you would be down this  year, but if you would have bought at the lower range you would be up this year.

Take some time to review your rules for entering into gold or silver so when the opportunities arise this upcoming year you are ready to take advantage of the movements.  Don’t listen to anyone except yourself when it comes to buying and

Stock Trading Basics: Staying Nimble In Today’s Markets

Staying nimble in the markets is one of the standard stock trading basics. Due to the speed that information moves today, the transmittal of both good and bad information makes it imperative as investors or traders that we are ready for almost anything at any time.  We need to be able to position ourselves in the best possible way so that we do not get hurt when unexpected information is presented but also so that we can take advantage of it when it does occur.

This is a great thing to say and to believe but it is also not always the easiest thing for many people to do but what can we can do is plan for or position ourselves properly for the information that that we do know will come out.  There is so much that happens around us that we cannot control, which is largely government and market based, we need to concentrate on what we can control which of course is largely how we react to all of it.  Regardless of what our often times dysfunctional government actually does we need to prepare ourselves and be ready for the most likely outcomes of their decisions.  We cannot control our tax rates but we can be diligent in our tax planning.  We cannot control how the markets will react to the resolution of our economic challenges but we can position our investments and our trades so that we do not get hurt by whatever decision is made.   We cannot control interest rates or inflation or the budget deficit but we can be proactive in making sure that we are in enough of an offensive position so that when a decision is made we can take advantage of market moves that will occur.

All markets go up and all markets go down but they rarely go straight up or straight down for any great length of time.  I believe that knowing what the outcomes of the economic situations will be that are at hand at any given time is less important than the simple knowledge that there are decisions that are imminent.  We don’t need to know what the decisions will be we just need to know that the markets will move when the decisions are made so we can position ourselves ahead of time to take advantage of whatever moves occur.  We know that investors and traders are very emotional and we also know that the information that we currently have is already baked into the pricing of the markets so whatever decision is made in Washington will very likely result in a correction of some type.  We do not know if the correction will be up or down nor do we know the severity of the correction and we don’t necessarily need to know any of this we just need to know that a correction is likely.  By knowing this we can put ourselves in the best possible position to take advantage of the coming move.  The fiscal cliff issue is or was just the issue of the day, there have been, there are now and there is likely to be constant issues that come up on a regular basis that will be the new issue of the day.  We don’t have to be prognosticators we just need to have good planning to counteract the market moves so we do not get hurt and possibly so we can be aggressive and take advantage of the moves that occur.

The obvious question that comes up is exactly how do we do that?  The answer can vary depending upon what it is that you are trying to accomplish but generally speaking the goal of most traders and investors will be to protect existing assets while giving them the opportunity to grow.  Just to use a random event as an example, we know that any decision regarding the debt ceiling is imminent when this issue is present, we may personally have an opinion of what that outcome will be which is fine but is it a good idea to bet our assets on what our opinion is based on something that is completely out of our control or is it better to position our assets so we can take advantage of whatever the decision is which of course will likely send the markets in a given direction.  I’m certainly not saying that we can get on the right side of market moves all of the time nor am I saying that we can always get in right at the beginning of those moves but I am saying that with a little planning and common sense we can probably get on the right side of many of them.

ETF Trading: How To Handle “Up & Down” Markets Like This

How to Trade Stocks in Volatile Conditions like Now:

It seems that the last few weeks, one day the market is up and the next day it is down,  reacting to positive or negative news stories generally concerning the looming “fiscal cliff.“ Many traders are feeling the anxiety that comes from the currents ups and downs of the market. This anxiety may even be causing some traders to consider stopping trading until a “better” market comes along or in other words until the market is more “calm”

The first thing to understand and remember is that there is NO such thing as a perfect market! The market isn’t really good or bad, it just IS.  There is nothing we can do to change this. In fact, if the market didn’t go up and down we would not have any ETF trading opportunities. Certainly there are times, like the present, when the market is more uncertain than we would wish for. But, if we allow the market to get into our heads we can really find ourselves overly anxious and even discouraged to trade.  Trader’s who tend to be preoccupied with catching only perfect trades, and never losing on a trade, end up being disappointed with themselves when they fail to meet these goals.

There is no doubt that during times of market uncertainty, these can lead to fear and anxiety over our trading style and methods. However, if we start to question our successful trading methods, you may start to question the sanity of trading altogether, and you may decide that it is better to sit on the sidelines and not trade at all.  During uncertain times like we are in currently, tightening up our stops is a common reaction among newer traders, however more seasoned traders understand that tightening up our stops during more volatile times can be the worst thing we can do.  In fact, doing so can almost guarantee that we will lose on the trade.  The thought is; if we are going to lose anyway, we want to lose less that we would have under normal circumstances.  This kind of defeatist attitude is allowing our fears to overcome logic and will lead to more unsuccessful outcomes.  The only way to absolutely eliminate market risk is to stop trading, however this will also eliminate any opportunity to be successful and make any trading profits as well.

The only real way to reduce our risk is to reduce our EXPOSURE. The best way for a trader to reduce exposure in a volatile market is to reducing position size.  Tightening our stops may reduce our potential exposure, but it also increases our probability of taking a loss.  So if we are going to reduce our exposure by reducing our position size and we normally define our risk as 2% per trade, then we may want to consider reducing our exposure per trade to 1% or even .5% instead.

So, if we are feeling anxious or discouraged because of current market uncertainty, the best thing we can do is NOT to change our methods,  but simply reduce our position size, therefore, reducing our exposure to the volatility.  This will help us control the fear and anxiety that come from trading in times like we are currently experiencing.

Know Your Trading Rules

First of all, happy holidays to everyone.  This is a good time to review what you are doing and what you need to change going forward.  Remember that this time of the year can be a bit tricky when trading and can be moved by many different things.  Some of the things that are affecting the market currently is the holiday time along with the fiscal cliff talks.  This is why this time of the year is good to review what you are currently doing.

Knowing your rules are critical in becoming successful with your trading.  This means you need to know several important things.

  1. Know what you are trading.
  2. Know what charts you use.
  3. Know when you are entering.
  4. Know when you are exiting.
  5. Know how much you are trading

Having rules for each of these can keep you on track for trading well.

  1. Know what you are trading is important so you don’t have too many things you are looking at. There are many different things you can trade including Gold and Silver, Forex, Futures, and stocks or options.  Trying to trade all types of instruments can make trading difficult.  You should really focus in on trading only a couple of things to keep it simple.
  2. Know your charts.  This would include the time frame and whether is it a candlestick or bar charts.  Also which indicators you are using
  3. Know your rules for entry.  This means you should know exactly what you are looking for on your chosen chart to actually enter into the trade.  This could be the price action of what you are trading or a specific set of indicators.  This should be written out so you have no question as to whether or not you should buy or sell.
  4. Know your exit rules.  Make sure you know exactly when you are getting out of the trade.  This means that you need to know your stop losses and your targets.  Without these you are just trading and hoping the market will make you money.
  5. Know your money management rules.  This means you should have a maximum risk amount in mind so you are only risking a specific amount in each trade.  In addition, make sure you know the total amount of risk you want to be trading your overall portfolio.

By knowing your rules and following them you will have all in place to successfully trade in the markets.  Take some time over this holiday time to review what you are doing and to make sure you have your trading rules written out.  Have a happy and safe holiday.

Stock Trading 101: How to Plan for the New Year

If you’re a stock trader, ETF trader, Forex… it doesn’t  matter. it’s basically “trading 101″ that you need to have a trading plan for the new year. Now, in the past I have stated to my colleagues that if you get through the first or second month of the fourth quarter of a given year and have not completed a framework for the structure of how you want the next year to go it may already be too late to effectively plan for the beginning of next year.  There are several reasons that I state this with the most obvious being that not all changes and new plans or ideas can be immediately implemented so if there isn’t enough lead time to get the framework for goals and plans in place you may be well into the first quarter before the structure of the new year is in place.  Part of the slowdown in the lead time each year is due to the Holiday Season which is when many people are unavailable due to vacations or time off.  It simply makes it more difficult to get some of the necessary things accomplished that are required to move forward with new plans but this is also a great time to sit back and review this year to see what changes we want to make going forward and how best to implement them.

What has been good for this year’s planning for next year is the fact that the presidential election is over so there is no uncertainty in this area.  We can pretty much expect, from an economic standpoint, that the next four years will go about the same as the last four years which apparently for some reason is okay with slightly more than half of the voting population.  Whether less than slightly half of the voting population agrees with this or not is another matter but at least we have an understanding of what we have done to ourselves for the next four years.

Having an understanding of what we can expect economically in the future is fine but essentially since we cannot control any of it we just need to stand back, look at the entire playing field and move forward in the best way that we can for ourselves regardless of what changes do or do not occur.  The fiscal cliff issue has dominated much of the fourth quarter of this year which again is something that we cannot personally control we just need to be nimble, we need to understand the ramifications of the likely outcomes and plan going forward the best we can with the knowledge and situation that we have at the time.  The first quarter of next year will very possibly be dominated by another government stalemate about the debt ceiling.  Will our debt ceiling increase or not which may lead to the same or similar type of government infighting we have witnessed in the past over this issue.

Regardless of if you are a business owner, an hourly employee, self employed, out of work or retired you still need to plan for next year.  The old sayings “Plan your work and work your plan” and “If you have no goals you’ll always reach them” are very true.  What do you want the level of your assets to be a year from now versus what they are now?  What do you want the gross and net profits of your company to be versus what they are now?  What kind of employment do you want next year versus what you have now?  Regardless of your situation you still need to plan this out.  The sooner we can come up with a realistic and workable plan to achieve our goals the better off we will be going forward.

 

Top 5 Reasons To Trade ETFs

Today I would like to discuss five of the best reasons to invest in the Exchange Traded Funds market (ETFs).  I think that these reasons, are some of the most compelling reasons to join the ETF trading revolution!

1. EFTs are a great way to invest in the Broader Market.

Whether you are an experienced trader or a beginning novice a great place to invest is in the broader market.  ETF’s are perfect investment vehicles for trading the overall market with large cap index  EFT’s like the Diamond’s which follow the Dow Jones 30 Industrials, or the SPDR’s which follow the broader but still bellwether stocks that represent the Standard and Poor’s 500.  The advantage of using an Index ETF is that you can get the benefit of trading the overall market which has a tendency to trade in longer-term trends over time. You can follow just about any stock index with ETF’s whether you follow the largest stocks indexes or ETF’s that follow small cap and medium cap stocks without having to buy a bunch of individual stocks or even high cost mutual funds.

2. ETFs are great way to invest in a specific Market Sector.

Instead of trading in the broader market or foreign markets, perhaps you want to invest in a specific sector in a specific industry such as gold or other precious metals.  Than simply, buy a Gold or Silver mining ETF.  If you are looking to invest in a specific industry like pharmaceuticals or technology then find the appropriate industry ETF.  This is much easier than owning a basket of industry stocks directly.

3. EFTs are a great way to invest in Foreign Stock Markets.

With Foreign Stock ETF’s you can invest in the foreign markets just like you can invest in a domestic market by buying Foreign Index ETF’s  There is a wide variety of ways to invest in the foreign markets.  There are emerging market ETF’s, Foreign currency ETFs and ETFs for specific countries like China or India. Investing in foreign markets has never been easier with all of the different classifications of foreign market EFTs.

4. ETF’s are a easy way to Short the Stock Market.

I know it sound a bit crazy at first, but, you can buy an EFT that invests in short stock positions.  These are called inverse ETFs. They will move up as the underlying securities move down much like put options do without having to learn how to trade the options market directly which can be tricky especially for less experienced traders.

5.  ETFs are a great way to invest in commodities.

If you have ever wanted to invest in commodities, but it always sounded too complicated or too risky then commodity ETFs may be the answer.  With commodity ETFs, you can emulate the price of oil, cattle, or orange juice without having to directly buy commodity contracts or learn about direct commodity trading.

In conclusion,  EFT’s may provide a great way to extend and diversify your portfolio into markets and sectors you might have never dreamed possible.  However, as with any investment, do you homework, talk to advisors you trust and know what it is you are buying before you put your assets on the line.

Booking Profits and Losses Now or Later?

Year end tax planning and general planning for the New Year comes up around this time of year for many people but I believe that there possibly may be a little more emphasis placed on it this year than in most past years.  The reason of course is because of all of the uncertainty around what will happen with tax rates in the New Year.

Typically planning for the next year can be done in the fourth quarter of the current year with a relative amount of certainty when we are in a stable economic environment.  Getting current year tax records together and projecting business, personal and investment growth for the New Year is relatively easy however this year is a bit different.  The challenge really comes down to knowing if one should consider booking profits before the end of the year and carrying losses into next year or not.  Normally a big part of yearend tax planning is taking investment or trading losses before the end of the current year that will offset the current years income but if tax rates increase next year, if we fall off of the fiscal cliff, would we be better off waiting to take any losses that we may have until next year so we can offset them against gains that may be taxed at a higher rate than what they are taxed at this year.

Booking a profit now instead of waiting until next year may also make some sense because if there is no agreement in Washington around an extension of the Bush tax cuts our gains will likely be taxed at a greater rate next year than they are now.  The dilemma, aside from knowing with certainty at this point what will actually happen with regard to tax rates, is knowing if it is better to let the profitable investments that are in a portfolio continue to grow in hopes that the growth will more than offset any potential tax increase or liquidate now and book a profit that may be taxed at a lower rate.  The added problem around this decision of course is what will happen to those investments if our government does not reach an agreement on the tax issue.  If there is no agreement how will the markets react; will it be worth taking the chance that the markets can recover a potential drop due to a negative reaction if there is no agreement or will it be a long downward slope for the markets that cannot be recovered in a relatively short period of time.

Conversely if there is an agreement will we see a euphoric market that increases rapidly making it far better to enjoy the increase in our profitable investments with no real regard to when they may be liquidated because we will then be in a relatively stable tax environment very likely at rates that are similar to today’s rates.

Possibly the worst thing that can happen is that there is no agreement by the last business day of this year with no real indication of what will happen in the future.  The reason of course is if we do reach the end of the year with no agreement which direction do you go in with your investments?  Do you keep everything in place as it is at that point in hopes of an agreement being reached early in 2013 with retroactive tax cuts back to the beginning of the year?  This is not something that can be known or planned for this year but it certainly is a possibility.  If there is no agreement reached by the end of this year everyone will need to make their own decision regarding if it is better to book their profit this year and carry any losing positions forward versus taking a loss this year and carrying the profitable positions forward.  I heard a news story today that stated that a recently signed major league baseball free agent will take his $10M signing bonus before the end of this year due to all of the economic uncertainty.  This is probably a good idea because the likely scenario for high earners is that regardless of what happens their income will be taxed more.

Daily Trading Routine For Stock, ETF and Forex Investors

Today we want to discuss the importance of having a daily trading routine as part of our overall trading plan.  Regardless of what you trade – Stocks, options, futures, metals, or forex you should have in front of you a routine that you follow on a daily basis as you begin to trade.  This does not need to be an extensive list of things but should include some of the important things you will need to do when trading.  Think of it like a pre-flight checklist where you are checking everything out to make sure you are ready to fly and that your plane is safe.  So with regards to this let’s discuss some of the things you may want to include in this checklist.

The first thing that you should consider, and the most important thing, is what is happening to the current positions that you are trading.  This of course is where you are either making or losing money and where you need to make the decisions as to staying in a position or exiting it.  The first thing to look for is to see if you have any positions that have been stopped out or hit your profit target.  This will do a couple of thing for you including knowing how well you are following your rules.  If you are constantly getting stopped out you will want to examine why this is happening.  You will then want to identify any stop or target adjustments that are needed, based on your rules.  This will also help you with your position sizing as it will tell you the amount you currently have at risk.  After you know where your current portfolio is sitting you will be able to move the the next step.

The next thing to consider is how much more you are able to trade.  If you have a specific amount of total risk you are using you will want to know how close you are to that level.  So if you are only willing to risk 10% of your overall account at any one time and you currently have 5% risk you will know you can risk an additional 5% to stay within your limits.  This is where you can spend some time reviewing charts to determine which ones might be setting up for a trade based off of your setup conditions.

In this step you will look at the chart and make the evaluation as to the setup based of you your current trading rules.  You will look at the trend, support and resistance, volume and any other indicator that you might be currently using.  Once a setup has occurred you will then take the necessary steps to place the trades into your portfolio.

After this step you will begin the monitoring process to make sure you are making the necessary trading changes that might be required.

Alright, so this is not an all inclusive list of things but something to get you started about the process that you need to go thorough when beginning your trading day.  Again take some time to setup your trading routine by looking at these following things:

  1. Current Trades
  2. Current Adjustments
  3. Current Risk
  4. Current Chart Setups
  5. Monitoring

In the end, if you have a simple routine that will allow you to be on “top” of your trading you will be happier and more successful in the end.

Daily Metals Chart Evaluation

Today we take a look at the daily charts for both gold and silver.  Being able to identify trends and support or resistance on the daily chart is critical to our overall success in evaluation of the charts.  We will evaluate the chart below by looking at each part individually.

 

 

A= This is the past high point on the daily chart of gold.  This area is important to identify because it is where there may be some long term resistance to price movement.  This is common to identify in any chart we are looking at for both determining possible targets and where the price may stop moving.

 

B= This line shows the concept of how support areas can become resistance areas on the chart.  Once we see an area of support in the past we want to look for it to act as an are of resistance in the future.

 

C= The reverse is true for old resistance becoming new support.  This area can also form the support area in a triangle price pattern.

 

D= This is the most recent area of strong resistance which we want to identify if the prior level of support is broken.

 

E= The new level of resistance formed off of the support line B

 

F= This is the 40 SMA which is moving down and an indication that the trend is to the down side.

 

As you evaluate a chart step by step you will be able to have more confidence that you are looking at things correctly.  Now take a look at the chart of silver.

 

 

A= Longer term resistance

B= Short term resistance

C= Short term suppot

D= Longer term support

E= Moving Average direction

So as we look at the chart of Silver we can get a good picture of the areas where the price may be going and were it may be stopping its movements.  The goal should be to quickly identify what is happening on the chart so you can make good decisions about how to trade it.

With both the chart for gold and silver we can reasonably make the determination that the price action is a bit sideways and consolidating.  This gives us the opportunity to better know what we should do with our trades and where to enter or exit them.  Take some time to practice drawing these lines to see what conclusion you come up with.

 

 

Unemployment And ETF Trading (NFP Non-Farm Payroll)

Today we want to discuss the important news topic of the Non-Farm Payroll (NFP) and Unemployment Rate and how it relates to ETF Traders.  These are governmental reports released by the Bureau of Labor Statistics (BLS).  These reports are issued on the first Friday of the month and ones that can cause some strong movements in the volatility.  These reports can effect stocks, option, futures, currencies and metals.

The NFP looks at the change in the number of people where were employed for the last month.  It excludes those that were employed in the industry of farming.  One of the reasons this is looked as an important announcement is that it is a leading indicator for looking at consumer spending.  The more people employed the more they will spend.  For the month of November, the NFP was reported to have increased by 146,000 which was higher than the forecast of 89,000.

The Unemployment Rate looks at the total work force that is actively looking for employment but currently unemployed for the past month.  Unlike the NFP, the Unemployment Rate is considered a lagging number but important in understanding the overall health of the economy.  This report was also better than the forecast which was at 7.9% and came in at 7.7%.

Because the reports came out showing that employment rose by 146,000  in November, and the rate for unemployment dropped down to 7.7 percent these numbers beat both the estimates and caused the metals market to show some extreme volatility, at least temporarily.

In the charts below you can see both gold and silver and how the price moved at the time of this report.  You should also see the importance of being aware of when a major economic report is being released.  By know this you can take steps that will help both protect your positions and that will keep you away from trades that may be hurt by this volatility.

This is the 5 min chart for gold.  Notice what happened as the news was released.


You can see that as the news was released the market gaped down.  Notice what happened before and after the release.  This type of volatility can make it very difficult to trade consistently in the market.  The simple way to trade this is just to avoid the initial announcement of the data and wait for the market to become deliberate again.

Here is the 5 min. of chart of silver.

 

This chart also illustrates the importance of having a plan to trade during news.  Good money management and following your rules is critical to your overall success.  Take the time to review when major news is coming out so you can be prepared for what may or may not happen.