Today we are going to look at a commonly used way to enter a trade. There are various ways we can enter into a position including market orders, limit orders and stop orders. We are going to look at the entry stop order to see how we can benefit from these types of entries. These are different than a stop loss as they are used to get us into a trade while stop losses get us out.

An entry stop order places you into the trade once the price has begun to move in the direction you want it to. So, if you want to go long a trade you will enter a buy stop and if you want to go short a trade you will enter with a sell stop.

One of the reasons for using an entry stop is to allow the price action to move in your favor before entering the trade. This means that you will look for a setup, then identify the price you want to enter the trade. For example, if you get a buy signal on your trading system, you then would decide on the price to enter the trade. So if the current price was 1.2340 and your entry rules were met you might place your entry buy stop at 1.2345 to enter the trade. This would allow you to get in as the price is moving in your favor. The reverse would be true for short trades.

Take a look at the chart below as it illustrates another use for the entry stop orders.

In this chart above you can see two areas for a possible entry. The top line is a buy stop and the bottom line is a stop. Currently the price is sitting between these two areas. In order to have the trade executed the price would need to move either above the buy stop level or below the sell stop level. In this example the price of gold would need to show some directional movement in order to be entered into a position.

This type of strategy is commonly called a straddle where you don’t necessarily care of the direction it is going to move you just want it to move in a direction. This is done often times right before a news announcement in anticipation that the reaction to the news will be strong and cause a significant move in the price. Once the price moves strongly in one direction you will be entered into the trade. After the direction has been chosen and the entry stop has been filled you will want to cancel the opposite pending order so you don’t get it filled also.

This is just one example of how to use an entry stop order. There may be other ways you can use it to help improve your trading method. Take some time to review how to place these trades so you have the option to use them as ways to enter trades. As we learn to use various way to enter a trade we are improving our trading process by giving us different ways to approach our entries.

Technical and fundamental analysis are the two main types of analysis in the investing world. Technical analysis is mainly concerned with price movement of a security using charts and technical studies to predict its future price movements. On the other hand, fundamental analysis looks at economic factors, which are commonly referred to as the “fundamentals,” hence the term fundamental analysis.

Fundamental analysis looks at the financial data of the company behind the stock to determine whether the company’s business will result in a higher or lower stock price. Fundamental analysis looks at revenues, profits and losses and business trends, as well as seeking growth factors that will affect the stock price. Fundamental analysis may also review more macroeconomic factors such as a company’s business sector and the overall economy in relation to a company’s lines of business. Fundamental analysis is geared toward understanding the company behind the stock. Some of the specific factors we focus on when doing fundamental analysis are:

1. Macro economic factors such as Supply and Demand and other economy new and specific industry factors.
2. Micro or company specific data including such things as Price/Earnings ratios, Price/Sales ratios, Price/book value rations, etc. Profitability: looking at gross sales, gross profit margin, operating margins, earning per share, and net profit margin. Also, factors like growth rates, Potential revenue growth, financial strength, return on investments and return on assets. Sometimes these many company specific factors are complicated and difficult to understand.

Now on the other hand, technical analysis of stocks primarily ignores the company specific issues behind a stock. Technical analysis looks at price action and volume using charts patterns and technical indicators. The theory behind technical analysis is all information about a stock is built into or factored into the share price and analyzing the price movements will predict where a stock price might go. Traders using technical analysis rely on price charts, which include analytical indicators to help traders recognize price trends or reversals and profit from these expected outcomes.

Technical analysis is appealing and has become more so in recent years, due the fact that trading systems can be developed with a specific set of rules to trigger buy and sell orders. There is also a wide range of indicators for a trader to choose from, allowing the trader to set up a trading system to fit his or her trading style. The negatives of technical analysis are using historical data to predict the future – which doesn’t always work or don’t always predict the future price action perfectly, also the different signals the different technical tools can generate make some systems confusing. Fundamental analysis is more dependent on a trader’s judgment concerning a company’s financial data. A trader using fundamental analysis can understand everything correctly about a company and stock and still see the stock go in the opposite direction because of some additional or external factor not taken into account. Fundamental analysis is sometimes favored for longer time investing, while technical analysis is often considered the better style for shorter-term trading.

For short-term trading, I definitely prefer a short-term trading plan based on price action charts using simple technical indicators while also maintaining an awareness of the fundamental factors, especially broad economic factors which may affect a specific stock or industry that I might be invested in.

Within the ETF (Exchange Traded Fund) world there are a huge number of choices and I often get the question: “Where do I start; which ETF’s are right for me?

There is such a broad range of ETF’s, investors new to them have a hard time knowing where to start: My suggestion is to always start with things you are familiar with understand and then branch out to other things as you get more experience and your portfolio warrants it. So the best way to get started is to become aware of what is available. Generally, it is a good idea to separate the ETF market into three broad categories:

1. Equity Index ETF’s
2. Bond ETF’s
3. Commodity ETF’s

Now within each broad category there is no shortage of choices. There are Bull market ETF’s that follow the uptrend of the market. We have Bear market ETF’s or inverse ETF’s that are constructed to follow the downtrend of the market. We have leveraged ETF’s that are leveraged x2 and x3 to double or triple the underlying issue’s average move. Within the category of Equity Index ETF’s, you have large caps, medium caps, small caps, international index funds and emerging market funds, the choices seem almost endless and just when you think you have it all down, new ETF’s are being created. Especially on the international scene, the US ETF market is fairly mature; the international markets are just getting started.

My best advice to those getting started in ETF’s is first, start with something you know and are familiar with. If you are involved and have knowledge of certain industries, say “high tech” look at one of the Technology Sector ETF’s. If you follow macro economic factors, a good index fund could be the place to start. If you are looking for international growth, look to one of the established international equity index funds. Secondly, make sure you know the “true” objectives and goals of the fund. With so many ETF’s now available, be sure to research the fund’s holdings with a little bit of research. Sometimes the official title of the fund can be a bit generic or the funds can alter their course from their original objectives. One can find out much about a fund with a 1-2 minute search on the internet and can save a lot a second guessing and stress down the road. Also, a word of CAUTION concerning “Leveraged” ETF’s – some have performed fabulously in the most recent market run up, but, as always, what goes up quickly can come down just as fast when the market reverses and all your profits can quickly turn to losses. So beware!

So like any investment, first identify you investment objectives. Make sure your objectives are clear and practical. Secondly, do you homework to make sure what you are investing in will meet your clear objectives! Thirdly, don’t put all you “eggs in one basket,” in other words, even in the ETF world, spread you risk around by diversifying, as best you can, so that you are not putting all you money on one or two ETF’s. Portfolio Risk Allocation rules should be used when investing in any market including ETF’s. With ETF’s, have fun with the huge variety of choices; ETF investing can become enjoyable, as well as profitable. Remember to enjoy the journey, as well as the destination, and ETF’s are a good place to start.