5 Things to Do in a Correction
By Slav Fedorov

When the market stalls and rolls over, there is no shortage of predictions of what’s going to happen. The reality is: nobody knows. These things tend to feed on themselves. Sometimes the market will just shake off a bad spell and continue higher. Other times it will gradually succumb to the selling pressure and cave in. But you can’t tell in the beginning how long a correction will last or how bad it will get. How can you, if the market’s direction is shaped by future events that have not yet occurred?

So what can you do in a correction?

1. Sell early or don’t sell at all

You never know which stocks will correct and which will hold up. In a severe downturn, virtually all stocks will go down with the tide. One by one. Hoping that YOURS will buck the trend is a poor investment strategy. If you decide to tough it out, eventually the pain may become unbearable and you will sell at the bottom. Why? Because most people have similar pain thresholds which they reach more or less at the same time. After they sell, there are no more sellers left, and the market has nothing else to do but turn back up.

2. Watch for rotation

Every new leg up is powered by a new crop of leaders. A correction is often a rotation from one sector into the next. Institutions take weeks or even months to build and unwind positions. They also have to operate on a cash basis. If they are fully invested, they have to sell first before buying something else. In a stampede they sell all at once, often the same stocks, depressing prices and causing severe breaks in the market. Why shouldn’t they? The managers all went to the same schools, studied the same economics, read the same papers, and watch the same CNBC. But institutional selling has a silver lining (for them): it depresses the prices of ALL stocks. So when they are finally ready to deploy the cash, institutions can get a good price on the new positions.

Rotation is one of the reasons you should take your profits regularly. If you buy and hold, you risk getting stuck with past leaders that will languish for years, or, worse yet, break down, while the new ones pass you by.

3. Determine who your friends are going forward

These days it does not take long to buy or sell a stock. After you lock in your profits (or save your shirt) most stocks will go down in a correction. Some WILL buck the trend and go higher. Don’t let the exception negate a sound rule. You don’t know which stocks will hold up. But the ones that do are likely to do well in the next leg up. If you have to buy them back higher, consider it the cost of insurance. Smaller gains are still better than losses.

Another thing that happens in a correction is that breakouts dry out. But the good stocks, like the good businesses they represent, don’t vanish. They just wait. So should you. The longer the base, the stronger the eventual breakout.

4. Keep your powder dry

If you try to buck the trend, you will get burnt. You will feel frustrated and exhausted by the time you SHOULD be getting back into the market. If, on the other hand, you wait out the correction in cash, you will be ready for action way ahead of the crowd.

5. Short/hedge

The alternative to cash is shorting. There are good longs and good shorts, but to my knowledge few are equally good at both. But you can always use a short ETF just like you would any other long position.

Slav Fedorov is a full time stock trader and founder and managing member of TradingZoom, LLC - a provider of timely stock picks in small caps based on proprietary selection methods.
http://www.tradingzoom.com/

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What is the Best Site For Free Stock Charts?
By Michael Cherniawski

When you’re looking for the best site for free stock charts, its good to ask yourself: What do you really need out of your charts? Its easy to get sucked into a website because of its eye-catching design or friendly sales pitch, however the biggest question is if its really going to provide you with what you need to make your investing more profitable.

For myself, I’ve created a set of parameters that I apply whenever I evaluate a new stock service or subscription online, free or not. Even though something may be free, it still can end up sucking up your time, which is in fact the most precious commodity you have.

First off, I always make sure that the site I’m looking for has free quotes in real time. This is especially important when I’m following a stock based on news-related items. If you’re trading off of quotes that are delayed by up to 20 minutes on average or more, then you can get yourself in big trouble in this volatile market.

Secondly, I need to make sure that the software I am going to use has all of the tools and indicators I know I will need for successful trading. I’ve been using on line charting services for over 12 years, and unfortunately I’ve wasted a lot of time on services (not even free ones at that!) that promised certain abilities that they were never able to follow through on.

Lastly, the free stock charts service I use better have the ability to save my charts and templates so that I can take notes and come back to my charts later without having to start all over again at square one. This last one is critical. There are services out there where you might be able to make a great one-off chart, but how will you know what you were thinking later when it comes time to take action on that stock if you can’t save it?

All this being said, how do you go about finding the best free stock charts service? I’ll tell you, I’ve already searched through the first 5 listings on Google and none of them fulfill the 3 requirements I have above. I found my new free charting service at http://www.AmericanStockMarket.info All I had to do was register for free at their site and I was instantly able to do everything that I needed with my stock charts! While I utilize a more expensive service at home, this free service is great for being on the road or checking my stock charts while traveling.

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Why Chart Patterns Make a Good Strategy
By Shaun Rosenberg

Chart patterns make a good strategy in the stock market. They have been proven effective many times in the past. Chart patterns work because:

1. Stocks Are Emotional

The majority of the people who invest in the stock market let their emotions be their guide. No one intends to make their financial decisions with their emotions, but if you are not prepared for it, it will play a big role in your trading.

This in turn makes the moves stocks make pretty emotional as well. And because chart patterns work with breakouts there is a lot of emotional participants out there willing to buy it and force it to go up.

2. Many traders Use it

There is a reason why many traders use chart patterns, they work. Once more because chart patterns are so widely used they tend to work better. The more people who use a strategy the better it tends to work.

3. It gives you a point to buy

You can do a lot of analysis on a stock to tell you what a good buy is and what is not, but that does not necessarily give you the best point to buy. Chart patterns on the other hand tell you exactly when to get into the trade so you can get in as it makes its move. Rather than just buy a stock and watch it go up and down
for months, or years before it starts to take off.

4. It Helps you cut your losses short

Cutting your losses is one of the keys to being successful in trading. You do not simply want to spend all your
money buying a stock and just hoping that it does not go all the way to $0. If a stock falls back into the pattern it is a good sign that the pattern has failed and will probably fall further. So getting out early can save you from taking a huge loss.

For more on chart patterns visit http://www.stocks-simplified.com/chart_patterns.html

For more on Technical analysis visit http://www.stocks-simplified.com/technical_analysis.html

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Online Stock Brokerage - 3 Keys to Finding the Best Online Broker For You
By Mike Singh

As the hammered stock markets slowly recover, more people are starting to dip their toes back in to test the investing waters. One problem that still persists these days in the world of online investing is picking a brokerage. There are so many options to choose from. How do you separate the good from the bad? Through this article we’ll explore the key points to bear in mind before you pick your online brokerage.

1) Trading fees: There is no one-size-fits-all approach here. You will need to figure out your investing/trading style. If you are an active trader or place a lot of buy/sell orders every month, you would probably seek a low-cost brokerage or one that gives you volume discounts. If buy-and-hold is your style, then you are ok with the slightly higher transaction costs if the other bases are covered.

2) Stock Research: How do you do your research right now? Do you use publicly available information and crunch the numbers or do you subscribe to stock advisory services already? If you do, then you might not value the stock research availble through your brokerage. Pick a brokerage that satisfies the other criteria.

3) Phone support: Even if you have 24-7 access to broadband dont overlook this feature. Do not go with a brokerage that doesnt provide toll-free access to professionals who can answer questions or help you with your account over the phone. There are various nuances and trading guidelines that are enforced on all trades and these are best explained by the experts rather than spending hours googling all the information.

We said 3 keys, but we’ll throw in another one as a bonus. As you gain more experience in investing, you might want to get approved for margin or decide to add bonds, options and futures to your portfolio. Pick a brokerage that provides you with opportunity for growth in these areas. It is a lot easier to manage your trading or investing activities in one account than be spread across multiple accounts.

Still have more questions than answers? Visit http://www.stock-trading-made-ez.com/ for information on buying penny stocks online.

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Selling Covered Calls - When Should Investors Write Covered Calls
By Mike Singh

As you probably already know, a call option gives the owner the right, but not the obligation, to buy the stock at the strike price by a fixed date. When the price of the stock goes up the call increases in value. So, you buy calls when you are expecting the underlying stock price to appreciate.

One strategy that is used by traders is to sell or write call options. When the trader owns the underlying stock, this is referred to as a ‘covered call’. The buyer of the call option pays a premium to have the right to purchase the stock at the strike price at a fixed date.

So what are the advantages of this strategy? There are three main ones:

1) Cash Flow

A lot of investors buy stock with the sole purpose of writing covered calls since this can be an income strategy. Its a less risky strategy which can provide steady income and is approved for use in many retirement portfolios also.

One way of employing covered calls is to buy stock of larger companies that have maintained pretty steady prices over large periods of time and whose prices arent expected to soar anytime soon. Once you own the stock, you write a covered call for a price modestly higher than the current price. Lets assume one of two scenarios play out - (a) The stock appreciates significantly and before the expiration of the option you get a nice dividend. Not only do you get a nice gain on your stock locked in but you also get to keep the dividend (b) The stock depreciates and is worth less than the strike price close to expiration. You get to keep the call premium and the stock at the same time. At this point you can issue a covered call on the same stock again.

2) Hedging

There are times when you will own stocks of good companies in your portfolio long-term. But, if you think that the stock might decline over the next few months or a year and you are not willing to sell just yet, you can hedge your long position with a covered call. You will get to keep the option premium while you see how your decision pans out. This strategy works best when there is little downside risk or upside potential in the near term and you want to get some income while you wait for the stock to appreciate.

3) To Get a Better Selling Price

There are times you are just ready to sell a stock because its trading near its fair value. So, you could sell a covered call at a price slightly higher than the current price to increase your overall return from the sale. The neat part about this is that you get extra cash via the option premium and from the higher sell price. The one thing you need to bear in mind when using covered calls with this objective is to be willing to settle for the selling price you decide on.

Now that you have learned the basics of how to trade options, are you ready for more advanced options trading strategies? Visit http://www.e-options.org/ to take your options trading knowledge to the next level.

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