Five Ways to Trade a Rebound in China

In May 2015, China was among the hottest stock markets in the world. By the middle of June, the Shanghai Composite Index, a benchmark for stocks traded in China, was up 60% since the beginning of the year. Within a month, the index was down nearly 35%. Within seven months, traders in China had experienced a bubble and a crash. The 35% decline that began in June was the beginning of a bear market. By February of this year, the Shanghai Composite had lost nearly 50% from its peak and China was one of the least-loved stock markets in the world. Since then, we have seen signs of a bottom fo...
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Lessons for the Stock Market from the Commodities Markets

Financial markets are diverse, offering opportunities to trade stocks, bonds, commodities, derivatives on financial instruments and foreign exchange. Each market is different with its own personality but there are similarities between all markets. One similarity in all markets is that the potential risks of loss are highly correlated with potential rewards. Large rewards generally require a trader to accept large risks. That similarity has led analysts in all markets to search for strategies that can improve rewards while reducing risk. It might be surprising to some stock market traders to le...
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A Sector Rotation Trading Strategy You Can Follow

If you watch any one of the business news channels for more than an hour a week, you are likely to hear an expert proclaim that investors are moving money in or out of particular sectors. They might say “money is flowing out of financials and into gold mining stocks” for example. While it seems statements like this require actual knowledge of what other investors are thinking, that really isn’t the case. Sometimes the comments are based on observations of money flow indicators and other times they might be based on a theoretical sector rotation model like the one shown below. This model...
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Four Cheap Large Caps Trading Under $20

Sometimes, as we all know, words can have different meanings to different people. For investors, the word “cheap” is one of those terms that can carry different meanings. To some investors, cheap stocks are those offering value, while others emphasize price when defining cheap. The first group looks at metrics like low price-to-earnings (P/E) ratios or they apply other valuation tools. The second group looks at the market price and calls a stock cheap when it’s trading below $1 a share, or $5 a share or maybe $20 a share. There are advantages and disadvantages to both definitions. Many i...
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Trade the Dogs of the Dow Strategy Using a Discount Shopping Strategy

You might be familiar with the Dogs of the Dow, a popular investment strategy that identifies stocks in the Dow Jones Industrial Average offering the best value. The strategy was first detailed in a 1991 book, Beating the Dow by Michael B. O'Higgins. The strategy buys the ten highest yielding stocks from the thirty stocks that are included in the DJIA and trades just once a year. These ten stocks are known as the Dogs of the Dow. Theoretically, high dividend yields are a sign of value in stocks as long as the dividend is safe. Large caps stocks included in the Dow are most likely safe and t...
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The Correct Way to Add Indicators to Your Charts

I saw an interesting chart over the weekend and want to share it with you so I recreated it. There are Bollinger Bands, moving averages, trend lines, stochastics, RSI and MACD. I think the chart is saying to buy but it’s not easy to tell. This chart is clearly an example of too many indicators. In fact, all three of the indicators at the bottom use the same information and will almost always give the same signals. We can confirm that with another chart. In the chart above, all three indicators have been scaled to show the same range. They all generally move in the same direction ...
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Four Safe Stocks of Summer

We are still in the seasonally bearish worst six months, the time of year characterized by the popular saying to “sell in May and go away.” We’ve seen that the six months from the beginning of May through the end of October is a period of below average returns. Assuming you held stocks only during the best six months, from November through April, your average annual gain would be 5.2%, equal to all of the Dow’s gains over the past 116 years. Over the worst six months, the Dow Jones Industrial Average lost an average of 0.3% a year. Losses for the worst six months resulted from negative retu...
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How to Benefit From Trends

Many successful traders have read a book written in 1923 called Reminiscences of a Stock Operator. This book, by Edwin Lefèvre, is based on the life of Jesse Livermore, one of the greatest traders of all time. Livermore was a colorful character who was able to trade quickly and at times he would be trading too fast for the old-style ticker tape machine to keep up with him. While Livermore loved to trade, he also loved to think about trading and that old book contains some of the most important ideas about trading ever written down. One of the best pieces of advice Livermore offered explaine...
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