Investment Vehicles

INVESTMENT VEHICLES FOR TRADING

There are all types of trading and investment vehicles. Some are slightly more complex than others, and some offer increased leverage, such as futures and even forex currency markets. Some have short life spans due to expirations, such as an option or a futures contract. A trader or an investor needs to examine his or her personality profiles, tolerance for risk, personal time availability to devote to trading, and the time objective or turnover for achieving specific profit objectives. Once those are determined, then he or she needs to choose the right trading vehicle or a mixture of asset classes in order to apply a trading strategy.

Therefore, it is important to have several different types of trading accounts for taking advantage of various investment products and levels of risk, such as long-term retirement versus short-term speculative trading opportunities. A stock account will allow you to trade stocks, stock options, mutual funds, and ETFs.

A futures account will allow you to take advantage of the many opportunities of various commodity markets and options, in addition to day and swing trading the highly liquid stock index futures markets such as the Dow, Standard & Poor’s (S&P), Russell 2000, and Nasdaq 100 contracts. Some futures brokerage firms even have access for spot foreign currency trading on their trading platforms. I have been in the futures and trading business since 1978. I trade my own money, I have been a broker, managed a brokerage firm, owned a trading firm, but, most of all, I enjoy trading my own money. In fact, the principles I am sharing in this book are the same techniques that I have taught my family. Remember that my father used to think commodity trading or day trading was like gambling. But at age 71, he started gaining an interest in what I was doing, especially as he saw the fruits of my labors. More important, he witnessed the trading successes my son was also achieving and started to see that the pattern of what I was doing was teachable. In 2002, I had my son start a retirement stock account with what I call a core position of select stocks. One such stock was General Electric, which he purchased at 24.60; another stock I had him purchase was Rambus at 5.62. In both cases, he made out extremely well. In fact, if you know stocks, you may recognize that those prices were darn close to the exact lows in 2003. Let me tell you it was not by chance or luck that I had picked those prices; it was by using the methods I am going to describe in this book.

Incidentally, here is how my son got hooked on day trading: In early 2005, he was watching me on one of my appearances on CNBC. My son is self-employed; he owns cellular phone stores and sells satellite dish systems. He keeps the television on in his stores to show customers the satellite systems. After watching my appearance on CNBC, he left the television on; later that day, he started listening to Mad Money—the Jim Crammer show. Anyway, my son started trading his own stock account.

He called me one day to ask my opinion on a particular stock. That’s when I found out what he was up to. Now, my son is pretty smart; but there were several things he was not familiar with, for instance, what a stop-loss order was. As you might imagine, I was insanely furious with him for not knowing important yet basic concepts of trading. After I got through yelling at him, his mom (my wife) got hold of him; after that conversation, one of my trading courses was shipped out FedEx, and he quickly studied. He got back on the right track, gained an interest, and learned how to trade by my set of rules and by looking for such trading patterns as a high close doji (HCD) buy signal and a low close doji (LCD) sell signal. Both of these specific setups and triggers are covered in this book. The next course of action was to get him set up with the right markets to day trade and to open the right brokerage account to meet his needs for both his short- and long-term objectives. Now this is what I taught my son, and he has been consistently improving in his trading ever since. That is what my Dad saw, and he found merit in my methods. Therefore, I hope this solidifies your belief that traders can and do make money trading in the markets. Just find the right methods with which you are comfortable, stick to the trading rules (such as waiting for the triggers, rather than anticipating and acting prematurely), find and investment strategy (such as day, swing, or position trading), and then get confident that you are applying the right strategy with the right product (whether it is stocks, futures, options, foreign currencies, or forex markets). You have the potential to become a successful trader once you have these conditions mastered. The next process is finding the right software product and brokerage firm.

I have been in the industry for over a quarter of a century, so I know what to look for in both trading firm and software that suit my needs. I have the experience to know that not all trading companies are equal. The plain truth about it is that some companies are just better than others. Remember the debacle of REFCO? These guys were a behemoth in the futures and spot foreign currency trading business. They had a ton of talented people, some who are ex-employees of mine and some who I consider friends. I never did trade through them. Mainly, I was happy elsewhere. But as the years passed, REFCO just became too big. I like personalized service, and I don’t need a company to provide me with daily research. You need to find out what appeals to you and how to make a brokerage firm work for you.

It’s not the other way around. Keep in mind that a brokerage firm should be considered an employee—it works for you! I have a rating sheet for my subscribers of my advisory service of the pros and cons of several brokerage firms. If and when you are looking for a brokerage firm and want to see a ratings consensus, just visit www.nationalfutures.com, where I can give you a heads up on the pros and cons of several trading firms and the ones that I have accounts with. You can use it to find out which one fits your trading needs. As I say, some are better than others. Trading expenses such as commissions are important, but dealing with a cheap deep-discount commission brokerage firm that has no backup support does not suit my needs. A solid company that has competitively priced commissions, a loyal support staff, and pleasant customer service is what I look for. I like one that actually answers the phones and takes care of an issue immediately; that is the ideal company to do business with, and there are many of them. That is the information I share on my web site.