Hello Elijah,

Good to know the Zulu Principle works for you. Never heard of Jim Slater. Will look further at some point.

What's your take on Thomas Sowell?

UPDATE:

Just over a year ago I suggested on this thread that a way to earn quite large profits was to buy shares in a company and write 'Covered Call' options on the shares, collect the premiums paid to you for writing the option, use that money to purchase additional shares.

The example I gave was to purchase 100 shares of AT and T and write a January 2008 option with a $5-30 premium and go from there.

Had someone taken my advice and written options around $5 above the share price, taken the market price for call option premiums, used the money to purchase additional shares, used their dividends to purchase additional shares ....and each trade was done on the day the options expire (e.g you wrote March 2008 options on the date in January the January option expired and then bought shares at the market price on that date) ...you would have done rather well.

Instead of 100 shares you would own 134 ...your total investment a year ago would have been $3987 USD (to purchase the original 100 AT and T shares)...and 134 shares are worth $4367 (as I write this).

For the New Zealanders, the original investment cost $5500 NZD and would be worth $6520 NZD (as I write this)....an 18% increase thanks to the falling NZ dollar, ha ha!

However a couple of other benefits have emerged...

1. The AT and T shareprice has falled from $39-67 to $32-60 (as I write this) but because you own far more shares today than you did one year ago, you have been 'insulated' by a fall in the share price and your investment is actually worth 9.5% more in cash terms...(or 18% if you live in NZ)

2. AT and T like most large companies has been badly hit this year, but is likely to recover with its share price in the $35 - $40 range for next year; as such your increased number of shares will start to generate large profits as that happens...(e.g 134 shares at $38 is $5092)

Obviously if you continued doing this....(theoretically ad infinitum) ..the number of shares you own would continue to increase...134 shares today would rise to perhaps 175 this time next year, and so on...and all this from a relatively small original investment of less than $4000 USD.

(Pleasing to think that sometimes I may just know what I am talking about..ha ha!)

http://www.nzcapitalist.blogspot.com/

I have looked at www.tdameritrade.com. Am I right in saying that you only pay US$9.99 per month, for unlimited trading?
No, US$9.99 per trade. Ameritrades Fees
When they say "unlimited" they mean "unlimited shares per trade".

When I picked ameritrade there were only a few US traders that would allow non US citizens to trade and ameritrade were easily the best, but that was a few years ago and I'm sure there are better places to trade now.

Thank you very much for the info. As you suggest Reed, if you are only starting with a small amount, the fees in NZ and Aussie are prohibitive (something like $30 minimum per transaction).

I have looked at www.tdameritrade.com. Am I right in saying that you only pay US$9.99 per month, for unlimited trading?

It's been awhile since I've read them but Jack D. Schwager's books, "Market Wizards" and "The New Market Wizards" were excellent as I recall. In them he interviews various top traders to find out what makes them successful.

Gerald

p.s. How to you make a small fortune in the stock market?
Start with a large fortune.

book I would recommend for information about shares is 'The Zulu Principle', by Jim Slater.
It is a bit out of date in terms of the companies he mentions, but the 'glossary' is wonderful...he talks you through all the terminology, and is invaluable.

I get my business news information from Reuters, which I pay for.

The Herald and NBR should be avoided...probably for similar reasons Lindsay bemoans the illiteracy of Radio and Television reporters

Matty -
I'm planning on getting in to the stock market game in the next couple of years and I'll be sure to bookmark this post. Any advice on how to get started?

I know you are asking Elijah but I'll answer this and hopefully he'll fix any bad advice I give.

IMO if you are interested in trading... start now. There is no reason to delay starting. Some places will allow you to open a trial account, perform trades in real time with actual market data and pretend money - so you can start your education without risk. I prefer to do my learning with real money involved and some places will let you start trading with very little money (I saw one yesterday - 50USD minimum - www.hymarkets.com).

The sooner you start trading the more likely you'll be able to take advantage of opportunities when they arise.

If it's share trading in particular that interests you and you are dealing in small lots I would recommend using a US company to trade through - When I last looked the NZ and Aus companies had high trading fees, slow processing of trades and primative software (this might have changed) - I use ameritrade.com for shares and options and they have been OK.

There is a bit of jargon involved so I have found reading some trading/investing books helpful for this but none have been particularly helpful for trading strategies.

Elijah -
Are there any books you would reccommed?
Where do you get your day to day info?
Do you find the NBR or the financial section of the NZ Herald useful?
I don't have any background in economic theory. I imagine it is handy to understand this. Do you know of any good economic theory books that will be useful for commodity trading?

Cheers

Reed

2. I urge you to never, ever be away from the computer for more than a few minutes (to make a cup of tea or have a cigarette) whilst you have open positions. Learn the discipline (however tedious at times) of always following the market whilst you have open positions.

Yeah, but this is what Take Profit and Stop Loss settings are for, especially if you're trading a currency that is one of the more reliable ones, like EUR/USD or USD/YEN. If one sets a Take Profit at a modest price and all the indicators are soundly in place going in one's favour, then it's pretty safe to walk away - actually sometimes preferable because then one isn't just watching the minute by minute rise and fall which can be rather hair-raising.

I'm planning on getting in to the stock market game in the next couple of years and I'll be sure to bookmark this post. Any advice on how  to get started?

Broker One are a good firm.

www.brokerone.com.au (based in Sydney)

With regards to the share price falling below $34-57..that is what I meant about writing options on the same parcel of shares half a dozen times a year to eliminate that risk.

Once the January options expired and you wrote an April Call, the premium received would bring that figure down to about $30, and June Calls brings it down to about $26 and so on...(I cannot remember the last time AT and T was at $26 per share).

OK, message received and understood.

If I were to suggest a commodity for a beginner to start with, it would be Soybean Oil on the Chicago Board of Trade...
I'll do that. I am currently set up for trading currencies, US stocks and US options but not commodities.
Do you have any suggestion of who to trade "Soybean Oil on the Chicago Board" through?

Reed, it is termed 'Covered Call' options.

With regards to the share price falling below $34-57..that is what I meant about writing options on the same parcel of shares half a dozen times a year to eliminate that risk.

Once the January options expired and you wrote an April Call, the premium received would bring that figure down to about $30, and June Calls brings it down to about $26 and so on...(I cannot remember the last time AT and T was at $26 per share).

With regards to a commodity, you need to select one (if you are a beginner)...and concentrate on that.

Some tips..

1. Calculate how much the price needs to move for the profit margin you require, and track its daily trading history for the last wee while to see how volatile it is and whether price movements of that amount are likely and sustainable...(the more volatile the better).

2. Watch the market for a few days before trading and see what happens so you can try and pick up patterns which emerge...for example, take the opening price each day and see how much the price rises from the opening before it starts to fall.
You may find that the price never seems to rise more than, say, 0.7 cents per unit from the Opening price for the day, before it runs out of steam and eases back.
As it eases back...do any patterns emerge there? you may notice that when it drops 0.4 cents per unit a flood of buyers rush in and it starts rising again.

Track how far above and below the Opening price it moves each day.

Keep careful note of the time this happens...does a pattern emerge? ..for example, does there always seem to be 0.5 cent rise in price in the 10 minutes after the market opens? (as traders are filling 'overnight orders')..before easing back within 20 minutes of opening ...(as the traders having put through their overnight orders all bugger off outside for a coffee and a smoke)

I am a great believer that markets move at similar times each day...most traders are creatures of habit...and timing is the key to success.

Keep tracking these simple matters for as long as it takes until you get the hang of it and see clear patterns emerging...(do not rush! do not feel silly because after a week of close analysis you cannot seem to pick any patterns clearly, in time the penny will drop!)

If I were to suggest a commodity for a beginner to start with, it would be Soybean Oil on the Chicago Board of Trade, as it meets a number of criteria and only needs to move 18 points to meet my profit margin suggestions.

Elijah -
I'll give that option strategy a go. Is this termed "writing a covered call"?
You could lose money if the share value dropped below $34.57 or is there more to this strategy?

You don't have to answer my other questions but they weren't rhetorical.

If I tried your other strategy with the (lack of) knowledge I have, I'm pretty sure I would have the same odds of making money as I would loosing money.

Cheers

I am pleased someone brought up Options trading, as it is great fun and very lucrative!

What traders, especially new chums, are encouraged to do by their Brokers is to buy Call options and then attempt to sell the Call option at some point in the future.

With 1001 variables, and a 'loaded dice' against you, this seems a very bizarre activity designed solely for the enrichment of the Broker!

What I do is 'write' Call options.

This is where you purchase 100 shares in a company, say AT and T (America's version of Telecom)...currently sitting at $39-87 USD per share.
The cost of this would be around $5500 NZD.

You can then write, or sell, January 2008, $50 Calls for $5-30 as a premium.

What this means is that someone will agree to buy 100 AT and T shares from you for $50 per share between now and January 18th, entirely at their discretion, and pay you $5-30 per share for this 'option'.

It is a game you cannot lose...(which is what I mean about having a loaded dice against the buyer)

Whatever happens you get $530 USD in cash (the premium they pay you)...around $700 NZD after the Broker fees.
If the price rises to a level where it is profitable for the other chap to exercise his option, he will pay you $50 for shares you paid $39 for.

If you take a longish term view of this you would see that you could write Call options on the same parcel of AT and T shares half a dozen times per year...pocketing $600 or $700 each time...(not a bad return on a $5500 investment).

If a chap uses the money raked in from premiums to purchase additional shares...and write options and collect premiums on those shares..(and use the money to buy additional shares etc. etc) ...it very quickly becomes one of the easiest ways to make a profit, whilst eliminating "risk".

(Goodness knows why this sort of thing is not taught in Primary Schools so children would learn something 'useful')

Elijah -
I was hoping you would share some of your knowledge.

I do trade, but I cant call myself a trader - so far with shares, options and currency trading I have managed to lose about as much as I have gained.

How do you determine what to trade? Do you look for something that is stable?
How do you determine your entry point and your expectation of the direction the market will go?

If the trade goes in the opposite direction than you were expecting how do you determine when to bail out?

This fits very well with Ken's risk strategy, doesn't it. (Briefly, that strategy is this: rather than accepting the conventional wisdom that high risk and high profits go together, seek instead those opportunities in which there's high profit and little risk. They do exist.)

Cheers, Peter Cresswell

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