VDM Trading

My experiences in the world of trading, investing and business.

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Most consistent stock trading strategies

Six most consistent stock trading strategies you should check out. here #trading #stocks

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#trading #stocks #twitter #ipo #wallstreet

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#trading #binaryoptions #options

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Trading options? Which options are better?

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Is it possible to invest exactly like the best hedge funds in the world? It may be easier than you think: by utilizing Exchange Traded Funds you can play the same positions that those successful hedge funds hold, all that without the high cost and performance bonuses of hedge funds. Currently there are various ETF's that track the positions of top managers. The Top Guru Holdings Index ETF (Global X) selects 68 hedge funds and subsequently looks at the best ideas for example. Alpha Clone has a similar ETF, the AlphaClone Alternative Alpha ETF. This ETF uses a slightly different methodology with a patented ranking system. Furthermore, this ETF has a dynamic hedge mechanism. AlphaClone shorts are allowed up to 50% during a prolonged decline in the market. SEC Filings How do these ETF's know which positions hedge fund managers are holding? In the US it is mandatory for each hedge fund that's holding more than 100 million dollars to report which positions are held. This is done with a so-called 13F-document from the Securities and Exchange Commission (SEC), ostensibly the watchdog of US financial markets. It states which positions were held, added or phased out in the last quarter. There are a lot of investors who are really looking forward to this announcement because it provides them with a lot of insight how top managers invest. There is only one disadvantage to this strategy: traders and investors are running behind the facts. The announcement never happens on the moment when a stock is added to a portfolio of hedge fund. It may well be that the manager has taken a position in January and disclosed this in April's 13-F filing. The stock price could have significantly risen in the meantime, which makes buying not as attractive anymore. Trust Aside from that, it remains guesswork for the trader about the reason for the purchase. Some investors, like Daniel Loeb and David Einhorn, are a little more transparent than others. For instance, Einhorn said to be long Apple because it's a company with a great product portfolio and a good balance sheet. But not every investor talks openly about the transactions. So an investor who follows the "follow the best hedge fund guru strategy" must have a lot of confidence in the regarding manager and his investment style. Funds that handle a short-term strategy exit funds a lot quicker and so the filings don't mean a whole lot. The stock may already been sold again during the next filing. Handicap The ETFs also know this of course, and therefore only include funds that are known for their longer term strategy. Global X skips funds with a high turnover for instance. The ETF tracks Greenlight Capital (David Einhorn) and Third Point (Daniel Loeb) among others. So far the returns of the Global X fund since its inception in 2012 is: 50.29% (S&P 500 was 29.71%). As you can see, despite the handicap, the results are more than satisfactory. In addition, the costs are also way lower than the usual annual fee of 2% plus a bonus payment (can go up to 25%). Conclusion Although the idea behind these ETF's is pretty attractive, I'm not a big fan of it. As a trader it is best to work with your own vision on the markets, so that you can see why a trade was successful or not based on that. However, that's not to say those ETFs could serve as an inspiration: because also ETF's disclose which funds are currently held. For the Global X holdings click here and here for the ones from Alpha. Pandora and Mastercard are a few names that stand out.

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If you have been following the EUR/USD currency pair, you've probably noticed the pattern like the one in the renko chart above. Although trying very hard, it looks like it has trouble pushing above the psychological 1.34 mark. In fact, as of this time of writing the pair dropped around 30 pips from that level. Is this the beginning of a new downward trend? The already over-inflated Euro ballooned up even more during the past couple of days, indicating to me that more bullish speculators and hedgers are at play than the normal 'natural' market movements that usually affect prices. Before I come to the conclusion that it's a good time to short the Euro I look at a few other indicators before I click the 'sell' button in my trading program. These other indicators tell me how the overall market is performing. One of them is the VIX, the volatility index, a.k.a panic index that shows how much fear is in the markets right now. At the moment, this 'fear index' is hovering around an all year low (12.73). The VIX is an index that mainly reflects the US markets (S&P 500), in Europe however it's not all that rosy. It makes sense to closely monitor any (financial) news coming from Europe when you trade the EUR/USD, and that's exactly what I've been doing. From an economic perspective Europe is one big mess compared to the US, although recently better data is coming from Europe but that's mainly because better news from China. You may wonder why is the Euro so much stronger than the US dollar, you have to keep in mind that there's (still) way more US dollars in circulation in the world than Euros - of course this also affects the US dollar index - which is the second indicator I consult before I make any sort of trading decision when it comes to the EUR/USD. The US dollar index hovers still nicely around the 81 mark. Furthermore, most analysts expect the US dollar to rise again after a seven week low due to Fed uncertainty; and this is exactly what I wanted to hear. It makes complete sense. Even though theoretically the Euro should be trading around 1.17 to reflect a more 'healthy' market balance, we're still far from it. But I think this is a great opportunity, just like how it was in February of this year when the EUR/USD traded over 1.36 - short and stay short! 

My target is 1.3250. 

-Happy trading!

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Instead of thinking about stocks that you would want to buy, have you ever thought of stocks that you absolutely don't want in your portfolio? Usually I give stock and/or trading recommendations but this time I compiled a list of stocks that are out of the question for my portfolio. Years ago I wrote an article about the same stocks that are still on my 'blacklist' today. That was when SEARS (SHLD) was trading well over $80 a share for example, now it's almost half that price. I believe a few companies back then, also on my infamous list, were Blockbuster and Circuit City - we all know what happened with them. Most are in the retailer sector Most stocks are in the retail sector. That has to do with the simple fact that I foresee that the retail sector, as it exists today, will become obsolete in the near future. Stores are downsizing, while the big retailers such as BEST BUY (BBY), another one on my 'blacklist', get a lot of 'lookers', those who use the place to scout out the products that they eventually are going to buy for way less online. That's is also where the change is happening. Online shopping is becoming more and more popular, renting movies online is something that's common now, who needs a video store for that? That same trend goes for non-food stores, and mainly luxury items such as electronics, clothing and jewelry. Huge (Outdoor) shopping malls will eventually become a thing of the past, so I'm aiming on stocks that can be affected in this scenario like Macy's (M), Sears (SHLD), Nordstrom (JWN) and such. In the near future these companies will have to severely downsize if they want to survive, but that is not necessarily a bad thing. Sure, you won't be able to house as many products, but you will save a lot of money on heating/cooling costs, rent, transportation, wages etc. These are savings on guaranteed expenses. Despite the fact that some of these stores adapt to online selling, like Sears, the downward trend seems to continue - which is not a good sign at all, it reminds me of Blockbuster and their last attempt to survive by offering DVD's in the mail, like Netflix. This is not to say that short- mid- term trades will not be profitable. Of course there are short term buying opportunities that these stocks offer, but I wouldn't want to invest in Best Buy for example. Here are the ten stocks (in no particular order) that I absolutely do not want in my portfolio:

Best Buy (BBY)

Radioshack (RSH)

Sears (SHLD)

Macy's (M)

Steinmart (SMRT)

Urban Outfitters (URBN)

American Apparel (APP) 

Sprint (S)

Tiffany & Co (TIF)

Rite Aid (RAD)

Then which sectors should I put my money? On the other hand, these are the sectors and companies that do have growth potential, like healthcare (THC) and technology (AAPL), also the food sector has many opportunities (MCD), but again - stay away from retail!

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What has always baffled me is the fact that it turns out more and more quintessential that the American and Asian markets are immune to what's going on in Europe. An over-inflated Euro, sky high unemployment in Spain, Greece, Italy, Ireland and Portugal (whose government almost collapsed recently) and yet the Dow Jones continues to break all records, the VIX (panic index) is at its lowest point, below 16 points (!)- and even with the speculation that this number is going to be lower.

Doesn't make sense.

It just doesn't add up; high unemployment rates, austerity measures, dissatisfied people on the streets protesting against more cuts - seen on European television almost daily, and yet the United States as well as Asia seem to ignore it. Aren't all world economies inter-connected, don't they all relate to each other, one way or another? I understand that each economy is its own, but come on now...

EUR/USD already crashing...

This brings me to my next point, and the reason I wrote this post. As you may know, if you've been following this blog, over the years I've specialized in this currency pair. As of this time of writing this pair is on its way to 1.27. Maybe the European markets and leaders finally realize that the over-inflated Euro is hurting the European economy tremendously (expensive export prices, tourism etc). Mostly likely the ECB won't and will hold on to their ridiculous interest rate policy.

In order to get an overview in a situation like this I always like to look at the overall picture, look at the extremes and base my analysis on that. I usually use the fibonnaci retracement levels for that, when it comes to the EUR/USD, this is the result on my chart:

Click on the chart for a larger one.

When I see an overview chart like this (from 2008) I usually see pretty indicators and oscillators along with it, they would decorate the chart nicely, but it would also produce a lot of noise - extra information that you really don't need. This is the chart that I'm going by when I trade the EUR/USD and so far I've been pretty successful, mainly because I see the pivot levels. When the pair failed to fully trade above 1.35 in the beginning of the year, I knew that the next step was to focus on the red zone (that it is trading in right now), Ever since then I've always been pretty bearish on the EUR/USD, and it has yielded me thousands of pips from the beginning. 

It will get worse

Sooner or later the Euro zone and its currency are going to break. Perhaps next year, perhaps the year after that. Proud nations in Europe are no longer going to put up with the austerity measures that are laid on them by more wealthy European nations, and on the contrary wealthy nations will no longer fund the 'poor countries' in Europe. Subsequently a collapse of the Euro would mean a volatility shock wave for the financial markets, and volatility is something we can profit from in the end - don't worry, no one gets hurt, the 'financial collapse' will only occur on paper, perhaps after that each European nation will go back to their original currency - or maybe the currency will be divided into a northern and southern Euro, now that's food for thought! 

Until then, I hold my position. The Euro according to my analysis has a good chance that it will be trading around 1.25 at the end of the year. The 'cliff' (when the Euro will really drop) is a thing for a long term trade - and is probably not even going to happen this year.

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Despite the fact that the price of gold ($GLD) has already dropped significantly, traders have to take into account that the price of gold may drop even further, back to price levels seen before the great recession.

Gold price last 5 years.

Markets are less fearful That the price of gold has declined almost a quarter last year, and is now trading around $1,200 an ounce, which is at its lowest point in almost three years, is because the markets are less fearful than they used to be. Fear usually drives the price of gold up. The peak was a little over $1,900 in the summer of 2011, now that's a price drop of 30%. I remember that back in those days there was even speculation that gold could rise to $2,000 an ounce, and that was exactly the problem. Speculation While the price of gold was making higher highs in 2011, the Dow Jones Index failed to make lower lows and was still trading well over 11,000 points in that same time period. This alone should've been an indication that gold was significantly overbought, and is since then in a down trend to pre-recession levels. Mainly because markets around the world are correcting.

Gold price (orange line), compared to Dow Jones Industrial Average (blue mountain). While the price of gold was making higher highs in the summer of 2011, the Dow Jones failed to make lower lows. (chart courtesy of MSN Money)

Should you buy? Even with the idea that gold may have reached a bottom, I still don't think it's a good idea to buy now. Aside from lower fear level, which can be measured by looking at the $VIX, also the interest rates on bonds rise again. Gold is in a severe downtrend since the beginning of the year, and so far it doesn't look like it's stopping. So even at $1,200 gold is still relatively expensive compared to other investments at the moment. Also, investment banks don't have a rosy outlook for gold and have adjusted their forecasts in the last few months. Like UBS adjusted their bearish outlook with 10%, as well as Goldman lowered his expectation from $1,435 to $1,200. Has the bottom been reached? I think when it comes to gold, and the question whether or not a bottom has been reached - we have to closely monitor the $VIX panic index, as long as that stays below 18 there's a good chance that the downward spiral will continue and gold will be trading below $1,000 by the end of the year. Once a bottom has been confirmed it may be a good idea to add gold again to your portfolio.

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The VDM Trading e-book has (finally) been released, and is now available for download! This e-book sells for $4.99 and counts well over 60 pages (.PDF full version), is filled with all the information you need to know in order to start trading the stock markets, and is hands down one of the most useful reference companions available on the market! So go ahead and click this link to get your copy today! Also available on Amazon Kindle!

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Yesterday marked the worst trading day of 2013. The Dow Jones Index lost more than 350 points (-2.34%), which erased all the gains from May and June. The last time the Dow shed off more than 300 points was in somewhere in November last year. There's panic in the market, thus a major sell off.

CNN Money's Fear & Greed Index Gauge lowest this year

Many financial news sites claim that it was Ben Bernanke from the Federal Reserve that caused this huge drop, after his announcement that the central bank might taper off quantitative easing later in the year. Now 'quantitative easing' is a way to stimulate the national economy when the normal monetary policy doesn't work. It does this by buying assets from banks and other financial institutions. Seriously? And we wonder why this happened? This implies to me that fundamentally the US economy is 'ballooned up' at the moment and thrives on capital injections from the government, since it doesn't have enough strength to maintain a sound fundamental economic base on its own. The Dow Jones has had a bull run since November of last year, that's more than 6 months - adding well over a whopping 2,000 points... now all of a sudden everyone is panicking about the worst trading day of 2013? Sooner or later this was bound to happen, and I think most traders and investors were waiting for a turning point in the markets. I don't know how many times I had to read: 'when is this bull market going to pop?', well: it just did. But despite the panic, even the VIX volatility index is now past 20 (which by the way is a healthier figure), I think this is merely a market correction. Calm down. Of course Ben Bernanke played a major role in this drop, but ultimately traders were waiting on some sort of news that would trigger a reversal, so theoretically: 350 points may seem like a lot, but I think it's great news because that means that the market is confident enough to survive on its own without the life support of the central bank, we would've seen a much - much sharper drop if this wasn't the case. So, for me the worst trading day of 2013 is actually a good thing and is creating some money making opportunities along the way by a little more volatility. Once the market settles down and gets used to the fact that it may not need stimulus money anymore, we'll see an even bigger bull run. This may happen sooner than you think, I expect next week that the Dow Jones will be trading at the same levels at it did at the beginning of this week. I solely base this on the fact that the Dow 'only' shed 350 points on the worst trading day of 2013. If the economy was fundamentally worse, it would've been much more after news like this from the Federal Reserve. To me, it seems like the most probable outcome, however on the flip side: if markets continue to (significantly) drop next week, it's a confirmation that the confidence in the overall economy is not as strong as I initially thought and a bear market (downtrend) may emerge. Today the markets may still be a little wobbly though, getting used to this idea.