Month: August 2012

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The Wealth Algorithm (1)


 

In the last article, I introduced a broad definition of wealth, which covers all aspects of one’s life: The spiritual, the intellectual, the emotional, the social, the financial and the physical. To be truly wealthy, one should attend to all these dimensions, with balance.

This does not call for continuous attention to all at the same time. That would be impossible. One area might demand more work than the rest, for a certain period of time, or under specific circumstances. But the aim is to cover them all, and give each one what it needs, at the right time, and in the right amount. So that we can say with confidence: Our life is wealthy, on all dimensions.

Is that easy? Not at all! Is it impossible. No, it’s possible and attainable, but it takes vision, it takes planning, and it takes enlightened action, not reaction..

Let’s now go back to financial wealth. I imagined someone came up and said: OK, I agree with you, I’ve read all your articles, but now I feel lost! I don’t know where to start. Give me a simple, step-by-step prescription. I want to be financially wealthy, that’s all I know!

Starting from this article, I’ll be answering that question, simplifying the subject as much as possible, focusing more on application; on the translation of the so many concepts mentioned so far into our daily life.

I always like to start with this question: What is it that you really want? If I woke you up at 3:00 AM tonight, and asked you this question, would you be able to answer right off the bat?

We all want to be financially wealthy, but is that the right answer? Had it been so, most of us would have become rich already. Simply because, asking the right question, makes you search for the right answer, and most probably implement that answer. So the problem starts from the question and the answer.

Between now and the next article, I want you to ask yourself this question: “What do I really want?”. Be as specific as possible. Avoid any wishing or hoping. Never use “should”, “would”, “might”, “but”, “can’t”. In other words, don’t implant barriers before you even start. Make your answer a simple present tense statement, as if that which you want is already here and now! We will devise a certain way to formulate that answer; using the right words, in the right sequence. But why don’t you give it a shot first…

 

All the best,

 

The Wealth Maker

 

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What is Wealth?


 

We go through life searching for satisfaction, happiness, joy, fun, etc. But when it comes to money, we use the term “wealth” rather lightly. Most of us use it to refer to financial wealth; the riches.

However, wealth is much broader than that. It contributes to every dimension of our lives, including our finances.

Wealth always starts from the inside, not the outside. The “wealthier” one is within, the wealthier he or she is without.

Think about that for a moment: Can someone become financially wealthy if he or she believes that he doesn’t deserve that wealth? Of course not.

And even if we built a financial Empire, if we missed the real joys of life, like love, contribution, deep satisfaction, we would not feel wealthy. We would be “rich”, but not wealthy.

So when you set your objectives, make sure you cover the important areas of your life first, the big rocks. Money comes and goes, but some aspects of our lives may not come back if we ignore them for a long time. The tree of love needs continues nurturing, and it’s more important than the tree of money!

If you could have both, then you would be truly successful and wealthy!

 

The Wealth Maker,

 

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Trading Secrets: When to Enter and When to Exit


 

Those are the two most important decisions a trader has to take. They sort out the winners from the losers, in this tough activity.

So how would you make these two calls?

First, let’s focus on the decision to enter a trade. Once you choose whether it’s going to be a “Buy” or “Sell” call (as explained in the previous article), you now need to pick the right entry point. For Buy trades, you need the lowest possible price. On the other hand, for Sell trades, you look for the highest possible price of the asset you intend to trade.

Let’s use an example. Suppose you wanted to trade gold on the upside (a Buy Call). You look at the price chart, and you notice that gold has been trading between $1595.00 and $1610.00 an ounce over the last 24 hours. Then you go through the latest financial news. The stock markets, say in  North America, have been going down for the last five sessions. You also look at world news: There’s a conflict in Syria, an earthquake in Japan, and the Russian army has just entered Georgia to aid the local government in its struggle against the rebels.

How does all of that affect your trading decisions? Let’s take them one by one. The slump in the stock markets makes most investors flee to safe havens, namely gold and silver, which means the prices of these two precious metals are destined to rise, at least on the short-term. The instability in Syria and Georgia points to threats to oil supply, and higher demand of weapons. Liquid cash is at play here. Again, gold and silver are easier to convert into cash than stocks. This supports the speculation that prices of these two instruments are expected to go up.

Now you are more confident that a Buy Call is the way to go. Your next step is to choose your entry point. This is tricky. If you jumped in immediately, you might lose the chance of entering at a lower price. If you waited too long, you might miss out on the window of opportunity, as prices already started to ascend rapidly.

Your target, as a wise trader, should not be to enter at exactly the lowest point, and leave at the highest possible price. If you insisted on that scenario, you would lose many trades. So what is your target? You want to have a piece of the pie, not the whole thing, in order to avoid the risk of making your pie and eating it!

Going back to the price range, you put an “order” to buy 10 ounces at $1600, and sell them at $1605. Why would you do that? To be as certain as possible that your net would catch some fish in the middle. The price may not go as low as $1595, or as high as $1610 again. But the probability, given all the analysis, of the price moving through the range between $1600 and $1605 is quite high, and that’s what you want.

This kind of trade may look modest, but it would give you $50.00 within a day. Keep in mind that this should not be the only trade you do. You should get involved in two to four trades concurrently. This serves the objective of diversification, which we’d talked about before.

In today’s online trading, all platforms give you the facility to set an entry price, a stop-loss price, and a take-profit price. Your role is to pick the right prices.

Once the trade is executed, you should keep an eye on it. If it behaved in a way that would indicate a bad result, you would need to interfere, by either closing the trade, or adjusting the stop-loss and/or take-profit prices. Your first and most important objective is to preserve your capital, then to make profits.

A wise trader would not discount a small profit if he/she felt that waiting for a higher profit might risk a good portion of his capital. A profit of $2.00 is definitely better than a loss of $10!

Another aspect of trading is repetition. If you couldn’t make the profit you had anticipated, you would go out at a lower profit, preserve your capital, then enter again, using the same asset, or a different one. The bottom line is to create momentum and good income. The kind of asset is irrelevant. It’s only a vehicle. What matters is how you handle the asset in a way that brings the best possible results, under the current circumstances.

To be continued…

The Wealth Maker

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How To Trade?


Trading is different from value investment in several ways. While VI is long-term in nature, trading is short-term by definition. VI focuses on the fundamentals of the business you’re investing in, trading is concerned about price movements and technical analysis.

In the last article, I talked about a special type of trading, called Binary Options (BO) Trading. In this post, I’m going to spend some time elaborating on trading in general.

Trading, as the name implies, is an exchange of two investment aspects, over a short period of time. A trader buys an investment instrument, at an attractive price, hoping that its price will go up (or down) over a certain period of time. This is an exchange between time and money.

If the instrument’s price went up, say after three hours of purchase, the trader could “long” the asset (sell it at a profit), retrieving the principal plus the difference between the original (entry) price, and the current (higher price).

If the instrument’s price went down, below the entry price, the trader would have few options here: He could “short” the trade, meaning he would sell the instrument at a loss, to avoid further loses, he could wait, if his information and best judgement expected the asset to go back up, at least to the entry price. Or he/she could set a “stop-loss” price, at which the trading platform would sell the asset automatically. Usually, the stop-loss and “take profit” prices are set at the inception of the trade. Setting these two price limits is tricky. It takes experience, knowledge of current market conditions, vision, and decisiveness (and a touch of good luck). “Take-profit” is the price at which the platform would sell (or buy) the asset, making a preset profit for the trader.

As you can trade on the way up, you can also trade when prices go down. In this case, you wait till the price reaches a point of saturation. To determine such point, you need to use your technical analysis skills. If you looked at the asset’s price vs time graph, and noticed a clear peak, that might be an indication that a price descend would follow. You would sell the asset at that high price, and then buy it back when it fell down. Your profit would be the difference between the two prices.

Some price peaks are deceiving. The price goes down for a short period of time, then moves up, reaching even a higher peak. In that situation, a trader would lose money if he/she had traded on the speculation of a price downfall.

It’s obvious that the two most important decisions here are: When to enter a trade (buy an asset or sell it), and when to exit (sell an asset or buy it).

In the next post, I’ll shed more light on these two critical calls. The successful trader never takes these two lightly. They actually distinguish a careful and wise trader from a lousy one. Since this is not gambling, lousiness and panic are the trader’s worst enemies.

The Wealth Maker