The ProShares Short Dow 30 ETF (DOG) will return the inverse of the Dow Jones Industrial Average (DJIA) on daily basis. If the DJIA falls by 2%, DOG rises by 2% and if the DJIA rises by 2%, DOG will fall by 2%. Short ETF returns the inverse of the index it is linked to.

ETFs are the most popular investing tool these days. They are a hybrid between the stocks and mutual funds. They give you the benefits of mutual funds without the high loads. They trade like stocks. During the past few years, the number of Short ETFs has risen dramatically. Short ETFs not only cover the major stock indices like the S&P 500 or the DJIA but also different sectors like the energy, utilities or technology. You will even find Inverse ETFs on currencies now. Short ETFs are also known as Inverse ETFs or Bear ETFs.

Most of the ETFs are designed around some market index. ETF shares trade like ordinary stock shares. You can buy them. You can sell them unlike the mutual funds that can only be sold at the end of the day. The ProShares UltraShort Dow 30 ETF (DXD) rises 2% when the DJIA falls by 1%. So you can even find leverage short ETFs. A leveraged short ETF gives the trader leverage without the use of margins.

So short ETFs move in exact opposite direction to the index on which they are based. Short ETFs give you an excellent opportunity to profit from the volatility in the market and the major indices. Over the years, short ETFs have risen in popularity with the investors and hedge funds.

If you have been trading currencies, then you should know that inverse currency ETFs are a great way to profit from the volatility in the underlying currencies. Short ETFs are a great product as they have created new opportunities for traders. A trader had to actually short sell stocks to take advantage of a market drop before the introduction of short ETFs.

In the past if the market was dropping, the trader had to go against the trend and buy or else move into cash or fixed income. Traders are not allowed to sell short stocks or ETFs in their retirement accounts. Short and leveraged ETFs provide traders with new opportunities.

Ever wanted to trade international stocks? Emerging markets give a higher rate of return as compared to the mature economies. China is one example that garners a lot of attention. The Shanghai Index in China rose 100% in 2007. In the first quarter of 2008, the Shanghai Index was down 35%. ETFs also provide you with the opportunity to take advantage of the global market swings.

In the past, traders who wanted to benefit from the fall of Chinese stocks could only short Chinese stocks that were traded in US Stock Exchanges. The ProShares family of ETFs introduced the Ultrashort FTSE/Xinhua China 25 ETF (FXP). Now if you want to trade the fall of Chinese stocks, you can trade FXP ETF.

Short ETFs can be used for other purposes as well. Assume you have a portfolio of $100,000 composed of 75% stocks and 25% money market fixed income. As a long term investor you can take advantage of short ETFs to hedge your portfolio position.

Suppose the market falls by 10%. Your stock portfolio falls by 7.5% assuming the same ratio between the market and your portfolio. The forecast of the market for the next six months is not good. But you are reluctant to sell your stocks due to tax reasons.

Mr. Ahmad Hassam has done Masters from Harvard University. Try This Cash Printing Forex Signal Service From Heaven! Learn Swing Trading!

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In simple terms, it is very difficult to adjust a mechanical trading system to a different market conditions if you are not the author of that system. It is very difficult to develop a trading system that can adjust to different market conditions.

So how do you cater for this fact that markets keep on changing all the time. By developing a trading system that uses different trading strategy under different market conditions. For that, you will need to develop a diversified trading system consisting of a set of trading systems that can be used as a basis for a specific trade tactics at any given moment.

Different market conditions require different trading strategies and different technical indicators. Trading systems based on these principles can be complex and adjustable. Such a diversified trading system can be used according to a trader’s free choice and considering the individual situation.

Such a diversified trading system can be optimized for current market condition and the trader’s resources at any given moment. This optimization can provide an effective evaluation of market shits and trends at any given time.

The optimal solution could be a diversified trading system based on the natural market features and regularities. A trading system needs to be evaluated by calculating its win ratio over let’s say at least 100 trades. The only thing necessary is to find the tools for the probability evaluation for the trading system with maximum accuracy and minimum time.

Developing a mechanical trading system with a set of trading rules that you can apply rigorously in making your trading decisions in any market condition should be your goal. Mechanical trading is good in the sense that it helps you avoid emotions in making your trading decisions. Emotions are your biggest enemy in trading. Fear and greed will always force you to make wrong trading decisions. Have you ever heard about the turtle trading experiment?

If you have a good trading system, you can become a highly successful trader. Turtle trading experiment was conducted to demonstrate the fact that it’s not the trader that matters; it’s the trading system that matters.

What you need to do is learn from successful traders and try to copy their trading systems. As a young person you must have learned that just by observing good players play their games you could improve your level of playing tennis, golf, badminton, swimming or for that matter any type of game.

The same principle applies in trading. You need to take a look at these 25 forex trading systems that had emerged on the top of more than 5000 traders who had taken part in a recent forex trading championship. The best forex trading system had an ROI of almost 3000% in one month. By observing the trading systems of successful traders you can also develop your own highly successful trading system.

Mr. Ahmad Hassam has done Masters from Harvard University. Discover a Revolutionary Forex Robot Trading System. Read about a Forex Trading System with an ROI of 3000% per month.

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You must be thinking that short selling is counter intuitive. It’s not! Short selling is a way to profit from a falling market. In nutshell in short selling stocks, an investor who is short selling is borrowing stocks from the brokers and selling them to another buyer. At some point, the investor has to buy back the stock ideally at a lower price to make profit and return it to the broker. The sale money goes to the account of the investor.

You must be proficient in using technical indicators if you want to become a trader. Without learning technical analysis, you will always be doing trading on your hunches which is a bad thing. Suppose you are using the RSI technical indicator that is giving a crossover sell signal. All signs are pointing towards at least a small pullback. You feel that the stock ABC is overvalued at $60 and at some point in the near future the market will make a correction.

1000 shares of stock ABC are sold at $60 and $60,000 is placed in your account. You had placed an order with your broker to short 1000 shares of ABC stock at $60. Over the next week, you are jittery as the stock ABC instead of going down climbs to $65.

Did you cater for the situation when the stock price rises instead of falling? However, you have catered for this eventuality by placing a stop loss at 10% of your account. This comes out to be $6,000. So the stop loss is not triggered and you are still in the market hoping for the price to stop going up.

If the price goes up to $66, your stop loss will be triggered and you will be out of the market. You are prepared to lose $6,000 in anticipation of a stock price tumble as your technical indicators are giving you the sell signals.

Every quarter companies are supposed to release their earnings reports. You can time your trade around the release of such a report. Now most earnings mishaps last a few days. So you wait and don’t cover your short position for the next few days. Suddenly on the release of a disappointing earnings report, the stock price tumbles 20% in one day.

Market hates sudden surprises. Anything that is already known to the market is already included in the price of the stock. So this negative earnings report was a sudden surprise. You decide to cover your short position, stock ABC price falls to $45. You need to buy back the 100 shares of ABC that were sold short earlier at the market price of $45 in order to close your position.

Now should be able to understand short selling as easy as long buying. With this simple example, you should be able to understand the mechanics of short selling stocks. You pay $45,000 to buy back 1000 shares of stock ABC and return them to your broker. So your net profit in this case is $60,000-$45,000= $15,000.

In reality, you paid $45 per share to buy ABC stocks and sold them at $60 per share giving you a profit of $15 per share. Assume that you had bought the stocks for $45 per share and sold them at $60 per share, the same profit would have been made.

The goal is to sell it at a higher price but in the case of short selling stocks, selling takes place first instead of buying when you short a stock. The goal of buying a stock is to sell it at a higher price in the future. Do you want to try short selling now?

Mr. Ahmad Hassam has done Masters from Harvard University. Try This Cash Printing Forex Signal Service From Heaven! Learn Swing Trading!

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Great Britain was finding it difficult to stay within the tight exchange rate band set by the European Monetary Union (EMU) in the early’90s. One person who made history with options was George Soros who is famously known as the man who broke the Bank of England.

George Soros is a famous name in the world of investing. He is famous for his speculative attacks on currencies that he had the intuition of being intrinsically weak. He had always believed in contrarian investing. Contrarian investing means doing exactly opposite of what the crowd is doing. George Soros had this intuition that the Bank of England could be forced to devalue British Pound. So he bought call options on German Marks and put options on British Pound. He made a bet of $10 Billion by leveraging all the assets in his hedge fund.

Bank of England had made a number of public statements regarding its intention of staying within the EMU. However, within a few days of the speculative attack on the British Pound, Bank of England was brought to its knees as it was unable to sustain the immense selling pressure on the British Pound. Bank of England was forced to devalue British Pound in view of the speculative attack on the British Pound.

When you a strong intuition, you should go for the big kill. George Soros made a cool $1 Billion profit on his bet in a matter of a few days. Can you make such a bet? Maybe not but this one example show the immense power options have if used correctly. Options are risky; there should be no doubt about it.

Most people who trade options lose money, plain and simple. Options give you the right to buy or sell an underlying security like stocks, futures, commodities or currencies at a price before a certain date. This price is known as the Strike Price. This date is known as the Expiry Date. However, in European Style options you can only buy or sell on the expiry date not before that.

Trading options without training is risky. You need to learn the Options Greeks. One of the important things that you need to learn while trading options is the importance of time factor. Time factor is very important when valuing an option. Further out the options contract is from expiration, you will have to pay a higher premium. As the options contract approaches the expiration date and if it is out of money, it loses its value very fast.

LEAP stands for long term equity anticipation. Have your heard about the LEAP options? So what are LEAP options? It basically means that the option is much like the regular option except that the timeframe to expire is greater than 1 year. LEAP options are basically long term options. Leap options can help you profit over the long haul. You can use LEAP options in options strategies like the covered calls, straddles, spreads and so on.

LEAP options are risky because the option writer usually demands a hefty premium for taking on the long term risk. However, LEAP options can be incredibly profitable if used correctly. The buyer of the LEAP options has the right to exercise the option prior to expiration should the price of the underlying stock move in the money.

LEAP options can be a great trading vehicle for swing traders as they mitigate some of the time decay that is inherent in short term options. See, closer the out of money option is to expiration, faster its value drops. What this means is that the buyer of the options loses the premium that was paid for getting the right to buy or sell the underlying security.

Mr. Ahmad Hassam has done Masters from Harvard University. Learn Candlestick Charting! Know Fibonacci Retracement!

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Using a mechanical trading system not only helps traders to make decisions and increase profits but it also provides great psychological comfort to the traders. At one point in your trading career that might come soon rather than later, you would want to switch over to a mechanical trading system.

You will find most of the trader using a trading system approach to trading. Some of them may use a discrete trading system while others prefer a mechanical trading system. You will realize the necessity of switching over to the system trade in order to lower the psychological pressure experienced when making every market transaction.

The mechanical trading system lacks fundamental analysis capacity. However, the mechanical trading system set of rules may be translated into a computer program for automated trading.

The creator of such a mechanical trading system then becomes just another user of the trading system monitoring the computer generated signals. The trading system then generates trading signals that can be used by traders having access to the trading system.

Developing these automated forex trading systems is the name of the game these days. These automated forex trading systems are also known as forex robots. These trading systems may be taken as grey and black boxes. Their prices might vary from a few hundred dollars to hundred of thousands of dollars. Many traders over their trading careers develop their own trading systems. Besides the traders using their own trading systems, there are now many actively developed trading systems for sale as computer programs.

One way is to develop these forex trading systems and use the trading signals generated by them in your trading. The most significant thing about these programs is that the traders should be able to accomplish transactions in accordance with the signals generated by the trading system. The other solution is to completely automate these forex trading systems. Sometimes theses trading systems are developed for big banks and corporations.

However, it is very difficult for a mechanical trading system to cope with different market conditions. Majority of the successful individual traders use self developed mechanical trading systems.

Change of market behavior leads to negative results from a previously effective trading system which obviously would require replacement. For example, many trading systems that are satisfactory in trending conditions become highly ineffective in nontrending environment.

Many trading systems now depend on complex mathematical formula which is not understandable by the trader if the trader is not the author of the trading system. The most common disadvantage of these trading systems is the negative balance between he profitable and unprofitable trades.

What you need is a forex trading system that is profitable in the long term. In other words, it gives more winner than losers. Obviously the trading system can only be profitable in the long run if the ratio of the profitable trades is higher than the non-profitable trades. In other words the average profit of each profitable transaction is greater than the average loss of each unprofitable transaction.

The trader must accurately and unconditionally follow the trading system without making any attempt to adjust it to the market conditions. Making correction in any mechanical trading system in the process of the trade is almost impossible.

Mr. Ahmad Hassam has done Masters from Harvard University. Discover a Revolutionary Forex Robot Trading System. Read about a Forex Trading System with an ROI of 3000% per month.

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Most people know that you buy stocks and wait for a price appreciation to take place in order to make a capital gain. Can you make a capital gain when there is price depreciation in your stocks? Many beginning investors get confused when they realize that it is possible to make money when the stock falls in price. In practice, shorting a stock is as easy as buying stocks once you get hang of it. When the market is falling, investors sell short a stock with the goal of profiting from the fall in the price of that stock.

The difference between the selling price and the buying price in case the price goes down is your profit. When you short a stock, you borrow it from your broker and sell it with the intention of buying it back at a lower price in the near term future and returning it to your broker.

You are anticipating further fall in the price of the stock when you short a stock. When the price of a stock goes down, you make profit. However, if the price of the stock instead of going down starts to go up, you get a loss.

So shorting a stock without proper risk and money management is not wise. Theoretically a stock price can go up and up making your loss as big as infinity. However, before that happens most probably you will receive a margin call from your broker that leads to a forced sale before your losses reach unmanageable proportions.

Short selling can play havoc with companies. If there is a short selling attack on a company’s stock by speculators, the company can easily go bankrupt. This is precisely what happened in 2008. Short sellers were responsible for bringing many blue chip companies down. In the stock market crash of 2008, many financial companies went bankrupt due to the short selling of their shares by the speculators. Some people are against the strategy of shorting stocks. A temporary ban was put on shorting for sometime during that period.

However, the goal of short selling is not to drive the price of a stock to zero and put the company out of business. In swing trading, we are simply looking to profit from the ups and downs of stock prices. When the price of a stock goes down, short selling is the best swing trading strategy.

Negative news like poor earning, credit rating downgrade or a poor product launch can bring down a stock price in a matter of minutes and wipe out the steady gains made in months. One reason why swing traders love short selling is due to the velocity of the moves!

Swing traders always look for big winners and this brings them to the short side of the market. When the price of a stock starts to fall, chances are it will fall more before the market stabilizes and the price starts to rise again. Shot selling can be a good hedging strategy for long term investors too. So if you a long term investor, you can lessen the impact of the sharp price drop on your portfolio by using a short selling hedging strategy.

Mr. Ahmad Hassam has done Masters from Harvard University. Try This Cash Printing Forex Signal Service From Heaven! Learn Swing Trading!

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Autotrading is common in the currency trading. Many hedge funds and other entities that manage money through forex trading use some form of autotrading in their daily activities.

Big institutions always had proprietary autotrading systems developed by their inhouse programming teams. These autotrading programs also known as Expert Advisors or Forex Robots were expensive costing like thousands of dollars and only wealthy individuals or big institutions like hedge funds could afford them.

However, the recent developments in computer programming have changed the field. Many private individual traders have also begun to adopt autotrading to execute their thoroughly backtested and highly optimized forex trading strategies. The recent advancement in computer programming has made it possible for professional forex traders to team up with a software expert to develop their own autotrading systems.

Metatrader platform makes it real easy to program such type of Expert Advisors. The price of these Expert Advisors has also come down to around a few hundreds that can be easily purchased by ordinary investors like you and me.

Recent advancements in computer programming has led to the development of trading platforms that allow an API ( Application Programming Interface) which connects the trader’s system to the dealer’s trade execution structure through the trading platform. So what is autotrading? You must have heard or read a lot about the benefits or advantages of autotrading.

Once all of the trading rules and criteria are determined by the trader, programming an API can be relatively straight forward for anyone with programming experience. APIs requires programming skills on the part of either the trader or a programmer hired by the trader. After the specific trading rules and criteria are determined, the trading strategy is backtested with positive results.

When this occurs not only trades entered when predetermined technical criteria is met but trade exits in the form of stop loss and take profit rules can also be programmed into the API. Autotrading is almost as simple as flipping a switch to begin the trading process.

However, before an autotrading system is put on live trading, it is thoroughly backtested and forward tested to make sure the likely success of the autotrading system. This creates an entirely self contained autotrading system. So autotrading can actually execute real trades on current real time market prices. When a predetermined signal emerges, the software actually places a trade automatically.

In fact, autotrading is perhaps the best way to achieve it if the trader has optimized and perfected this type of black and white trading strategy that runs devoid of human judgment. Any nondiscretionary technical trading strategy that has clear cut, unambiguous rules is a good candidate for autotrading. Autotrading effectively eliminates all human biases, errors and emotions in the trading process.

There are a number of successful autotrading systems now available in the market for the ordinary retail investors. The best two are FAPT and Ivy Bot.

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You will have to do a lot of research while selecting yours stocks for swing trading. Why not piggyback on the research done by wealthy fund managers and large financial firms. Name of the game is to find stocks that are not popular but have a great swing trading potential. Easier said than done! How do you find such stocks? Here is a very simple strategy that you can use to choose the hottest stocks best for swing trading. When a large financial firm builds an ETF, the first step is always to choose an index of stocks that is expected to outperform the market. The premise of the piggyback strategy is to use the large dollar research of the major financial firms to come up with new and fresh swing trading ideas.

The ETF is then based on this index of stocks. The price of the ETF then changes as the basket of stocks within the index moves. Large financial firms spend millions to choose the index on which they will base their ETF. Why not piggyback on that research and save yourself a few millions? Cool, huh!

Your first step should be to analyze ETFs and make a list of ETFs that have outperformed in the last 3 to 6 months. This will give you an idea where the big money is flowing and which ETFs have buying momentum behind them.

After making your list of top 20, narrow it down to the five top performers and choose a few areas worth trading. Choose the best performing ETF in your opinion to begin with. Now you need to analyze the top ten holdings of that ETF.

How do you research an ETF? You can do it yourself or you can subscribe to the newsletter of Big A, a former fund manager who recommends the hottest ETFs. If you want to do it yourself, just go to the website of the ETF. You can also use ETF connect.com. Etfconnect.com is a great resource for information on ETFs and closed end funds. With thousands of potential stocks to choose from, the piggyback trading strategy allows you as a swing trader to choose stocks that have a buying momentum behind them. What makes this trading strategy great is that it often generates fresh ideas for swing traders.

Now another advantage of this piggyback strategy is that it can identify stocks that may not be household names to the average trader. With this strategy you will come across many stocks that may not be household names but have a great swing trading potential. ETFs can be utilized to find stocks for swing trading ideas that are based outside the US.

The way to do that is to use the ETF piggyback strategy with either single country ETFs or regional ETFs. The single country ETFs invests 100% of their assets in one country. A good example can be the iShares MSCI Mexico ETF (EWW), an ETF that invests only in companies headquartered in Mexico.

You can choose industry specific as well as market specific ETFs as well. Country specific ETFs and region specific ETFs have been just used as an example to illustrate how to hedge your risk. Hedging your risk is what a good investment strategy is all about. Instead of putting all your eggs in one basket, you should try to diversify your investment. A regional ETF covers several countries concentrated in a region. The iShares S&P Latin America 40 ETF (ILF) invests in Brazil, Mexico and Chile. So if you want to find international stocks for your swing trading strategy than you should begin by picking the region or the specific country.

You must be thinking why you need to think outside of US Stocks. The traders who refuse to consider international stocks only hurt themselves because with the US in the mature business cycle, the real growth and volatility that you need as a swing trader can only come from international stocks.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account!

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Backtesting any trading strategy allows a trader to simulate its expected performance using historical price data. With Backtesting, traders can actually test their trading strategies and know how well they would have done if executed in the past.

Now an important question that comes to anyone’s mind is what type of a trading strategy can be backtested? Any trading strategy that does not have any ambiguity in its rules can be backtested effectively. Example of a simple trading strategy that can be backtested can be as follows.

Go long when the 5 period moving averages has crossed above the 20 period moving average and the MACD histogram has crossed above the zero line and the DMI+ is above DMI-.

Sell short when the 5 period moving averages has crossed below the 20 period moving average and the MACD histogram has crossed below the zero line and DMI- is above DMI+.

However, using the past price data to simulate future results often misleads traders into thinking that their backtested results will also give similar results in actual real time trading. This one example is just meant to illustrate that any trading strategy having clear cut rules can be backtested with the historical data.

So you should not fall into the trap of thinking that Backtesting may be a perfect method for identifying the most profitable trading strategies. Many potential factors can and will make hypothetical performance and actual performance differ significantly.

One of the most important facts that you should always keep in your mind is that market change considerably overtime. A trading strategy that may have worked very well over the past three years may work in an entirely different manner for the next three years as the market changes and evolves.

Do you know that often technical indicators that have been giving profitable signals in the past are subsequently unable to replicate their performance in the future? This may frustrate you. But this is exactly what makes trading a challenging endeavor.

Secondly in term of trade execution, a trading strategy in real time may be much different from the way the trading strategy behaves on Backtesting. These differences can potentially skew the results.

Backtesting can provide a trader with a reasonable expectation of the trading strategy’s potential worth and usefulness. However, Backtesting is still the best available method for evaluating a trading strategy without actually trading it in real time environment.

Now let’s discuss how to do Backtesting. Backtesting can be done by using two methods. The first one is the automated Backtesting. This is the most popular method. Automated Backtesting entails using a specialized program. The trader inputs the specific rules and criteria for the trading strategy into the Backtesting program.

Automated Backtesting is very easy. An entire picture of the past performance is created with the help of that software program. The software automatically applies those rules to the past price data and tallies the past hypothetical profits, losses and other information.

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The second method of Backtesting is performed manually and visually by the trader. The trader would take the historical data and scroll back in time on a chart and manually apply the trading strategy as if it was in a real time environment.

The trader would advance the chart bar by bar in order to refrain from seeing price action subsequent to the trade at hand. This eliminates trading in hindsight that is detrimental to an objective backtest.

The major disadvantage of Backtesting as compared to automated testing is the significant potential for human error in executing simulated trades and recording performance results.

Emotions are your enemy in trading. When you do manual Backtesting, these emotions can cause problems for your Backtesting results. The normal range of human emotions and biases that often interfere with actual trading can be a detrimental factor in achieving objective backtest results. Furthermore, it takes a great deal of work and discipline to simulate trades manually over a large data set without straying from the strict rules of the trading strategy.

These were some real disadvantages of manual Backtesting. However, this provides valuable trading experience although simulated but still a valuable trading experience that no automated backtest could possibly provide. Backtesting manually can provide the trader with the real feel for actually trading the strategy.

No matter whether you do Backtesting manually or automatically, Backtesting can save traders a great deal of time and money that might otherwise had been wasted on trading unprofitable strategies. Backtesting whether done manually or automatically can be one of the most important elements of building a solid trading strategy. Backtesting is now an important element of testing a trading system performance.

Any mechanical trading system can be backtested. This leads us to the important question of autotrading. Autotrading is the latest fad especially in forex where the number of major currency pairs is only six and this makes programming autotrading easy. These autotrading systems are popularly known as Expert Advisors or Forex Robots.

The US Stock Market has got more than 50,000 stocks listed with them as compared to the forex market where there are not more than six major currency pairs. This makes programming a stock trading robot a bit complicated. However, during the past decade major breakthrough in computer programming has been made.

Backtesting is one of the most important components of testing an autotrading system. Big institutions like banks, corporations and hedge funds have always been taking benefit of these autotrading systems.

So what type of trading strategies can be backtested and autotraded? Any trading strategy that is rule based and is not discretionary or discrete. These types of strategies are primarily technical in nature, and they must necessarily have rules and criteria that are unambiguous. Backtesting and autotrading are two important components of implementing trading strategies that generally do not rely upon the trader’s judgments or discretion.

In contrast, autotrading actually executes real trades automatically according to a pre – programmed set of instructions that sets trade entries, stop losses, and profit limits. Backtesting allows the trader to determine if a given strategy would have been profitable using past price data, which is an indication of how it might potentially perform in the future.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account!

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