And even beyond this scenario investors, a lot of times beginners, are in quest of buying cheap stocks whether they are penny stocks, undervalued stocks or any other alleged "great" cheap stock.

But when exactly is a stock cheap?

For many investors a stock is only cheap when it trades within the $10 to $20 range or even way lower than that, trading within a few dollars or even cents, which is why these stocks are also called penny stocks or also over the counter (OTC) stocks. But the peril is, especially with penny and otc stocks, that there's a reason why these stocks are trading at these give-away-prices.

More often than not there's some bad news surrounding these companies whether it has to do with fundamentals, management, earnings or other factors. Or - which most often is the case with otc's - they just haven't met the stringent requirements to be listed in one of the major stock exchanges like the Dow Jones. So something is just not kosher with these cheap trading stocks. And it would have to be scrutinized very carefully if you contemplate investing in these kind of dirt cheap stocks.

In my early rookie days of trading I fell for 2 dirt cheap stocks myself. I bought Bank Internasional Indonesia (the 6st largest bank in Indonesia) for 3 cents and KrungThai Bank (being the 2nd largest bank in Thailand) for 64 cents thinking that a bank stock must go up at some time. They can't stay so dirt cheap forever. But they did. Worse even: Shortly after I bought this "hot" cheap stock of Bank Internasional Indonesia it dropped down to 2 cents. Cheap penny stock Krung Thai dropped by 50%. And why did these stocks like lots of other financial stocks in the far east drop to penny stocks? Because of the asian financial crisis 2 years before. Not having recovered yet I, like lots of other investors too,  thought that a recovery is not far away. Wrong!!! These 2 banks are still extremely dirt cheap penny stocks!

But especially when advertising campaigns for cheap trading stocks are spreading through the internet with slogans like "hot cheap stocks",  "best penny stocks", "dirt cheap stocks with growth potential" or "cheap stocks to buy now" your alarm bells should start ringing! If these stocks are that brilliant, why is it then necessary to advertise for them in such a way? And at the latest here is where your stock research starts. Before even dreaming of investing in these kind of stocks, research them very very carefully. There's a very high risk involved! Remember, you're not buying General Electric, Microsoft, Wall Mart or Apple.

I wrote an article on these kind of stocks called "OTC Penny Stocks And OTC Bulletin Board Stocks - Never Fall For This Nonsense!!!" where some people tried to get me into buying utter junk. You should go ahead and read this article too. You'll find it on this website. Within 2 years now, not one of these stocks  that were offered to me has moved up by even a cent. Not one! They all went down even further.

They all would've been good for a short trade!  But there was nothing mentioning that! It was proclaimed that these super-duper dirt cheap stocks would go through the roof making you a killing of a profit. So don't fall for this nonsense! Rather read my article! These kind of "where can I trade stocks for cheap" scams are nothing but junk trading tips without any quality.

The only ones getting filthy rich are the people behind these scams that try to show you how to invest in cheap trading stocks and tell you all about hot penny stocks, cheap stock of the week, penny stock secrets and that you can retire from you day job within a year if you follow these penny stock recommendations.

Another one of these scams I got via email was "five dirtcheap stocks for getting filthy rich video". The only one that got rich was the person or organisation that sold these videos. So in your own interest, exercise extreme caution when someone comes with investing in Dirt cheap stocks!

Now don't get me wrong. I'm definitely not saying that it is entirely impossible to make money with penny stocks or stocks that are cheap. All I want to point out to you is the extreme risks these stocks bear and that a lot of these stocks are not only dirt cheap, but also dirt cheap scams! So just be very careful!

For others a stock is only cheap when the price-earnings ratio (P/E ratio) is low. So the lower the price-earnings ratio the better it is for them on speculations that it will go to where it was before the stock dropped, if it goes up again.

To recap. A price-earnings ratio is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share  It is determined by dividing current stock price by current earnings per share (adjusted for stock splits). A higher multiple means investors have higher expectations for future growth.

The thing about P/E ratios is that conservative investors should avoid stocks with a high P/E ratio because if these corporations disappoint with their earnings and don't meet market expectations, the stock will drop dramatically like Whole Foods did dropping more than $20 at the beginning of November 2006.

If a stock has a low P/E ratio, where expectations aren't that high, the reaction is far less dramatic if earnings and performance expectations aren't met.

If trading and investing in the stock market was that easy, everybody would just buy these so-called good cheap stock, best penny stocks or stocks with a low P/E ratio. To bad so sad that no one would have then had Starbucks in their portfoilo. A stock that shot up sky high in the past. A low P/E ratio didn't exist in Starbucks vocabulary back then in the good days of Starbucks!

If you disregard individual stocks that have dropped sharply and take a look at the broad market, you'll surprisingly notice that a P/E ratio tells you absolutely nothing about whether a stock is going to go up or down in the future! Not only stocks with a high P/E ratio can drop, but also stocks with a lower one can.

A good example of the above is the following:

Within the last 4 years the Dutch financial company ING, having a low P/E ratio, climbed to the skies from $10 to over $40. That's over 300% profits, whereas AIG (American International Group), also having a low P/E ratio, was virtually dead in comparison.

On the other hand, Starbucks and the German cosmetic company Beiersdorf kept on going up although both companies had a high  P/E ratio whereas Whole Foods, also having a high P/E ratio, dropped from $80 all the way down to $40 in 2006, and EMC² is still hovering around $15 and hasn't recovered yet since 2000 where the stock was trading at just over $100.

So as you can see, there are no rules whether a stock with a high or low P/E ratio is good or bad!

Why doesn't the P/E ratio strategy work?

The problems already start at the very beginning. Which earnings should one take into account? The reported earnings from the previous year; the expected ones for the current year or even the forecasted earnings for the next year?

Because the stock market mainly looks at future performance and earnings, the future P/E ratio plays a more important role. But even the expected earnings of the current year can only be estimated let alone the one for next year. It all boils down to estimation and speculation which is quite common in the stock market. But if these estimates are wrong and market expectations aren't met, investors are then commonly very disappointed and the stock or even the whole market goes down. And this happens every year somewhere along the line.

And this is not the only reason why a P/E ratio is not a good formula for success. The furure performance of a corporation depends on so many factors. A future stock price doesn't only depend on earnings from the current year or the next. It also depends largely on fundamentals like, how well the management does it's job, whether the company has a strong product line or which possible problems the company may face.

An example of this is Apple (AAPL). When CEO Steve Jobs introduced the iPhone in Jan. 07, AAPL shot up by over $10 in two days. But then Cisco Systems (CSCO) claimed that they had the rights to the name iPhone and were contemplating to sue AAPL if they were to continue using the name iPhone. Well. Guess what happened? AAPL went down the following days losing it's entire $10 gain.

So once again you can see that a P/E ratio, whether high or low, says way too little to base an investment decision on because the question you should ask yourself is not, how to buy cheap stocks and where to get them, because they are all over the show, but you've got to ask yourself, does it make sense to buy the one or other cheap stock and where can I make money with it without taking too much of a risk?

Conclusion:

At the end of the day, a P/E ratio, or any other ratio, or whether a stock is cheap or not is absolutely irrelevant. What matters most importantly in the long run are earnings and the overall performance and future outlook of a company! Short-term factors like oil prices, political turmoil etc. can influence the markets and they will, more often than not! But in the end these factors are secondary and negledgible for long-term investments.

Successful Trading!

Ricky Schmidt

Over-The-Counter (OTC) trading is trading financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. There are no stock exchanges like NYSE, NASDAQ, etc. involved. That's why this kind of trading is called over-the-counter because that's what basically happens.

The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to exchange trading which occurs on futures or stock exchanges.

Now there are freaks and lunatics out there that spam people with emails with the intention of luring and enticing them into investing in disasterous equity that will, more often than not, diminish their investment to almost zero.

On June 5, 2006 I received the following email:

June 5, 2006

Trade Date: Tuesday, June 6th, 2006
Company: BioElectronics Corporation

Symbol: BIEL
Price: $0.25

IS MOMENTUM BUILDING FOR THIS STOCK? CAN YOU MAKE SOME FAST MONEY ON IT?
RADAR BIEL FOR TUESDAY'S OPEN RIGHT NOW!!

THE ALERT IS ON!!!

RECENT NEWS HEADLINE: (GO READ ALL THE NEWS ON BIEL RIGHT NOW!)

I want to spare you this because it's just a waste of valuable and precious time. This is a typical OTC Stock and the chart, even as of today, August 21, 2008, says it all!

Ever since it was trading at $0.25 on June 5, 2006 it dropped and is trading today, August 21, 2008 at $0.015. That's a ludicrous 1.5 cents. In 2 over years this stock never made it above 25 cents and this junk someone tries to palm off on you as a great investment.

The 5 year chart looks even worse. In all this time BIEL never made it above $1.50 and went downwards ever since never to see it's all time high again.

No need to say that this stock would've make you a catastrophic loss!!!

On June 7, 2006 I got another email of this kind:

June 7, 2006

You may not be aware of A B S Y , but you should be, because this company
represents a terrific profit opportunity for early investors.
Can you make some fast money on this one? Put it on your radar now.
Breaking news alert issue - big news coming.

Trade Date : 7 Jun 2006
Name : ABSOLUTESKY INC
Ticker : A B S Y Profits of 200-400 % EXPECTED
Yes, it looks like the momentum has started up again.
Current Price : $0.95
SHORT TERM 2 DAY PROJECTION : $2
Market Performance : S T R O N G B U Y

A B S Y should be one of the most profitable stocks to trade.
It is only a matter of time before it is released out into the investment
community and they take it to the moon.
Whatever you do WATCH A B S Y …
When this Stock moves - WATCH OUT!

ABSY was still trading at $30 in March 2006. And now, as of August 21, 2008, it dropped all the way down to 3.3 cents. What makes one believe that this can possibly be a serious and solid investment?

This is again an OTC stock and just take a look at this (3 year) chart:

One can't even make out a decent trading pattern on this chart! So here's a 1 year chart so that you can at least see a bit of a chart pattern!

Now the short-term projection was that this, oh so wonderfull and profitable stock, would shoot up to $2 in two days.

What ludicrous nonsense! Not even 2 years let alone 2 days later it hasn't traded anywhere near $2 yet.

Now trading at 3.3 cents, never mind 2 dollars, a 200 - 400 % profit looks different! Wouldn't you agree?!?

Tuesday, July 11 was even better when I received the following Stock Alert:

AMERICA ASIA PETROLEUM
Symbol: AAPM
Price: $0.105
SALES AND EARNINGS!!!

OIL - IS THERE A HOTTER SECTOR TO TRADE?!

FIRST QUARTER REVENUE of $14,638,524!!! (Go Read The Full Story and All The News Now!)
CARSON CITY, Nev., July 7/PRNewswire-First Call/ - America Asia Petroleum (OTC Pink Sheets: AAPM), announced today results for the first quarter ending March 31, 2006 at $14,638,524, unaudited. For the three months ended March 31, 2006, earnings before interest, taxes, depreciation and amortization or EBITDA, totaled $447,247 with a basic and diluted earnings per share of $0,005.

How can anyone take such an investment offer serious? That's not investing, that's gambling!!! An EPS of $0,005 is ludicrous! So is the stock by the way. Not even 3 months later on October 5, 2006, this stock is trading at 0.0012 cents. It's not even worth one single little cent anymore.

Since July 11, 2006 it hasn't seen any new highs yet not even mentioning the $0.105 at which it was first suggested to me! And right now, on 21 August 2008, I can't even find the chart anymore on Big Charts to see where it's trading now.

Maybe it's off the market already which is quite possible. This happens often with these otc penny stocks. They are nothing but junk! Period!!!

The scam behind this is manipulation! If enough unsuspecting investors are enticed to fall for this temptation then the speculation is that XYZ junk stock will rise. Once a certain price is reached the stock quickly gets sold by the manipulating organization and, before you catch wind of the scam, you sit on a total loss.

So be extremely careful if someone tries to persuade you to invest in stocks like these. I know that it is very tempting to buy OTC's because they are so dirt cheap. And yes, if everything works out for you and your 20 cent penny stock shoots up to $2, then you will make a killing of a profit. But the question is IF(?) ! And this IF can wipe out your entire investment in no time. That's how risky OTC and Penny Stock Trading can be.

And as you can see in the examples above, this talk about great cheap stocks, hot penny stocks, best otc stocks with extreme growth potential making you massive profits are nothing but empty promises. They are not even worth being touched with a barge-pole!

So the best advice I can give you from my own experience is to ignore the temptation if you come across headlines like "Where Can I Trade Stocks For Cheap", "Dirt Cheap Stocks With Growth Potential" or other sorts of persuaders and tempting offers.

This is not the stuff decent and high quality investments are made of.

It's gambling. Not investing!

Yours in Careful and Successful trading.

Ricky Schmidt

There are no stock exchanges like NYSE, NASDAQ, etc. involved. That's why this kind of trading is called over-the-counter because that's what basically happens. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to exchange trading which occurs on futures exchanges or stock exchanges.

Although Nasdaq operates as a dealer network too, Nasdaq stocks are generally not classified as otc because the Nasdaq is considered a stock exchange. As such, otc stocks are generally unlisted stocks which trade on the Over the Counter Bulletin Board ( OTCBB ) or on so-called pink sheets which is an electronic quotation system that displays quotes from broker-dealers for many over-the-counter stocks. Market makers and other brokers can use Pink Quote to publish their bid and ask quotation prices.

An over-the-counter stock or contract is a bi-lateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. For derivatives, these agreements are usually governed by an International Swaps and Derivatives Association agreement.

A stock is traded over the counter usually because the company is small and unable to meet listing requirements of the exchanges. As a result, very few over the counter stocks are successful in making the jump from this market to the NASDAQ or any other major exchange due to their inability to meet the listing requirements of the major exchanges. These stocks are then traded by brokers/dealers who negotiate directly with one another over computer networks and by phone.

These kind of securities are extremely risky though because there's no controlling body or organisation like the SEC (Security and Exchange Commission) which oversees the securities industry and promotes full disclosure in order to protect the investing public against malpractices. That's why you should be very wary of otc stocks because the OTCBB (Bulletin Board) stocks are either penny stocks or dirt cheap stocks that hold bad credit records.

That's why serious traders and investors should stay away from these kind of stocks no matter how tempting they may be. The risk behind these alleged "hot" penny stocks and "great" cheap stocks are just too incalculable! There's nothing like a best otc stock or otc stock of the week like some people like to advertise. OTC stocks are junk stocks! Period!

OTC Bulletin Board

In the U.S., over-the-counter trading of stocks is carried out on the OTC Bulletin Board (OTCBB). The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information for various types of equity securities. The OTCBB was founded in 1990 and currently provides access to more than 3300 securities with over 230 market makers. It is not regulated as a stock exchange which makes an investment in an otc security so risky.

Yours in Successful Trading

Ricky Schmidt

You can buy options on oil, interest rates, gold, all kinds of commodities and even airplanes. The list is endless! The term "option" refers to a type of derivative in which category it falls. An option is a derivative because it derives from something namely the underlying asset. In our case it's the stock which is why it's called a stock option!

And because a stock option derives from a stock, it also follows its direction. So wherever the stock tends to go, either up or down, the option goes. It tags along with the stock.

To explain stock options one must first understand that a stock option is a contract that gives the owner i.e. buyer the right, but not the obligation to purchase stocks (also referred to as the underlying asset) at a specified price called the Strike Price, and to exercise this option contract on or before a future date called the Exercise or Expiration Date. The price the buyer pays for the option is called the Option Premium.

But How Do Stock Options Work Now?

A simple method to understanding stock options is by an easy to understand example and explanation of the various things revolving around an option. So let's get started.

The benefits of stock options - at least one of many - are that they are a lot cheaper than the stock itself. My very first options contract that I bought was from Starbucks (SBUX). At the time of my options purchase, the stock price was $41,37, but the option price was only $2,15.

Now I already mentioned that an option is a contract. This means that if you buy stock options you buy them in terms of contracts. Your broker will always ask you how many contracts you want to buy. Here it is important to know that one contract represents 100 stocks.

So what did that mean in terms of my Starbucks options? As I already mentioned, stocks of Starbucks were trading at $41,37 and so I bought 7 option contracts which means that (one contract representing 100 stocks) you would have to multiply 7 by 100 (which will give you 700 of course) and then multiply 700 by the options premium which in my case was $2.15. Thus, I ended up with an amount or $1,505 for these 7 contracts not including commissions. These vary from broker to broker.

But lets continue with the math. Had I bought the stock itself for $41,37, these 700 stocks would've cost me $28,959. But by purchasing 7 options contracts, I controlled a batch of stocks worth $28,959 for only $1,505. And that's another benefit stock options!

In the stock option market you often you hear the expression "leveraging the market". Now what does that mean in options trading?

Back to Starbucks. When I sold my options position, Starbucks' stock price was $44,60. That's a $3,23 or 7.8% profit. But I sold my 7 contracts when the options price was up $4,30. And that's a 100% gain. You see now what leveraging the market means? For an option to go up and make you a nice profit, the stock itself just has to move a little in comparison because options move much faster.

Ok. Now where's the drawback you may ask.

The hazards of stock options is that if things go in the wrong direction for you (down instead of up or up instead of down) you lose just as fast as you can make a profit. Period. That's the way it is and it can be a very painful and brutal experience. That's why it is so extremely crucial to really know what you are doing when you want to be a stock options trader, use a trading system that is easy and not complicated and apply sound money management rules. But I'll get to that later.

Another drawback is that options contracts have an Expiration Date which means that they are not valid forever. A stock you can buy and hold for as long as the company exists. With options you can't. Once the option has expired it's gone. Off the face of the earth. Even if you made a million in profits. If you forget to sell or exercise your options before the expiration day, your millions are gone. Too bad so sad, good bye! Better luck next time or rather, next time, don't forget to sell!

But before I get into how to trade stock options, one more thing. There are two types of options. A Call option and a Put option. The buyer of a call option wants the price of the underlying asset to rise in the future, meaning that call options are most profitable for the buyer when the underlying asset, in our case the stock, is moving up.

Vice versa, the buyer of a put option wants the price of the underlying asset to drop in the future, meaning that put options are most profitable for the buyer when the underlying asset is going down.

So here's another benefit of stock options. You can profit from both directions. When the stock goes up and when it goes down! And now that we covered some stock options basics, let's start getting into…

…How To Trade Stock Options.

It all starts with choosing a stock that is optionable. All large corporations like General Electric, Microsoft, McDonalds, Boeing etc, are. Otherwise just look it up. How? I'm gonna tell you. Just hang on a sec.

So lets say you chose Apple (APPL) for instance and you want to buy a call. Now you want to know at what price AAPL is trading, and that price is called the Strike Price. Another term that you will hear a lot in the stock option market.

The strike price is a fixed price at which the owner of an option can purchase, in the case of a call, or sell, in the case of a put, the underlying stock.

Lets just assume that you found that APPL is trading at $160. You then go to what is called an options chain. You can find these among others on www.cboe.com which is the Chicago Board Options Exchange and which is also the largest U.S. options exchange.

In the navigation bar of this site, you go to Quotes and Delayed Quotes Classic. Now you enter your stock symbol like AAPL for Apple, click the radio button at the bottom that says "List all options, LEAPS, Credit Options & Weeklys if avail" and click "Submit".

And here you can also find out if your stock is optionable or not. Just enter the symbol of your stock. If the programme comes up with a options chain like AAPL, then your stock is optionable.

On the left of the options chain you have your Call Options and on the right you'll find the Put Options. So now you scroll down the options chain until you find a $160 option. This can look like this:

08 Oct 160.00 (APV JL-E) or 09 Jan 160.00 (APV AL-E) for instance. Now what do these hieroglyphics mean?

The first part, 08 Oct or 09 Jan etc. represents October 2008 or January 2009 etc. which is the year and month of expiration. And here you must know that options in the United States expire on every 3rd Friday of the expiration month. So something like 08 Oct will tell you straight away that this option will expire on the 3rd Fryday of October 2008.

160.00 is the strike price which is the price that you opted or chose to buy Apple for in the near future. The symbol like APV JL or APV AL is simply the options symbol. So if you tell your broker that you want to buy an x-amount of contracts of APV AL or simply enter the symbol into the respective space of your online trading account, then basically all is said and done.

The letter behind hyphen of the options symbol can be neglected. It just represents the exchange where the option is being traded. New York, Chicago, San Francisco etc. In this example it happens to be the letter E. Please don't ask me what exchange E or other letters stand for, it is not important for your options trade.

Another term you will hear very often is Exercise Stock Options. This simply means that you now go ahead and purchase the stocks that you bought the options for at the fixed price - the strike price - which works like this: If you bought Apple options at a strike price of $160 and the stock of Apple has now risen to $170, you can then exercise your options and buy Apple for $160 and sell them for $170.

But nobody really buys the underlying stock or, in technical terms, exercises his options. Because of the huge leverage options offer, one simply sells the options contracts which will make you much more profits than the stock itself as I explained above.

The market for stock options is huge! There are several thousands of options you can buy in the United States alone, not to mention how many other thousands there are out there internationally.

Three other terms that come up all the time is At-The-Money, In-The-Money and Out-Of-The-Money.

An option is At-The-Money if the strike price, i.e., the price the option holder must pay to exercise the option, is the same as the current price of the underlying security on which the option is written. In out Apple example above, it would mean that the option strike price and the stock price of Apple are both $160. No movement in the stock has taken place.

A call option is In-The-Money when the strike price is below the current trading price. Still staying with our Apple example above, if Apple is now trading at $170 this would then be above the strike price of $160. Remember, with a Call option you want the underlying stock to go up.

A put option is In-The-Money when the strike price is above the current trading price. This would be the case if Apple's current trading price is $150 and the strike price is $160. Remember, with a Put option you want the underlying stock to go down.

You can also look at In-The-Money this way: when you're in-the-money, you're making money!

Out-Of-The-Money is just the opposite of In-The-Money. When you're out-of-the-money, you're losing money because your trade is going in the opposite direction as desired. A call option is out-of-the-money when the strike price is above the current trading price of the underlying security.

A put option is Out-Of-The-Money when the strike price is below the current trading price of the underlying security.

There's still a lot more to understanding stock options than explained in this article. But looking at it as a tutorial on stock option for the beginner, then these are the basics and very first things to know about stock options. If you want to know more about this topic and/or about the stock market, then simply sign up for my 7-Day Ecourse on "Why Most Private Investors Lose Money In The Stock Market". It's free of charge and you will also find a lot about the substantial importance of Money Management! Also, upon signing up, you will receive a weekly newsletter that you can unsubscribe at any time. It's all free and no strings attached!

Yours in Successful Trading

Ricky Schmidt

This must be about the 10th full-scale financial panic I've seen since the mid-1990s.

Could anyone that's been with the stock markets for a while ever forget Long-Term Capital Management? How about WorldCom, or the panic after 9/11? Or what about the financial crisis that gripped Asia in Summer 1997 or Russia just one year later? And what about the SARS crisis in Asia back in 2003? There have been plenty more. And during each one, serious and intelligent financial figures around the world assured us that the economic world might collapse altogether.

Maybe it will one day. But you could get old waiting. And what does it matter anyway? After a crisis there will be another already waiting down the road. And a crisis will also pass like they all have and make way for the markets to continue going up.

Do you know where the Dow Jones was in 1982? At 776 points. And look where it's now! And the same can be said for all other indices around the world as well.

Subprime lending is highly controversial and refers to bank loans that do not meet loan guidelines i.e. it may or may not reflect the credit status of the borrower as being less than ideal and may not even reflect the interest rate on the loan itself. Simply speaking, a subprime loan is a bank loan someone gets that can't really afford it. Also, generally the interest rates are considerably higher than the prime rate.

The U.S. mortgage and subprime crisis began with the bursting of the U.S. housing bubble in late summer of 2007. Loan incentives and a long -term trend of rising housing prices encouraged borrowers to assume mortgages, believing they would be able to refinance at more favourable terms later.

But as interest rates kept rising from their historic low of 1% in 2001, borrowers couldn't pay off their loans and mortgages anymore. The result was that a wave of foreclosures started sweeping through the United States and banks had to start writing off millions and billions of dollars in losses. Even foreign banks started stumbling seriously due to their involvement in the housing crisis.

One practice was to convert these subprime loans into bonds making them look like a safe investment. But as the housing bubble and hence the credit market crumbled, these bonds started crumbling too making them worthless.

But, whether you take a subprime crisis, financial crisis, credit crisis or whatever other crisis, a crisis is also good for new opportunities. And many people are going to get rich and retire early due to the decisions they make today.

Here are 10 things to think about and consider if you are trying to manage your investments during turbulent times:

1. Invest during bad times when everyone bails out and the panic hits the front pages. Wait for a few days to see if the panic continues driving the markets down. If a bottom has formed and the selling has stopped, start getting in at the low prices! Until now the markets have always recovered. Just look at the crises I mentioned above. And what's left of it? Not much, if not even, nothing!

Yes, there have been a few exceptions in history like Japan after 1990, but they are rare. It's hard to remember, for instance, just how doomed Thailand seemed during the 1998 Asian financial crisis. But if you invested in their stock market at the lows, you've made several 100% in profits since.

2. Don't speculate. Investing is serious business and it should be treated as such! It takes a 100% profit to recover from a 50% loss. So stop wishing you bought Ford in 2003 when it doubled.You're better off looking for securities that offer a more modest and predictable gain. Very often the tortoise really does beat the hare in the stock markets. Look at Warren Buffett. He ain't the most successful investor in the world and a multi-billionaire for nothing!

3. Don't have too many positions and diversify your investment. Between 10 to 15 stocks is way enough and with these 10 to 15 you can be diversified in all major sectors like technology, pharmaceuticals etc. Just don't invest in cyclical sectors on a long-term basis like the airline, automobile or building and construction sector. They depend too much on the economy.

So do others you may say. Yes, but not to such a large extent. Even in bad times you'll always need food but not necessary that brand new car that you've been dreaming of. A second hand will also do for a while! So which company will be better off in a recession, Wal-Mart of General Motors? I guess the answer is self-explanatory!

4. Be very wary of any boom. The Internet frenzy in the '90's is the best example. Every boom has eventually come to an end. You can invest short-term in boom if you know how - like with stock options for instance. Otherwise never try to invest into the boom as such believing that you will now get rich very quickly. Rather invest in strong and solid companies that will automatically profit from a boom.

In the '90's it would've been wiser to have invested in Cisco Systems or Microsoft than in Fortune City or other Internet start-up's that vanished off the face of the earth faster than they appeared.

5. Don't take what analysts or so-called "financial experts" say too much for granted. If you ask 10 experts you usually get 11 opinions. Too much of all this background noise is not good at all and will only confuse you in your trading decisions. And confusing trading decisions will only make you losses instead of profits!

6. Invest in stages. I can almost guarantee that if you wait for the perfect moment to make that one big bet on the market, you'll either be way too soon or you'll miss the boat altogether. One good method is to keep some money for cost averaging should the one or other stock get hit bad, which can always happen.

7. If you want to play it safe - especially if you're a conservative investor - then only invest for the long-term. That means five years or more.

8. You don't have to pick individual stocks if you don't feel comfortable with the idea. Mutual funds will give you broad exposure to almost any security and sector you like.

9. When choosing a mutual fund, look for funds that have a terrific long-term track record -ideally 10 years or more - and that invest in different markets, and hold cash. That's really the only way they can outperform over time.

10. Finally, if you're simply too afraid of taking any risks at all, think about what inflation is going to do to you if you sit in cash on the sidelines. This also includes these dreadful savings accounts. There are literally no risk-free places to hold money.

And never, never ever use money that you need for ongoing needs for any investment. Even if you only need the money 6 months down the road from now. And never ever get into debt by borrowing money or taking up a loan to finance your investments. Only use that portion of your own cash that won't wipe you out financially should an investment turn sour.

Yours in Successful Trading

Ricky Schmidt

A bottom may occur because of presence of a cycle, the end of a recession or because of overselling in reaction to a development in the markets.

It is easy to spot a bear market bottom after an upturn and price rally is well underway. However, it can be hard to predict a bottom when a market is still in the decline. At some point, an attempt by investors to break the downward cycle will be made. These attempts more often than not end in failure because the resulting upturn is sometimes a false upturn - also known as a Bull Trap -, after which the decline resumes.

I always like saying that "One Swallow Doesn't Make A Spring! So just because a market rallies higher for a day or two, doesn't mean that it's the end of the economic low or whatever may have caused the bear market or downturn. In every market you will have days of opposite direction, meaning that in a bear market there will be days where prices go up again before the downturn continues just like you will have days where prices go down in a bull market before resuming its upturn.

The challenge is to see if we can not be fooled by the false turns. When one of these possible turns continues, it is evidenced by follow through which describes the continuation of prices in the new direction. This is why you cannot say that a market turn has taken place after just a few days of rally (in the case of a Bear Market turning into a Bull Market).

There are many ways that one can spot a bear market bottom. Here's a simple technical analysis method I like using. It works to 80% of all times.

1. The process begins when there is a market close above the previous days close. The lowest point in trading of the first rally day is used to establish a support line.
2. If trading on any of the next four to six days falls below the intraday low of the first rally day, the market turn identification has ended. We now wait for a new beginning rally day.
3. The second, third and fourth days now must each stay above the support line established on the first rally day, throughout their respective trading days.
4. The change from a down trend to an up trend is confirmed when the prices of the fourth day close above that of the third day, with an increase of volume as compared to the third day, and the close achieves a 1% or more increase in the total index being studied. This confirmation day may occur on the fourth through seventh day.

Lets review:

1. Look for an up day when the existing trend has been down.
2. The lowest point in intraday trading of the first rally day becomes the support line that you will use throughout the process.
3. The next two days of trading must both stay above the support line of the first day.
4. Confirmation of the market bottom is established when:
   • The price close on the fourth day is above the price close of the third day.
   • Volume on the fourth day surpasses the volume of the third day.
   • The increase in price on the fourth day represents 1% or more of the index being studied.

This day of 1% market increase on higher volume is termed the "follow through" day. Follow through can occur on the fourth through seventh days. After the seventh day the signal is much weaker.

Yours in Successful Trading

Ricky Schmidt