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Investment Leverage
Stock traders seek to multiply their profits using investment leverage. Investment leverage takes two basic forms, borrowing and use of derivative contracts. With the use of a margin account in stock trading, traders borrow up to fifty percent of the capital used in trading stock. The other form of investment leverage consists of using derivatives such as stock options or futures. In each case traders increase their return on investment in a winning trade and in each case they multiply their losses in a losing trade. In order to profit from investment leverage a trader needs first to engage in more profitable trades than unprofitable ones. A trader who carries out diligent research, fundamental analysis, of stocks is more likely than others to profit in stock trading. Using Candlestick analysis a trader can profitably anticipate stock price movement, market trends, market reversal, and individual stock price reversal. As stock price patterns repeat themselves Candlestick traders profit by reading these signals and trading accordingly. Using a combination of fundamental and technical analysis along with investment leverage strategies can be profitable. Neglecting the use of technical tools such as Candlestick pattern formations or the fundamental analysis of stocks can only lead to magnified losses when using investment leverage.
Traders can use a margin account in order to increase their investment leverage. The typical limit is fifty percent of a trading account. The trader borrows money from the stock broker when trading. He pays interest on this borrowed money. In a quick and profitable trade he doubles his profits and pays only a small amount for the short term use of the extra money. If the trader has a series of bad trades he may use up his own money and some of the borrowed part of his margin account. Then he will receive a margin call from his broker. He will need to replenish the margin account or the broker will execute trades with his stocks in order to pay back the money borrowed. Thus, the trader needs to consider investment risk in each trade in order not to unnecessarily multiply his losses and lose his trading capital. Traders who diligently follow Candlestick chart patterns reduce their risk of making bad trades and improve their chances of successful trades.
2. Stock traders seek to multiply their
profits using investment leverage.
Investment leverage takes two
basic forms, borrowing and use of
derivative contracts. With the use
of a margin account in stock
trading, traders borrow up to fifty
percent of the capital used in
trading stock.
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3. The other form of investment
leverage consists of using
derivatives such as stock options or
futures.
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4. In each case traders increase their
return on investment in a winning
trade and in each case they
multiply their losses in a losing
trade.
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5. In order to profit from investment
leverage a trader needs first to
engage in more profitable trades
than unprofitable ones. A trader
who carries out diligent research,
fundamental analysis, of stocks is
more likely than others to profit in
stock trading.
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6. Using Candlestick analysis a trader
can profitably anticipate stock
price movement, market trends,
market reversal, and individual
stock price reversal.
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7. As stock price patterns repeat
themselves Candlestick traders
profit by reading these signals and
trading accordingly. Using a
combination of fundamental and
technical analysis along with
investment leverage strategies can
be profitable.
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8. Neglecting the use of technical
tools such as Candlestick pattern
formations or the fundamental
analysis of stocks can only lead to
magnified losses when using
investment leverage.
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9. Traders can use a margin account
in order to increase their
investment leverage. The typical
limit is fifty percent of a trading
account. The trader borrows
money from the stock broker when
trading.
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10. He pays interest on this borrowed
money. In a quick and profitable
trade he doubles his profits and
pays only a small amount for the
short term use of the extra money.
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11. If the trader has a series of bad
trades he may use up his own
money and some of the borrowed
part of his margin account. Then
he will receive a margin call from
his broker.
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12. He will need to replenish the
margin account or the broker will
execute trades with his stocks in
order to pay back the money
borrowed.
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13. Thus, the trader needs to consider
investment risk in each trade in
order not to unnecessarily multiply
his losses and lose his trading
capital.
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14. Traders who diligently follow
Candlestick chart patterns reduce
their risk of making bad trades and
improve their chances of successful
trades.
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15. Traders often use options trading
for investment leverage. This type
of trading has the added benefit of
limiting losses.
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16. When buying options a trader pays
for the right to buy stock or sell
stock at any time before the
expiration of the options contract.
The trader is under no requirement
to do so.
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17. By using Candlestick pattern
formations a guide a trader can
successfully anticipate a rise or fall
in stock price. He can profit by
buying calls on a stock that he
believes will rise in price or buying
puts on a stock that he believes will
fall in price.
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18. He can exit the options contract by
making the opposite trade. He can
make a profit that is a multiple of
his investment as he only invests
the premium paid for an options
contract but gains according to the
degree to which the stock price
moves.
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19. In the event that a stock price
moves contrary to expectation the
trader’s losses are limited to the
premium paid for the options
contract.
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