What about day trading?

[Blog #4 on financial markets]

There are five main types of trading that technical traders can utilise:

• Scalping
• Day trading
• Momentum trading
• Swing trading
• Position trading

They involve time frames from between seconds or minutes (for scalping) to weeks and months (for position trading) and everything in between.

A successful technical trader should at least be proficient in several different strategies, but every trader should specialise in one particular strategy and master it. This is dependent on:

• your personality,
• your timeframe and tolerance for risk, and
• the current market environment.

Day trading used to be the preserve of financial firms, professional investors and speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. Day trading is the system of speedily buying and selling securities throughout the day in order profit from the marginal changes in the market for that particular day.

Day trading can be a fast paced and exciting hobby that depends upon the trader having the most up to date information. Some of the more commonly day traded financial instruments include stocks, options, futures contracts and currencies. In the ideal world, day trading strategies let investors garner profits from the tiny increases in the market. Day trading requires a great deal of time and close attention.

Day trading is not a get rich quick scheme - don't try to make it one. Day trading requires in-depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through day trading, you must compete with professional, licensed traders employed by securities firms. Day trading can't really be considered safe investing. You must realise that it may be a zero sum game – for every winner there is a loser!

Make sure you're ready and willing to monitor the near-perpetual shifts that occur moment to moment in the stock market.

Day trading is quite easy once you have the proper education. Technical analysis and fundamental market analysis are both necessary for successful day trading. Technical analysis is the counterpart of fundamental analysis.

Fundamental analysis is basically the ability to analyse a company’s financial strength and determine a decision based on value. Fundamental investors look for stocks that are below their intrinsic value. The objective in fundamental analysis is to make a projection on its future business performance.

Simply put, technical analysis is the process of analysing market (price) action and using past data on charts to attempt to forecast the highest likely outcome of the future. Charts are the primary tool. Technical analysis can be learnt in a short period of time. There are no financial statements to read over. It requires the reading and interpreting charts, their patterns, and determining the highest likely short-term outcome of the future.

Dollarisation of Zimbabwe - update

The Zimbabwean government has for the first time acknowledged that the Zimbabwe dollar has no value, after acting Finance Minister Patrick Chinamasa, on Thursday, 29 January, detailed the country’s budget proposal in the US greenback. The proposal, which will officially pave the way for the disappearance of the local currency in trading, will make dealing in multiple currencies legal for all Zimbabweans, in theory to curb hyperinflation. The inflation rate is the highest in the world and has seen the local dollar crumble to its current worthless position. The economy has for weeks been informally ‘dollarised’ with almost all sectors trading in US dollars (and the SA Rand), and the new budget proposal has made the move official.

See the Now a 100 trillion dollar note! posting of 22 January 2009

Do you know about Wesebe?

Wesabe is a social-networking site that also lets users track their finances and helps you with safe investing. Users and financial experts share tips on saving, investing and spending. Traffic on Wesabbe has more than doubled in the last four months. [A social network site focuses on building online communities of people who share interests, or who are interested in exploring the interests and activities of others – in this case finances, ie a financial social networking site]

In November, Wesabe and the UK newspaper giant The Telegraph entered a partnership to offer co-branded tools on the Telegraph website.

Wesabe anonymously aggregates data from it's customers to provide tips and recommendations for it's members. Importantly, they've got data that spans the market, something that banks themselves have tried (with account aggregation) and largely not been able to make work very well. Wesabe applies wisdom of the crowd thinking to personal finance and debt.

Wesabe Mobile is available which also provides members with an easy way to record and track where they are spending cash. Wesabe holds out the promise to help consumers validate their financial decisions based on what other people like them are doing. Wesabe is both versatile and powerful. You can set spending targets, monitor your account on a mobile and download a Vista gadget for instant account access. Wesabe is rolling out new graphs to more easily allow users to track spending and monitor their income.

Wesabe cleverly uses two levels of tags: one for “just this entry” and another for “each time this transaction occurs”. This is powerful, but can be confusing, too. Wesabe is different, in that it is re-defining financial advice, and references in a banking context. Wesabe allows you to tag all your line items (expenses, deposits, etc) with arbitrary tags, so you can easily view groups of transactions. Within any tag you can set up spending targets and it will show you how close or far to that goal you are for the month at any given point.

A new feature of Wesabe, the Cutback Tool, focuses on a specific part of the problem, probably the one most easily controlled; namely, recurring fees and expenses. The Cutback Tool flags all your recurring expenses, then shows you how much money you’d save annually if you reduced or eliminated the spending. The tips provided are not perfect, but they are already useful in the many markets where the company has a concentration of users and it will get better and better as more users contribute more data.

Wesabe a very innovative solution for getting your financial data into a nice clean format that is ripe for analysis. On a higher level, they are using the wisdom of crowds to try teach us personal finance best practices. They interact amazingly closely with customers. For example, Wesabe usues collective wisdom to tell you how much you are spending on your services – say, car insurance – relative to its other users, and showing tips that are relevant to the tags you choose. Wesabe has nothing like the rich functionality of Quicken. It is basically a community site where you can upload your financials to manage your budget.

Wesabe uses a downloadable application to keep you safer – no credentials are stored on their website. The service utilizes SSL connections and authentication – keeping member data safe and private yet readily available. Wesabe spends a lot of time and energy trying to build up trust. That's a good move.

Wesabe has three advantages over Quicken:

• It’s only online.
• It has added tagging to transactions that are shared among users - when enough users tag a specific merchant, that tag is automatically added as a suggestion to your transaction.
• It is security-focused. Your third-party bank and credit card account credentials are not stored on Wesabe’s servers – instead they are downloaded to your personal computer. Hackers can’t access your account credentials by breaking into Wesabe’s servers.
  

Don't be a victim of online fraud

Remember we are encouraging safe investing, so we repeat:

Have you recently responded to a request to update your logon details via a link supplied in an email? If so, contact your bank or other financial service provider.

Don't fall victim to fraud - always be alert. Look out for any suspicious emails, websites, account activity or phone calls that involve your financial information. If so, contact your bank or other financial service provider.

Take care! This e-mail was distributed to banking clients
_____________________________________________________

From: Absa Bank Limited [mailto:upgrade@absa.co.za]
Sent: 10 November 2008 11:39To: undisclosed-recipients
Subject: New Online Secure Server
Importance: High

Dear Absa Customer,

We are proud to inform you that we have put a stop to the increasing spam attacks and security riskon our online banking servers by introducing the New Online Secured Database GX-5.

We are automatically registering all our customers to the secured server for added security and for aconvenience online banking experience. This registration is mandatory to all customers andunregistered accounts will be deleted from our server.

Proceed with your registration below.


Sincerely,

Absa Bank Limited
_____________________________________________________

What to look out for when identifying an e-mail or phishing scam:

• Deceptive Subject Lines: These look as if they are genuinely related to the company supposedly sending the e-mail.
• Forged Sender’s Address: An easy deception method to make the e-mail appear as though it has come from the company it is claiming to be.
• Genuine Looking Content: They copy images and text styles of the real sites in order to fool the reader. Trusts and authentication marks are duplicated and they may even have genuine links to the company’s privacy policy and other pages on the legitimate website to create an illusion of authenticity.
• Disguised hyperlinks: E-mails may display a genuine website address, but when you click on it, the hyperlink will take you to a different website. Look out for a long website address as it will take you to the site after the ‘@’ symbol. Example: http://www.genuine-site.com-name@fraud-site.com. If you clicked on this hyperlink it would take you to http://fraud-site.com as it is after the @ symbol.
• E-mail Form: These forms containing your personal information are submitted to remote computers, which the fraudsters access and then use your information to commit fraud on your bank accounts.

3 things you should do if you believe that your banking details have been compromised

• Change your sign-on details immediately (PIN and Password). This can usually be done securely online within your banks Internet Banking service or at your branch.
• As an added precaution, contact contact your bank or other financial service provider and let them know that you suspect that your personal banking details may have been fraudulently obtained.
• Monitor your accounts for unusual activity and report any suspicious activity immediately to your bank or other financial service provider.

_____________________________________________________

Need more information. See our posts of December 20 and 27 and January 01

Now a 100 trillion dollar note!

Less than two weeks after releasing a $50 billion note that could buy two loaves of bread, the dictatorship in Zimbabwe has released a $100 trillion note (see below). The current official exchange rate puts the value of the note at US$300, although the value deteriorates daily due to the 231 million percent inflation rate ravaging the country. Many believe the inflation rate is much higher. The informal market values it at US$30.

Zimbabwe, because of the great instability, cannot be considered a place for safe investing. However when the situation stabilises there will be many opportunities for purchasing assets there (especially using foreign currency).

Because of inflation, the Reserve Bank of Zimbabwe (central bank) has introduced a new family of trillion dollar banknotes in denominations of $100 trillion, $50 trillion, $20 trillion and $10 trillion that go into circulation, starting with the $10 trillion note. The $20 trillion, $50 trillion and $100 trillion notes will be introduced gradually. The Reserve Bank of Zimbabwe said the notes would ensure that those in formal employment withdraw their salaries with minimal hassle (?).

Zimbabweans are no longer using their valueless currency in the informal sector, preferring to do business in rands or US dollars.

The Zimbabwean newspaper reports that South Africa has shunned a proposal by Zimbabwe to adopt its currency saying the inflation in the neighbouring country will affect its economy.

However, in his leaked draft economic reform programme dubbed the Comprehensive Economic Reforms Needed to Turn Around the Economy, central bank governor Gideon Gono has announced that the rand will be adopted informally.

He said the move was meant to stabilise prices in the collapsed economy, that was once the pride of Africa.

“It is imperative that Zimbabwe informally adopts the rand alongside the Zimbabwe dollar, to eliminate distortions associated with the use of multiple currencies,” said Gono in the draft document.

“The randfying of the Zimbabwean economy is envisaged to give substantial impetus to current efforts geared at stabilising prices. This will lay a solid foundation upon which successful economic recovery initiatives will be anchored.”

The rand is already being used informally, and remittances from Zimbabweans in South Africa ensure a flow of rands into Zimbabwe. To adopt the rand formally, Zimbabwe would need to join the Multilateral Monetary Area, MMA. However, for Zimbabwe to become a member of the MMA it would need to align its fiscal and monetary policies with South Africa for the formal use of the rand to be effective and be sustainable. This seems unlikely under the present regime.

This issue first raised its head in July 2007, when things were not as bad as they are now. We reported the following:

We look at the proposal that Zimbabwe joins the rand monetary area (now known as the multilateral monetary area, MMA), and adopt the rand as its currency. This could be either directly as rand banknotes, or as a new Zimbabwean dollar linked to the rand on a one-for-one basis. To ensure equality and confidence, the rand would be legal tender (e.g. it can be used to pay for goods and services) in Zimbabwe.

Before discussing this more, it is useful to briefly discuss the rand and how it is valued and how its value is maintained. The rand (ZAR or R) is the national currency of South Africa and the South African Reserve Bank, SARB, (central bank) has the responsibility for supplying it and ensuring it keeps its value for the purposes of buying and selling goods and services.

So, ideally, when you buy a loaf of bread for R8 rand today it will still cost R8 this time next year (no or zero inflation). In reality, there is some inflation, especially in developing countries. It is usual to measure the internal (domestic) value of a currency against a basket of goods and services from time to time (the change in the level of inflation) and externally against a strong foreign currency (the exchange rate), e.g. the United State dollar, USD.

The multilateral monetary area, MMA, is well established and includes South Africa, Namibia, Lesotho and Swaziland. The rand is legal tender in these countries and their currencies are pegged to it so that their exchange rates with foreign currencies such as the US dollar are the same as the rand’s. A new MMA Zimbabwean dollar would be freely convertible into rand on a one-to-one basis (that is, at par).

The main advantage for Zimbabwe in joining the MMA is the stability of the exchange rates and the value of the currency for purchasing goods and services. Exporting and importing of goods and services to MMA countries involves no risk that the exchange rate will change for the worse – the prices are essentially in rand and thus the effect is the same as a supplier in Gauteng “exporting” to a buyer in the Western Cape.

Is the residential property market safe?

The residential property market is usually considered a safe investment. However, the fall in house prices is a cause for concern all over the world.

In South Africa the situation is also a cause for concern, but now may be the time to make a safe investment in houses. An excerpt from the latest report from Standard Bank is now available.

Standard Bank: House price growth slipped into red in 2008

What is the latest?
With the data for the final month of 2008 in Standard Bank’s residential property book now available, the annual growth in the median price can be evaluated against previous years’ growth performances. Recall that growth in Standard Bank’s residential median property price peaked in 2004 when a rate of 24.2% (smoothed average) was recorded. Given developments in the economy such as the start in the upswing of the interest rate cycle, the rate of increase declined steadily to 6.6% in 2007. In 2008 the average median property price declined further to 0.3%, the first decline since 1996. In real terms, using the CPI to deflate the nominal data, the decline comes to nearly 12%. On a smoothed basis, growth in the monthly price declined steadily and has been in negative territory since June of 2008. By December the growth came to 3.1%. The residential property book for December 2008 shows that the smoothed value of the median residential property financed by the bank was R592 000. The data reflect a very fragile property market.

While the trend in house prices as depicted by the smoothed data is of general interest, the unsmoothed or raw data is of importance for technical reasons and a variety of other reasons also. For 2008, the raw data show that the median house price declined by 1.6%, down from the 8.3% increase calculated for 2007. The annual numbers mask some dramatic swings in the generally volatile monthly data. Two factors increased the volatility of the 2008 data. The base effects of the distortions created by the introduction of the National Credit Act (NCA) in 2007 were present in the middle of 2008, when strong declines in growth were reported. This is part from the ongoing impact of the NCA which effectively led to a tightening in lending criteria. A second factor occurred when the distribution of property prices changed. This happened later in 2008 when a decline in the number of middle- and lower=priced properties processed was reported. Put differently, the proportion of higher-priced properties making up the bank’s December loan portfolio increased, resulting in a higher median price for the month, as the raw data show.

What are the overall developments in the housing market?
Growth in Standard Bank’s residential median property price peaked in October 2004. The South African housing market has been in the doldrums since mid-2006 when the upward phase of the interest rate cycle commenced. The 500 basis points increase in the repo rate between mid-2006 and mid-2008 placed huge
stress on the economy in general and households in particular. The reduced affordability of housing, exacerbated by higher mortgage rates, high food and fuel prices, a sharply slowing economy, and the implementation of the NCA, led to a decline in the demand for residential property and a substantial softening in house price growth ensued. ... more

Click here the get the full report (PDF).

Learn more: January finance and investment book reviews

Books provide you with the more detailed information to enjoy safe investing. We suggest the following:

Useful South African books (Kalahari)

Understanding South African Financial Markets,
van Zyl, Botha & Skerritt

A reference and guide for commerce students, public servants and the business fraternity, giving an overview of how the various institutions in the South African financial system operate as well as of the different financial markets in the economy and the instruments traded in those markets.Contents: Rudiments of the South African financial system; The South African Reserve Bank; Banks; Microfinance institutions; Regulation of the financial markets; Insurers; Retirement funds; Investment institutions; Risk and return; The money market; The bond market; The share market; The foreign exchange market; and Derivatives.

Economics for South African students,
Louis et al Fourie, Philip Mohr

Economics for South African students is an introduction to economics in general, set against a contemporary South African background. The easy style and many practical examples make this publication accessible. The title covers all the material usually prescribed for introductory courses, and it lays a solid foundation for intermediate and advanced studies in economics.


Useful USA books (Amazon)

The Neatest Little Guide to Stock Market Investing,
Jason Kelly

From the time of its first publication five years ago, The Neatest Little Guide to Stock Market Investing has established itself as a clear, concise, and highly effective approach to stocks and investment strategy. Since the dot.com crash and ensuing bear market, significant changes have come about in the investing world, and The Neatest Little Guide takes this into account. In this revised edition, readers will learn: Strategies on how to double the Dow with one simple investment and the latest products required for this approach; Methods investors can use to avoid disasters such as Enron and WorldCom. Thoroughly updated reference lists, including new websites, new software, new brokers, and new publications. With the right information for investors to keep pace, and rooted in the principles that made it invaluable from the start, The Neatest Little Guide to Stock Market Investing is a resource that no serious investor can be without.

Stock Investing for Dummies,
Paul Mladjenovic,

Stock Investing For Dummies covers all the proven tactics and strategies for picking the right stocks. Packed with savvy tips on today’s best investment opportunities, this book provides a down-to-earth, straightforward approach to making money on the market without the fancy lingo. With a different strategy for every investor - from recent college grad to married with children to recently retired - his valuable reference is a must-have. It also features tips and tricks on how to tell when a stock is on the verge of declining or increasing, how to protect yourself from fraud, and common challenges that every investor must go through, along with resources and financial ratios.