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Definition of 'Lame Duck' 1.

A person who has defaulted on his or her debts or has gone bankrupted due to the stock market. The phrase is said to have originated from the London Stock Market during the 1700s and was used to describe individuals who were ineffective traders. 2. A politician who has chosen not to seek re-election, is ineligible to run for office again or has lost an election but is still in office until the election winner takes control of the office. Investopedia explains 'Lame Duck' 1. A trader or investor who makes poor trades and ends up with heavy losses over time would be considered a "lame duck." The phrase lame duck was coined in the 18th century at the London Stock Exchange, to refer to a stockbroker who defaulted on his debts.[4][5] The first known mention of the term in writing was made by Horace Walpole, in a letter of 1761 to Sir Horace Mann: "Do you know what a Bull and a Bear and Lame Duck are?" [6] In 1791 Mary Berry wrote of the Duchess of Devonshire's loss of 50,000 in stocks, "the conversation of the town" that her name was to be "posted up as a lame duck". [7]In the literal sense, it refers to a duck which is unable to keep up with its flock, making it a target for predators. It was transferred to politicians in the 19th century, the first recorded use being in the Congressional Globe (the official record of the United States Congress) of January 14, 1863: In no event . . . could [the Court of Claims] be justly obnoxious to the charge of being a receptacle of lame ducks or broken down politicians. Definition of 'Bubble' 1. An economic cycle characterized by rapid expansion followed by a contraction.

2. A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs. 3. A theory that security prices rise above their true value and will continue to do so until prices go into freefall and the bubble bursts.

Definition of 'Bottom Fisher' An investor who looks for bargains among stocks whose prices have recently dropped dramatically. The investor believes that a price drop is temporary or is an overreaction to recent bad news and a recovery is soon to follow. Definition of 'Market Jitters'

Feelings of nervousness created by uncertainty or fear about the current investment environment. Market jitters can relate to an individual who stresses about their current investments, or to the investment community as a whole, caused by over-arching economic factors such as a recession or market swoon. Definition of 'Bloodletting' A period marked by severe investing losses. Bloodletting may occur during a bear market, in which the value of securities in many sectors may decline rapidly and heavily. It is named after an ancient medical practice in which doctors would use leaches or cuts to drain some of a patient's blood (one of the four humors). The premise being that it was "healthy" to balance the humors if feeling ill. Investopedia explains 'Bloodletting' Investors facing a bear market have the option of riding out the depression and holding onto their investments, or selling their investments in order to moderate losses. A sell off of a particular security may result in a further decline in its value, as there are more sellers than buyers available in the market. An investor, who thinks that the market will improve, may take advantage of this situation by buying up bargain stocks. Definition of 'Rule Of Thumb' A guideline that provides simplified advice regarding a particular subject. A rule of thumb is a general principle that provides practical instructions for accomplishing or approaching a certain task. Typically, rules of thumb develop as a result of practice and experience rather than scientific research or theory. Investors may be familiar with a variety of "financial rules of thumb" that are intended to help individuals learn, remember and apply financial guidelines, including those that address methods and procedures for saving, investing and retirement. Although a rule of thumb may be appropriate for a wide audience, it may not apply universally to every individual and unique set of circumstances. Investopedia explains 'Rule Of Thumb' There are a number of rules of thumb that provide guidance for investors. Well-known financial rules of thumb include:

A home purchase should cost less than two and a half years' worth of your income. Always save at least 10% of your take-home income for retirement. Have at least five times' worth your gross salary in life insurance. Pay off your highest-interest credit cards first. The stock market has a long-term average return of 10%. You should have an emergency fund equal to at least three to six months' worth of household expenses. Your age represents the percentage of bonds you should have in your portfolio.

Your age subtracted from 100 represents the percentage of stocks you should have in your portfolio.

There are also rules of thumb for determining how much net worth you will need to retire comfortably at a normal retirement age. Here is the calculation that Investopedia uses to determine your net worth: Definition of 'Buy The Dips' A slang phrase regarding the practice of purchasing stocks following a decline in prices. After a significant dip in the price of a security or stock index, investors should increase positions or purchase different stocks to capitalize on what is seen as an eventual upswing. Investopedia explains 'Buy the Dips' The concept of buying dips is based on market fluctuation. Because the market is volatile, any given dip in prices should eventually rise back up. By purchasing stocks right after a dip, investors are essentially buying shares at a discounted sale price. Like all trading strategies, buying the dips is not a sure thing, because some stock price drops are due to negative changes in the underlying company's fundamentals. For example, investors who followed this strategy around the bursting of the dotcom bubble may have lost a lot of money because many internet companies lacked a proper revenue-generating business model. Definition of 'Panic Selling' Wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic selling, investors just want to get out of the investment, with little regard for the price at which they sell. Investopedia explains 'Panic Selling' The main problem with panic selling is that investors are selling in reaction to pure emotion and fear, rather than evaluating fundamentals. Almost every market crash is a result of panic selling. Most major stock exchanges use trading curbs and halts to limit panic selling, to allow people to digest any information on why the selling is occurring, and to restore some degree of normalcy to the market. Definition of 'Falling Knife' A slang phrase for a security or industry in which the current price or value has dropped significantly in a short period of time. A falling knife security can rebound, or it can lose all of its value, such as in the case of company bankruptcy where equity shares become worthless. A falling knife situation can occur because of actual business results (such as a big drop in net earnings) or because of increasingly negative investor sentiment. Investopedia explains 'Falling Knife' As the phrase suggests, buying into a market with a lot of downward momentum can be quite dangerous. If timed perfectly, a buy at the bottom of a long downtrend can be rewarding - both financially and emotionally - but the risks run extremely high. This term implies that the investment will never be a good one again. Examples of stocks that have plummeted are plentiful; a widely-held stock can drop precipitously as the equity ownership is reduced to nothing. Definition of 'Pick-And-Shovel Play'

A strategy where investments are made in companies that are providers of necessary equipment for an industry, rather than in the industry's end product. A pick-and-shovel play, in practice, could be within the oil industry; an investor would purchase stock in a company that manufactures seismic data equipment that exploration and production (E&P) companies need to find new oil and gas deposits, rather than on the E&P company itself. Investopedia explains 'Pick-And-Shovel Play' The expression may have been derived from the California gold rush, where many of those who profited did so by providing the miners with picks, shovels and other equipment needed for gold mining. The idea behind pick-and-shovel plays is that, in the case of E&Ps, for example, it doesn't matter if the E&P Company finds oil and gas or not, they will need to purchase specialized equipment either way. Definition of 'Hot Hand' The notion that because one has had a string of successes, he or she is more likely to have continued success. For example, if one flipped a (fair) coin and guessed correctly that it would land on heads three times in a row, it might be said that they have a "hot hand." Under such circumstances, a person believes that their odds of guessing which side the coin will land on next are greater than the 50% they actually are. Investopedia explains 'Hot Hand' The belief in a hot hand is one shared by many gamblers and investors alike, and is believed by psychologists to stem from the same source, the representative heuristic. For example, there is data to suggest that the decision of an investor to buy or sell a mutual fund depends largely on the track record of the fund manager, even though there is evidence that this factor is highly overrated. Hence, it would appear that such investors are making decisions based on whether or not they feel the fund managers are "hot" or not. Definition of 'Hedge' Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract. Investopedia explains 'Hedge' An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations. Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge). Definition of 'House Money Effect' The tendency for investors to take more and greater risks when investing with profits. The house money effect gets its name from the casino phrase "playing with the house's money." The house money effect was first described by Richard H. Thaler and Eric J. Johnson of the Johnson Graduate School of Management of Cornell University. Investopedia explains 'House Money Effect' The house money effect forecasts that investors are more prone to buy higher-risk stocks after a profitable trade. Some believe that the house money effect is an example of mental accounting, whereby capital is

kept separate from recent profits, leading investors to view said profits as disposable. As a result, they are more inclined to take greater risks with the money. Definition of 'Value Trap' A stock that appears to be cheap because the stock has been trading at low multiples of earnings, cash flow or book value for an extended time period. Stock traps attract investors who are looking for a bargain because these stocks are inexpensive. The trap springs when investors buy into the company at low prices and the stock never improves. Trading that occurs at low multiples of earnings, cash flow or book value for long periods of time might indicate that the company or the entire sector is in trouble, and that stock prices may not move higher. Investopedia explains 'Value Trap' Companies, and even sectors, can be doomed, because of situations such as the inability to survive competition, the inability to generate substantial and consistent profits, the lack of new products or earnings growth, or ineffective management. Often, a value trap appears to be such a good deal that investors become confused when the stock fails to perform. As with any investment decision, thorough research and evaluation is recommended before investing in any company that appears cheap when reviewing its relevant performance metrics. Wash Sales Under Internal Revenue Service rules, you cannot deduct losses from sales or trades of stock or securities in a wash sale. A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, or Acquire a contract or option to buy substantially identical stock or securities. Margin trading Margin trading is buying stocks without having the entire money to do it. The exchanges have an institutionalised method of buying stocks without having the capital through the futures market. For example, if you were to buy 2000 shares of say Company A, which trades at Rs 300, you will need about Rs 6 lakh. But if you buy a future contract of that company, which comprises 2000 shares, you only need to pay a margin of 15 per cent. So by putting Rs 90,000, you can get an exposure of Rs 6 lakh. The same operation can also be executed through margin trading. Here, the trader will buy 2,000 shares, which are partly funded by the broker, and the rest by the trader.

Margin trading vs futures Most investors buy the futures, but there are times when margin trading makes mores sense. If a stock is not in the futures list, the client can go for margin funding. Since futures are generally not available beyond one or two months, if the client has a longer view, then margin trading is better. Also, some brokers offer lower interest rates on margin trading than the prevalent rates in the futures market. Margin Trading: What Is Buying On Margin? The Basics Buying on margin is borrowing money from a broker to purchase stock. You can think of it as a loan from your brokerage. Margin trading allows you to buy more stock than you'd be able to normally. To trade on margin, you need a margin account. This is different from a regular cash account, in which you trade using the money in the account. By law, your broker is required to obtain your signature to open a margin account. The margin account may be part of your standard account opening agreement or may be a completely separate agreement. An initial investment of at least $2,000 is required for a margin account, though some brokerages require more. This deposit is known as theminimum margin. Once the account is opened and operational, you can borrow up to 50% of the purchase price of a stock. This portion of the purchase price that you deposit is known as the initial margin. It's essential to know that you don't have to margin all the way up to 50%. You can borrow less, say 10% or 25%. Be aware that some brokerages require you to deposit more than 50% of the purchase price. You can keep your loan as long as you want, provided you fulfill your obligations. First, when you sell the stock in a margin account, the proceeds go to your broker against the repayment of the loan until it is fully paid. Second, there is also a restriction called the maintenance margin, which is the minimum account balance you must maintain before your broker will force you to deposit more funds or sell stock to pay down your loan. When this happens, it's known as a margin call. We'll talk about this in detail in the next section. Borrowing money isn't without its costs. Regrettably, marginable securities in the account arecollateral. You'll also have to pay the interest on your loan. The interest charges are applied to your account unless you decide to make payments. Over time, your debt level increases as interest charges accrue against you. As debt increases, the interest charges increase, and so on. Therefore, buying on margin is mainly used for short-term investments. The longer you hold an investment, the greater the return that is needed to break even. If you hold an investment on margin for a long period of time, the odds that you will make a profit are stacked against you. Not all stocks qualify to be bought on margin. The Federal Reserve Board regulates which stocks are marginable. As a rule of thumb, brokers will not allow customers to purchase penny stocks, over-thecounter Bulletin Board (OTCBB) securities or initial public offerings (IPOs) on margin because of the day-to-day risks involved with these types of stocks. Individual brokerages can also decide not to margin certain stocks, so check with them to see what restrictions exist on your margin account. A Buying Power Example Let's say that you deposit $10,000 in your margin account. Because you put up 50% of the purchase price, this means you have $20,000 worth of buying power. Then, if you buy $5,000 worth of stock, you still have $15,000 in buying power remaining. You have enough cash to cover this transaction and haven't tapped into your margin. You start borrowing the money only when you buy securities worth more than

$10,000. This brings us to an important point: the buying power of a margin account changes daily depending on the price movement of the marginable securities in the account. Later in the tutorial, we'll go over what happens when securities rise or fall. Definition of 'Wash Sale' A transaction where an investor sells a losing security to claim a capital loss, only to repurchase it again for a bargain. Wash sales are a method investors employ to try and recognize a tax loss without actually changing their position. Investopedia explains 'Wash Sale' The effectiveness of this strategy has been greatly diminished with the implementation of the IRS 30-day wash rule, where a taxpayer cannot recognize a loss on an investment if that investment was purchased within 30 days of sale (before or after sale). Bottom fishing vs picking of penny stocks There seems to be some uncertainty about what bottom fishing and what bottom picking is. We just talked about the relation of trend trading and bottom fishing or picking. Trend trading won, of course. Now the question is up what exact type of trading or investing the bottom thing is. A bottom picking in the inner sense has hardly any chance to exist, provided you have no prophet in your trader staff. Does waiting for the first turning of the price, the pivot point, count as bottom picking or is this mere swing trading? If the answer were yes, value investors and swing traders would be united Lets assume that even buying a stock directly after a cliff dive of fifty percent is not picking but fishing. Is this strategy sound? From a gamblers perspective probably yes. Often prices recover to where they started their free fall. In the adverse case they can only move near to zero. You never know where a price is headed, at least not with certainty, and the market always steers the price to an equilibrium from where up- and downmove are evenly likely. A price cut of fifty percent for some substantially bad news seems to be the best guess the market could do. In other words, such a price cut is fair, and so it is also fair to buy at this price. The value investor does not take a bad gamble in this case. Seen from the perspective of probabilities this is a fine bet. But there is the waiting that is needed for the price to recover. Advantage trend trading. The more proactive version of betting on value after harsh price falls is possible in the small cap market. Volatility is often greatly enhanced in the penny stock markets. Preselect some penny stocks that had seen higher prices already. We are talking here about more than a factor of two. Then pick only those that are showing new signs of life. This trading system is sort of swing trading for penny stocks, and it is probably the best penny stock system there is. All you need is a facility to discover such trading situations. Dont be sub-euphoric now because this newsletter costs something. Alternatively you could do the searching work on your own, but the writer

motivates himself for his own trading with his writing and produces value for you. Thats what a value investor should be after Margin means borrowing money from your broker to buy a stock. Now the question is why would you borrow? Investors generally go for trading on margin so to increase their purchasing power so that they can own more stock without fully paying for it. That means you will pay a part of the buy price and the broker will lend you the difference. Initial margin: The proportion of total purchase price an investor is supposed to deposit for opening a margin account is referred as its initial margin and is generally 50% of the total value. Maintenance margin: In order to keep the margin account open for doing margin trading, it is necessary to maintain minimum cash or marginable securities which is called the maintenance margin. This is just to prevent an investor from incurring a level of debt that he would not be able to repay. Margin call: If your account falls below the maintenance margin, your broker will make a margin call to ask you to deposit more cash or securities into your account. If case you fail to meet the margin call, your broker will sell your securities so to make up for the stipulated maintenance requirement. Lastly, for novice traders it is very important to have a realization that trading on margin can help you magnify your profit and at the same time multiplies the associated risks.

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