Investing in a Volatile Environment

The volatility that we recently experienced in the market is very troubling to some investors. Unfortunately, those investors who hit the panic button and sold off are recognizing large losses in their portfolios only to turn to investments that are perceived as safer places to invest.

The fact of the matter is that we invest our money to earn long-term rates of return that will exceed the rate of inflation and help us preserve our purchasing power. Historically, cash has been the worst place to invest over the long term.

Losing Investment Capital in a Volatile Market
According to Fidelity Investments, investors who sold their 401(k) holdings while the market was crashing between October 2017 and March 2018, and then stayed on the sidelines, have only seen their account values increase by about 2%, including contributions, through June of 2019. This compares with those who held on and saw account balances bounce back by around 50%. During periods of extreme volatility, wealth managers will often tell clients to stay invested rather than sell and lock in large losses in a seesaw market.

Building confidence in your strategy is a way to keep from making the mistake of buying high and selling low. Having the mental conviction to tell yourself that you have a carefully planned portfolio of high quality investments goes a long way toward getting through the toughest days of market volatility. If you are unsure of how to select high quality investments, consult with an financial manager or registered investment advisor.

The question is; how do you reach that state of mind? It’s not easy if you are the type of person that tends to get knots in your stomach when the market drops. We outline some steps below that might be able to increase your level of confidence.

Conquering the Fear of Volatility
One step you should take to better handle volatility is to make sure you have adequate cash reserves for a financial emergency that might arise. This way you are not depending on your portfolio for unforeseen expenses and your anxiety level will be lower, knowing that you don’t need to sell your investments when they have declined in value.

Make sure you have a mix of investments that fits in to your risk tolerance and time frame. This can be accomplished by considering how you have felt when past market declines have occurred. Your wealth management advisor should be able to provide you with a thought provoking questionnaire that will give you a score when completed. The score on the questionnaire will have a corresponding asset allocation that you can use to determine the split you will have between stocks, bonds and cash.

Once your allocation has been determined, stick with it. It is a good practice to reallocate your assets on a regular basis to keep your risk level the same. This means that a portion of those investments with better performance will be sold (sell high) to purchase in order to purchase shares in those that have not performed as well (buy low).

Other ways to hedge volatility can be through the use of options. Two simple strategies can be applied. One is the sale of covered call options against underlying stock or ETF positions. In this strategy you (the seller of the option) collect money from a speculator (the buyer of the option) in exchange for an agreement to sell your stock only if it reaches a specified price (higher than where it trades at the time of the transaction). The option must hit the price target (strike price) within a predetermined time frame (expiration date). If it does not, the contract expires you keep the money paid and are free to sell more options against that stock position.

The other strategy is to simply buy a put option. This gives you the right to sell your position in a stock or ETF that you own at a predetermined price within a predetermined time frame. For this privilege you will pay money (a premium) to the potential buyer (seller of the put option) of your stock. This strategy should be implemented in periods of low volatility, as the cost of the transaction will rise as markets begin to fall.

Buy With Conviction
Let’s say you’ve owned a stock that has done well over time. The stock has had a history of increasing revenue, profits and dividend increases. It seems like the stock is usually going up when the market goes up, only now there has been a big selloff in the market, and the stock has dropped dramatically due to market conditions. It may be time to do some homework on the company and make sure that the drop is due to just a generally bad market. If it that turns out to be the case, maybe it is time to buy more of the stock. Great companies often go on sale in market declines, only to have dramatic upturns once the market decline is over.

The Importance Of Investing in A Dry Cabinet

If you are having trouble protecting your MSD(moisture sensitive devices) from humidity related damages, you are on the right page. In this article, we are going to shed some lights on the importance of electronic dry cabinets.

Basically, a dry cabinet is an enclosure that can keep electronic components from getting exposed to excessive moisture environment. People use these when they need to put their moisture sensitive products into low humidity environment.

We know that excessive moisture can damage specific products, such as PCB,IC,chips,optical products,precision instruments. Since moisture can have a negative impact on the device performance and cause malfunction in some cases, it’s important to keep them in a place where these problems won’t occur.

Without further ado, let’s find out why you may want to invest in a dry cabinet to meet your needs.

Importance of investing in a Dry Cabinet

Why do professional manufacturers use a dry cabinet to store their MSD? The short answer is, they want protection against fungus. As a matter of fact, fungus is the worst enemy of electronic manufacturing process. It’s not easy to remove fungus and it can also cause damage and great economic loss to the products.

The problem is that fungus and humidity can directly cause damage and cracking inside electronics and other moisture sensitive materials. This can happen if you store the electronics and don’t take any measures to protect it from unwanted stuff, such as fungus and humidity. As soon as fungus grows, you won’t be able to stop it from spreading fast.

If you think you can clean the fungus from PCB boards, you need to think again. The reason is that it can have a damaging effect on the small components on PCB boards and too much works with excessive labor cost,Therefore, we don’t recommend that you go this route.

Often manufactures who have access to dry cabinets end up storing their components in exposed workshops,Typically, fungus tends to thrive in these areas because of high humidity. Generally, these people live in areas where humidity remains high throughout the year.

Keep in mind that these can be a great choice for electronic and semiconductor manufacturers.Make sure that the equipment you have stored is free of dust and water vapor. And this can be done only if you invest in a good dry cabinets. These devices can be configured to control humidity and prevent it from crossing the line.

Bonus Tips:

If you want to store your MSD (moisture sensitive devices) into dry cabinets, make sure you choose an optimal humidity point,don’t keep the humidity level too low or too high.

Dry modules is also very essential,if the dry module lifespan is short,then you have to replace it once two years or three years,it will cause high cost and much time.

Often, it costs a hefty sum of money to get the fungus removed from your MSD. On top of this, the treatment may not be 100% effective. As a result, you may end up with long downtime.

Overcoming the Two Main Fears in Trading

Trading is a game of emotion. A psychological battle wages inside the mind of traders worldwide and until this inner battle is won by the trader, losses would always be the order of the day.

As someone once said: ‘We have met the enemy and he is us’.

There are two primary emotions that must be overcome: Fear and Greed.

Fear exists in two forms:

1.) Fear of losing: Every trader when placing a trade is afraid that it may go wrong and the trader might end up booking a loss. It is this fear that prevents traders from placing stop loss orders. They do not ever want to have to take a loss. They hope that any trade going against them will eventually get better and they do not want to feel the pain of losing at all costs. Sadly, a lot of traders have wiped out their accounts as a direct result of avoiding to take small losses. Understanding that losing is part of trading and using stop losses where you do not risk more than 1-2% of your capital is a winning method.

2.) Fear of giving back profits: There is an old saying in trading which goes ‘ Cut your losses short and Let your profits run’. Most new traders tend to do the opposite. The let their losses run out of hand and take profits too soon. Traders are afraid that the immediate gains they have witnessed might be lost and quickly close out any little profit they see. The problem here is winning trades are not allowed to fully play out and as a result, when the losses do come, the trader is left with a net loss at the end of the day. Using take profits at defined price target levels in line with a winning strategy is the best way to manage this concern.

A good way to overcome these two fears is to do what’s called Scaling. Instead of entering a trade with just one click, break it down into smaller bits at roughly the same entry level.

For instance, instead of buying 10 lots of the EUR/USD at 1.3500; you can instead do 5 trades of 2 lots each at around 1.3500. That way you’ll have 5 trades instead of just one.

You can then exit the first 2 lots at say a 4 pip profit (At least you’ve taken care of the fear of losing).

Afterwards you can exit the next 4 lots at 10 pip profit and then raise your stop to your entry levels ( you’ve taken care of the fear of losing).

Then you can let the last 4 lots run up to the profit target ( here you’ve taken care of the fear of giving back profits).

Scaling in is one of the best ways to manage your fears. Happy Trading.

Forex Robots and Physical Reality

Just the other day I had a request from an individual wanting me to place a link or ad on my website for a trading robot. I was not interested, and I’ll tell you why.

The Forex Market: Robots vs. Humans

Who makes the market move in a given direction? Humans or Computers (bots)?

The Foreign Exchange Market moves trillions of dollars in currency every single day. There are millions of traders with accounts ranging from a few dollars to 100s of millions each, some of them allow a trading robot to make the trades for them.

While I could not find any reliable statistics on the internet about what percentage of traders utilize trading robots to make the decisions for them, I would estimate that it is probably less than 50%. The remaining 50% of forex traders utilize some sort of trading software in order to help them make decisions, but they (the humans) are the ones making the final decisions, not the machine.

Artificial Intelligence or AI has made rapid improvements in the last 10 years, and advancements are coming quickly. The most advanced AI systems can learn at the level of a small child and adapt as the environment changes. These types of systems have been designed for trading at all levels and have moderate success.

When The Scale Tips

As neural networks and algorithms become more sophisticated, I believe more and more people will opt for using trading robots to do the thinking for them. But I believe that for robots to make a significant impact on the Forex Market, there needs to be more than 50% of all currency volume being executed by smart robots with no human intervention. I do not believe at this point in time (2014) that robots dominate the foreign exchange market, but they are increasingly being utilized. A recent article I read in one of the major financial news outlets stated that the use of automated trading systems by large banks is at about 65%. The reason for this is to cut down on illegal activities of traders insider groups manipulating prices. If this is true then we have a situation where prices can fluctuate dramatically, with little or no reason and human emotions are not as much of a factor. Conversely, if we know the majority of algorithms being used by the large banks, then we can better predict price movements.

My Opinion

If there is a larger percentage of the world’s currency traded by robots, then there can be a more reliable means of trading using robotic systems. It’s interesting to note that all of these computer algorithms or EAs (Expert Advisors) that are being used by the banking system were programmed using trading patterns of professional human traders. The main difference between a human trader and a computer program is that it cannot reprogram itself to adapt to changing market conditions. Existing supercomputers and the most sophisticated neural networks cannot emote. Biological systems do exhibit emotion and this is where the machine fails miserably. Non-biological computers cannot feel the ecstasy of a profitable trade, nor can they feel the excruciating pain of a margin call. They cannot feel fear or feel the rush of greed, and therefore their actions do not take these emotions into account; nor can they predict these emotional responses with 100% accuracy. Even though the larger percentage of trading is going on using these forex robots, the professional traders still are in control and often do get out or into a trade manually if they see a forex system doing something they don’t want it to do.

This is why I do not use forex robots or software or algorithms to assist me in my trading. Rather, I take a biological, artistic, illogical estimative approach to trading based on looking at data analytics, emotion and other factors, put them into my biological brain in order to make an educated guess.

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What You Need To Understand To Invest In Real Estate

Investing in real estate scares some people. Understanding just what will happen when you invest, and even how to do it, can leave most people bewildered. This article’s been assembled to supply you with the some easy, but effective tips on entering the exciting field of real estate investing.

Remember that real estate investing is all about the numbers. When you’re buying a home to live in, you may get emotional about the place, but there’s no room for that in investing. You need to keep your eye on the data and make your decisions with your head, not your heart.

Do not be afraid to spend money on marketing. It is easy to just focus on the numbers and get fixated on how much marketing is costing you. However, it is important to think of the marketing as an investment in and of itself. If done the right way, it will only benefit you in the end.

Keep an accountant on speed dial. You can be aware of tax laws and current taxation; however, there are many variables to keep in mind. A good accountant, that understands and keeps abreast of tax laws, can be an invaluable asset. Your success with investing can be made or broken by your approach to taxes.

When negotiating, you should limit the amount of talking you do. You will be surprised at how often someone will do all the work for you just by letting them speak. Also, because you are listening, you will catch the right moment to strike for the price you seek.

As you look for investment properties, seek those that are likely to grow in value. Purchasing anything near water or close to other businesses will be beneficial to you later on. Think about the big picture and the chances its value will increase.

Don’t let your emotions cloud your judgement. Choosing a property to invest in should be a business decision, not an emotional one. It can be easy to get attached to a house or really fall in love with a location. Try to always look at things objectively. Shop around for the best deal without getting attached to one of the first few places you look at.

Find a contractor to work with that you can get along with. There’s no reason to get someone to help you with fixing up the real estate you invest in if you don’t like how they operate. You can save yourself a lot of frustration if you just find someone that you know will work well with you.

Stay away from deals that are too good to be true, especially with investors that you cannot trust or do not have a good reputation. It is important to stick with those who have a good reputation because getting ripped off in this business can cost you a lot of money.

Build your real estate investment buyers list with online ads. For example, you could use social media, online ad sites such as CraigsList and/or the local newspaper to draw attention to the properties you have on offer. Be sure to retain contact information for every person who shows and interest so you will have a well-rounded contact list as you accrue new properties.

Know the value of your time. You may enjoy renovating properties, but is the time you’re spending on it time well spent? Consider if you could better spend your time by searching for the next opportunity. If you are able to outsource certain jobs, then you should do so. It’s worth freeing up your time for the more important aspects of your business.

Don’t buy property in a bad neighbourhood. Pay close attention to where a property you are interested in is located. Make sure you are very thorough when looking at the area. Homes in bad neighbourhoods are often low-priced. The property could be at risk for being vandalized and may be hard to sell.

If you are thinking about purchasing rental properties, consider hiring a property manager who can help you screen qualified tenants. Because rental payments are likely to be the source of your mortgage payment, your tenants need to be reliable. Otherwise, you may end up losing money.

Before you buy investment property in a neighbourhood, find out if the city has anything planned for the areas surrounding this neighbourhood. For example, you would not want to buy in an area if the city proposed to turn an area into a landfill. If there are positive improvements on the horizon, this may be a good investment.

Don’t let a real estate investment deplete your emergency reserve or cash fund. When you invest in real estate, you’ll often not be able to access the money for a while. Don’t let this situation destroy your ability to live from one day to the next.

Know what you should be looking for in a property based on current trends in the market. For example, if you’re going to rent out the properties you buy, then it’s best to have units that are for single people, which is a current trend. Another example is to ensure any home you buy has three or more bedrooms because it will be easier for you to sell or rent to families.

Tracking Commercial Interest in the Commodity Markets

The commodity markets have been unkind to long only funds and indexes in 2014. Most of the commodity markets have been sideways to lower with a couple of exceptions like cocoa and cattle. This week, we’re focusing on the broader commodity landscape due to an article published on Bloomberg by Debarati Roy in which she stated that open interest in gold had slumped to a five year low. We’ve expanded on this topic to include 27 general commodity markets and compared their current open interest to where they stood both one month and one year ago respectively. The purpose is to determine whether smart money is headed into or, out of the commodity markets in general as well as what effect this may have on the markets going forward.

Since the poke that got this ball rolling was the gold article, we’ll start there. The gold market is up about 9% year to date and about even over the last month. The primary spark to this market was the Ukraine unrest in March, which spiked the market by about 4%. The important point is that commercial traders were sellers into the price spike and they have done a very good job of trading the gold futures market’s sideways movements as they’ve been strong sellers above $1,350 and strong buyers below $1,260. The best evidence of this is that the total commercial position has declined by more than 80,000 contracts since this time last year in spite of adding around 35,000 contracts in the last month. We’ve also seen this in silver, copper and platinum. These markets all have substantially lower participation rates than they did one year ago.

The first logical assumption follows that the risk premium is being taken out of the precious metals markets. I believe some of this is true but that wouldn’t account for the 20% decline in commercial traders’ copper position since last month. This also would not account for the year over year declines in both the 30-year Bond and the Eurodollar. One final note when approaching participation rates from the fear angle is that the Vix futures have also seen declines of 10% and 20% over the last month and year, respectively. Once I’d compiled my data and saw these preliminary results, my next thought was simply, “They’ve all just moved to cash.”

Turns out, I was wrong again. The U.S. Dollar Index has seen both monthly and year over year declines in the commercial trader participation rate. In fact over the last month, the British Pound and the Japanese Yen are the only currencies that have seen an uptick in commercial traders’ positions. Both of these markets have seen a jump of more than 20% in their net commercial positions. Interestingly, the British Pound is positive while the action in the Yen is turning negative. Meanwhile, the Euro FX has been the big winner. It has nearly doubled its commercial trader open interest in the last month and nearly quadrupled it over the last year. It is quite clear that whatever geopolitical events may happen, the commercial traders are pretty darn certain that it’s going to be a Euro friendly world going forward.

Furthermore, the risk premium we’re used to seeing given the current global political landscape in oil just isn’t there. Renewed tension in the Middle-East due to ISIS as well as the escalated conflict between Israel and Palestine should be causing some forward supply concerns and yet, oil is comfortably below $100 per barrel for light sweet West Texas Intermediate (WTI). Apparently oil refineries aren’t too worried about procuring future inputs. We’ve seen their interest decline by more than 25,000 contracts in the last month and more than 170,000 contracts or 25% year over year.

Meanwhile, Ukraine unrest has driven some interest back into wheat and natural gas. Ukraine is the 9th largest wheat producing country and wheat has attracted significant commercial interest and shifted their outlook to bullish beginning in June. In fact, commercial traders have been net buyers in Chicago Board of Trade wheat futures in twelve out of the last thirteen weeks totaling nearly 90,000 contracts. Natural gas has also attracted the same type of commercial interest as they’ve been net buyers in sixteen out of the last seventeen weeks to the tune of 119,000 contracts. Putting these two figures within the context of their open interest of 585,000 in wheat and 80,000 in natural gas it becomes easier to see how important it is to track them as a larger and larger portion of the total open interest becomes controlled by a smaller number of well informed participants.

General interest in the commodity markets has subsided since the big boom and bust of 2008. Keeping track of the market’s players and their actions can help alert us to changing situations within the general ebb and flow of the market’s typical meanderings. Tracking the depth of the commercial traders’ commitments through measuring their current position sizes against the past tells us how anxious they are to get positions executed at current price levels. These positions also help to ascertain whether recent market action has the legs to continue or if the move is simply a fake out.

Properly Trading the Soybean Vs Corn Spread

The soybean versus corn spread has received a great deal of justifiable attention this year and the current spread between the two markets is still near its all time highs. The last statement however, generates as many questions as it answers. We’re going to look at some of the difficulties in quantifying this spread trade, place it in its historical context and walk through the math so that the next time someone mentions this, you can determine if they’re comparing current crop soybeans versus corn or, if they might as well be talking about apples and oranges.

Every trade that is made is based on comparing current prices to past prices in order to determine future prices. Day traders may use something as small as a tick chart for scalpers while Warren Buffet probably uses monthly charts to plan generational trades. The problem with commodity futures data is that the contracts expire and depending on the market, there can be a huge gap in prices in the roll over from the expiring contract to the new front month contract. Obviously, corn and beans both fit this description.

For example, September beans are the last of the old crop beans to be traded. Old crop beans are the available supply currently in storage. When this contract expires many traders will begin trading the November contract, which is this year’s bean crop in the ground. The dynamic between these two contracts can be substantially different. Compare this to a currency contract that expires quarterly. There’s no difference between a September Yen and a December Yen. A Yen doesn’t spoil, isn’t affected by drought and won’t catch a disease. Thus the $.50 cent per bushel gap between the September and November bean contracts represents far more factors than the.0008-point spread between the September and December Yen contract which is primarily attributable to the discounted interest rate differential.

Before the historical boundaries of an agricultural market can be determined, the right data must be chosen. There are three types of historical data used by trading packages and data retailers and each has their place. Back adjusted and ratio adjusted contracts use mathematical equations to fill in the roll gaps between contracts. In order to compare current crop soybean and corn spread differentials, only non-adjusted original contracts can be used. This is by far the most cumbersome process but it is the only way to answer the actual question being asked; “How has the current crop corn and bean spread behaved between July 4th and November 4th?” These dates were chosen to be past the spring planting fears while still being relevant to our current situation while the November 4th ending date eliminates any first notice day or delivery issues with the November soybean futures contract.

Once the proper tool (data) has been chosen for the job the proper measurement methodology must be determined. Google returns nearly 2,500,000 results for, “bean to corn ratio.” Clearly, much has been written on this topic. I have a couple of issues with this process. First of all, gong through 30 years’ worth of data yields the following bean to corn ratio results between the first week of July and the first week of November. The average movement in the ratio is.001. Meanwhile, the actual average movement of the underlying contracts is about $.27. Therefore even a negligible change in the ratio reflects an average of $1,350 difference per contract in your trading account. Ratios don’t pay bills, cash differentials do.

Secondly, and perhaps more alarmingly, the negligible difference in the ratio is actually an increase from 2.591 on average in the first week of July to 2.592 on average in the first week of November whereas the average $.27 differential in the outright contracts represents a quantifiable decline in the actual spread prices. Finally, over the last thirty years there have been five times when the ratio has declined while the premium in the spread increased. The bean to corn spread ratio may be useful as a general guideline but has been useless in managing a trading account.

This brings us to the current situation in the soybean versus corn spread. Using non-adjusted contracts and comparing the current setup to both historical averages and extremes, it’s clear that we are sitting at very lofty levels. Both the cash differential at $8.90 and the ratio at 3.17 are at their highest July 4th levels of all time while their historical averages are $4.42 and 2.591 respectively. Meanwhile, in May, we set an all-time high for the outright differential at $10.57 which also shows another bean corn ratio issue as its highest point was 3.62 set in June of 2008. Clearly the cash differential is pricing in the record corn crop at beans’ expense. The average decline in differential for the thirteen years out of the last thirty years in which the spread fell is about $1.20.

The last issues to address in the bean corn spread are contract size, volatility and cash management. The contract sizes of beans and corn at the Chicago Board of Trade are the same – 5,000 bushels. However, due to the much higher price of soybeans, the contract values are clearly different, currently around $54,500 for soybeans versus $18,500 for corn. Capturing the differential movement requires placing the same amount of capital on each side of the trade, not the same number of bushels. The current levels justify 3 contracts of December corn versus 1 contract of November soybeans. This will provide equal leverage on both sides of the long and short ledger. Finally, we come to margins. The CME Group only recognizes this spread on a 1 to 1 basis, which has an initial margin of $2,806. The additional two corn contracts require another $3,300 in initial margin. Thus, the exchanges will require $6,106 in margin to buy 15,000 bushels of corn worth approximately $55,500 and sell 5,000 bushels of soybeans worth about $54,500. And that is how the soybean versus corn spread should be traded.