For many, it is the opportunity to make good profits without the need to invest vast amounts of capital; for others it could be the fact that making a trade takes no more than a couple of clicks of the mouse, all from the comfort of your home or office. It should also be mentioned that due to the latest mobile technology, making a trade whilst on the move is something that can easily be done which in effect means that that old adage of making money whilst sitting by a swimming pool, somewhere hot and sunny, is now a distinct possibility.

Easy To Get Started

It used to be the case that getting involved in financial spread betting was not an easy task, the brokers that offered a spread betting platform to trade on were more interested in the 'city boys' and a phone call to enquire about opening an account was often met with a gruff response which was not exactly welcoming. Spread bets could only be made by telephone and if you were not used to the manner in which the traders went about their business, it could be quite intimidating.

Now though, things really couldn't be more different, the spread betting firms are constantly on the look out for new clients and welcome them with open arms, for anyone who is not familiar with financial spread betting, the education programmes that the various brokers have in place are second to none in terms of quality and the client support that is in place is both knowledgeable and helpful in every possible way.

The competition between the brokers is immense which is obviously excellent news for both existing and new clients, the boundaries are constantly being pushed due to the advancements in the trading technology, training and education. as well as the charting facilities which are usually provided without charge for existing clients.

The Best Course Of Action

The best course of action obviously depends on the level of experience, but assuming an individual is new to this form of trading, it would be advisable to open an account at one of the brokers who have a comprehensive education programme in place, and who also allow a period of time where financial spread bets can be made with a small stake size.

For someone who perhaps has a little more experience, the method and the markets that they trade on should be looked into. For example, if someone specialises in trading the daily dow then a search for the broker with the tightest spread on that particular market should be a priority. If trading on the move is the preferred method, then it will become apparent that that some brokers have superior mobile trading platforms than others.

Whatever the requirements, there will be a financial spread betting firm which fits the bill and it would not be an exaggeration to say that there has never been a better time to get involved in this exciting form of speculating on the financial markets.

I know a fellow who introduced the concept of trading binary options with expert advisors into an African country and made $50,000 in a single seminar. The attendees were so many that he had to change his venue on the spot. With the proceeds of his seminar, he started an alternative energy company which is thriving. However, the same could not be said about the attendees to his seminar as many of them had mixed results when they used the EAs sold in that seminar.

That event led me to do some research on EAs, and sometime later, I discovered that many of the EAs sold on the internet are unbelievable scams. It was not until I read an article by Steve Fleming that I discovered that it is possible to take a strategy and code it into an expert advisor. Armed with this information, I set about taking some of the strategies I had been taught and encoding them into EAs at a cost of $150 each. That decision has transformed my trading career as you will see in these snapshots:

What is the lesson here? You do not need to spend thousands of dollars buying untested and unproven EAs. All you need to do is to get a very good trading strategy, and get an MQL programmer (if you are using MT4) to convert this strategy into an expert advisor for you. If you are using Ninjatrader, Amibroker or TradeStation, you can also get a programmer to use the appropriate coding language to convert the strategy into a piece of code that will churn out trades that you can be sure of. 

If you visit online forex trading forums, you will come across many strategies and many programmers. Use the one that fits your trading style and risk profile. Not all strategies may be suitable. Some may have considerable drawdowns which your trading account cannot handle.

The good thing is that you have a choice if you use a strategy to prepare your own customized robot. You are not buying blind, which is what happens when you purchase a commercial and untested forex robot. So make that choice to automate the strategy that works for you, so you can replicate the kind of trading results that you see above.

1. There must be two trendlines (an upper trend line and a lower trend line).
2. The trendlines must cut across at least 2 or 3 highs (upper trend lines) or 2 or 3 lows (lower trend lines.
3. The upper and lower trend line must be parallel to each other.

Channels can be plotted using the channel tool on the MT4 platform, or by independently drawing the upper and lower trend lines, and then visually assessing the trend lines to make sure they are parallel to each other.

There are three types of channels:

1. Horizontal channels
2. Ascending channels
3. Descending channels.

Horizontal Channels

Horizontal channels are very easy to identify on the charts because a trader can plot them using pivot points. You can also use the channel tool on MT4 to plot the channel.

In the chart above, the range of the movement between the trend lines of the channel is about 600 pips.

Ascending Channels

Ascending channels point upwards because they occur in an uptrend, and we see that even though the prices are progressively rising, the range of price movement of the candlesticks are still limited by the channels so formed.

The chart above is a 4 hr chart for the AUDUSD. On this chart, we can see the several points at which a trader can place his buy and sell trades. Over a 3-week period, 6 buy and 3 clear cut sell signals appeared. Even without employing complex technical analysis, a trader can use this ascending channel to generate several trade signals and make good money.

Descending Channels

Descending channels occur in a downtrend and point downwards. Again we see that the range of movement of the candlesticks is limited by the descending channels, even though prices are progressively falling.

In this chart, we can see that there are 3 buy signals and 2 sell signals. Being a daily chart, the pip range is quite large and even if a trader is able to trade 2 signals, this would lead to huge profits.

We need to emphasize here that it is not usually a good idea to place buy and sell signals using the channels alone. The buy and sell signals must be reinforced by the use of indicators like the Fibonacci retracement tool and the Stochastics oscillator that indicated overbought and oversold market conditions. 

Furthermore, my bias for these types of trades is to trade with the trend, in keeping with the saying that the trend is my friend until it ends. So I would typically take the sell signals in a descending channel, and a buy signal when it appears on an ascending channel. When trading the horizontal channels, you can trade both buy and sell signals since the trend at that point in time is indeterminate.

We’re about to hit many deflationary headwinds that simply are not discounted by the market in my opinion:

1. Tax increases. About $100 billion will be soaked out of the private economy to pay down the government deficit. Most of this is due to the expiration of the Bush tax cuts for those making $200k/$250k+. Not only do tax increases have the effect of taking money out of people’s hands, they discourage people from expanding and developing their businesses. Since their after-tax return is now lower, they will be less likely to take risks. Furthermore, due to the crash in small business lending, many small businesses are expanding from after-tax profits, not bank loans, and there will now be less of those to use thanks to the government.

These reasons explain why some economists apply a multiplier of 3 to tax rate cuts/increases. So $100 billion taken in taxes will have a $300 billion negative effect on GDP. This estimate was made by Christina Romer, who works for the White House no less. At $300 billion, that’s 2% of GDP…so we can expect a 2% drop in GDP from tax increases alone! Given we’re struggling to have much better than 2% GDP growth right now, tax increases alone might throw us back into recession.

I don’t think the tax increases will be fully discounted by the market until they happen. This was the case with the Reagen tax decreases (the reverse). Read Laffer’s article about this more in detail (note how the economy rocketed by over 7% for a full year during the Reagen stimulus, and we’re struggling for 3% during our peak in stimulus). This makes me believe we won’t see the worst of things until around March of 2011, as the deflationary effects of the tax increases become fully realized.

2. Europe is messed up, simply put. The recent stress tests were a joke. No one knows what is on their banks’ books, since the transparency levels there are much lower than here. One must ask…why were the stress tests not so stressful? The answer: we can’t handle the truth. Even under their ‘stressful’ conditions, Greece is still able to make debt payments and the stock market doesn’t fall by more than 20%. Doesn’t sound that stressful to me!

3. China isn’t so magnificent. China’s stock market is down 20% for the year. For those that remember, China’s stock market turned up much sooner than the US did (their bear market ended Nov 2008, ours did March 2009). This is why many view China as a leading indicator. Oh, has anyone checked out their property bubble lately either? It makes California look tame.

4. We’re at peak debt. Total government, personal, and business debt is estimated to still be about 390% of GDP, which is still an all-time high. While the consumer and businesses are deleveraging, the government is running insane deficits. So we’re simply trading in personal and business debt for unproductive government debt.

5. We’re at a general level of peace right now. If Israel/Iran blows up or North Korea goes crazy, look out below. The world is struggling in a time of relative peace, and that is a very very bad sign.

6. Have you checked out the ECRI weekly leading indicators lately? Eeeeek! The last time there was a drop of the magnitude seen lately was in the late summer of 2008…and we saw what happened soon after.

Unlike foreign currencies which trade in a huge, global marketplace, stocks of small companies can lend themselves to manipulation and fraudulent practices more readily. The primary reason for this has to do with the nature of the stock market and the comparative lack of liquidity which does not usually present an issue in the currency market because of its size and depth.

As a result, stocks tend to be more carefully regulated and monitored by agencies such as the Securities and Exchange Commission which was founded in the aftermath of the huge stock market crash of 1929. A variety of different fraudulent practices involving stocks are listed in the sections below.

Corporate Fraud

Corporate stock fraud usually involves officers of the corporation disseminating false or misleading information in order to increase the value of the company’s stock. They do this in order to later sell the stock at the artificially inflated price. Enron was a classic example of a corporate stock fraud.

Other ways that corporate executives perpetrate fraud to manipulate the stock market include: making large purchases amongst several colluding investors in order to make the stock appear to be under accumulation by third parties. This might then prompt other investors to buy the stock at inflated prices.

After taking the stock price higher through these pre-arranged transactions, the stock is subsequently dumped by the perpetrators at the inflated price. This falls into the general category of a “pump and dump” stock scam.

Churn and Burn

Another type of stock fraud involves unscrupulous stock brokers that overtrade in their customer’s accounts in order to charge an excessive amount of commissions. This type of fraud is widespread and is not particular to the stock market.

Any financial market where a broker performs executions of financial instruments, especially on a discretionary basis, is subject to this type of fraud. Unfortunately, many people have no idea their broker is doing this if they have given the broker power of attorney over their account and do not monitor it closely.

Pump and Dump

This form of securities fraud has become especially widespread since it now often uses the Internet for the pump part of the scheme to artificially inflate a stock’s price. Con artists employing this scam disseminate fraudulent information via chat rooms and by spamming people’s e-mail accounts.

The false information will typically produce a rise in the stock price. At this time, the fraudsters dump their stocks and the subsequent investors lose out. This type of stock fraud works best with thinly traded and illiquid stocks that have little public information available about them.

Insider Trading

This type of securities fraud is performed by the corporation’s key personnel, directors and holders of a large percentage of the outstanding stock or other corporate insiders.

Basically, the fraud involves such insiders who trade on information which is yet to be made public. This might include such things as a pending corporate takeover or a disappointing earnings report, for example.

Other Stock Fraud Situations

Corporations can sometimes “cook the books,” which involves the corporate accounting of the firm, making it appear the company is doing much better than it actually is, making the stock price reflect the distorted information and defrauding investors. This sort of fraud came to light recently in the huge Refco case that forced the company into bankruptcy shortly after its Initial Public Offering or IPO.

Shorting stocks, which involves borrowing stock in order to initiate a short position, can also be fraudulent if done with the intent to profit by subsequently disseminating false or misleading information to make the market in the stock drop. “Short and distort” is the common term for this sort of stock fraud.

I believe politics and government will affect the economy significantly. With our current economic crisis and the people’s belief that the government must “do something,” I think we’ll see a lot of intervention.

During the fall crash, it was primarily a deflationary moment. While gold did decently as a safe haven, most commodities crashed along with the stock market. The dollar and treasuries roared. People bought dollars to deleverage their debt (which was primarily in dollars) and bought US treasuries as a safe haven investment (which also increased the value of the dollar). I believe these actions were misguided and the opposite will be the case in the future.

America is a society drowning in debt, and the signs point the society will become more deeply in debt. Government debt is approaching 100% of GDP. This in of itself is not terrible; however, the deficit itself is about 20% of GDP this fiscal year and I think it will likely stay as high as 10% of GDP. Even though the government will likely do less stimulus programs in the future, the unfunded liabilities of medicare and social security will take their toll.

Besides government debt, people and corporations are drowning in debt too. The US government debt had been primarily bought by foreigners, particularly China, since the US people didn’t have the money to loan to the government. However, China will likely not be so quick to give a blank check to the US government. Not only are their exports suffering (thus less money to lend), there is more US government debt than ever and China is wisening up to this potential calamity.

I dont’ think we will see amazing economic growth anytime soon, which the Obama administration seems to happily assume. Our politicians are attempting to transform America into a social welfare state, similar to European countries, where growth there is 1-2% in good years (not 3-4% as Obama expects, and this makes a big difference over time). The stimulus package mainly went to entitlements, not investments. Corporations face a higher corporate effective tax (as Obama has said he will close loopholes). Small businesses (people making $250k+) will face higher taxes soon. More regulations are coming. Environmental regulations will likely increase energy costs.

The outlook for growth is pretty abysmal, but the outlook for debt increasing is crystal clear. People like their entitlements, particularly social security and medicare. Politicians are slow to change the system that does anything but expand these entitlements. The sluggish growth will be a continued drain on tax revenues, so less revenue will come into the government, but more and more demands for entitlements and social welfare programs will continue. Our debt will balloon.

What’s the best way out of debt if you can’t default? How can you magically make the debt worth less? Inflation of course. With more US debt being issued, the yields will likely rise on the debt (hence my short position on treasuries). People won’t be willing to loan to the US at 4%, they may want 8% (or as high as 12%, like it was during the early 80′s). That will of course kill all lending to business and consumers, so the Fed will be pressured to buy more debt to lower yields. This will trigger inflation.

I like silver as the best hedge against inflation since I think it is more attractively priced compared to gold. The gold/silver ratio is still in the high 60′s, something that I think is a bit absurd since silver provides many of the investment advantages of gold. However, silver is ‘cheaper’ so I think the jewelry market for silver won’t get hit as badly as gold…people simply can’t afford gold jewelry compared to silver. Also, silver has many industrial uses much like copper. If you look at the early 80′s gold/silver boom, the ratio fell closer to 30 at the peak.

The deficits we are running and our debtload as a percentage of GDP are unheard of in peacetime. The last time our government was borrowing at such a massive rate was WWII, and prices nearly doubled between 1941-1950. Since our whole society is in debt, the easiest way out of this dilemma is a period of moderate inflation, which will allow for the debts to be wiped away and hopefully positive restructuring to be done for the future. The process will be painful. Cash holdings will drop in value and holders of fixed-income debt (particularly treasuries) will get slaughtered. Holders of commodities, especially precious metals, should make out like bandits though .

Note: Author is long SLV, SSRI, GLD, USO. Short TLT.

Now, may be time though to pile in and start going long oil. Currently, I’m buying oil and will likely begin scaling out of my position once crude hits the $90-$100 range. Here’s why I think the price of crude will rise over the next couple of years.

1. I believe the market has over-reacted due to perceptions of falling demand. Yes, there will be a recession and yes it will decrease the demand for oil. But causing it to drop like it has is ridiculous. People will still drive their cars no matter what.

2. Whenever a bubble bursts, it tends to overshoot. Just like dot com companies were overvalued and then undervalued, so has crude oil.

3. I see few supply alternatives in the near future. I’m betting that solar and other technologies are still far off in development. Furthermore, the democrats won’t likely push for much more drilling, which means the supply of oil/natural gas won’t be expanded that much and they will not push nuclear power as much. Relying on the future hope of solar power means more dependence on oil than ever.

4. Furthermore, I bet the democrats won’t reduce hte demand for oil that much. While they may be tempted to levy taxes on gasoline, these will prove to be widely unpopular, especially during a recession. Thus, we’ll find ourselves in the same situation we were in June.

There’s two ways to play the oil trade. One is buy buying the USO ETF, which I’m long currently. If you have a lot of gamble in you, consider the double leveraged UCO ETF, which does the daily 200% change of crude oil. I’ll probably start buying this ETF in a month or so. Right now, it’s still a bit too thinly traded for my tastes.

Disclaimer: Author long USO.

Options: While advanced investors may be able to successfully use options to hedge investments or as leverage, options are a suckers game for beginning investors. The appeal of options is that the investor can quickly turn a small amount of money into a large amount of money. However, most of the time, the investor just loses most of or his entire investment if he doesn’t know what he is doing. When you are buying or selling a stock option, you are betting against someone else (whoever is on the other side of the trade). Most likely, this is someone with a lot more information and experience than you, so options are generally best avoided.

Mutual Funds That Charge Loads: Some stock brokers or bankers will try to get you into a mutual fund that charges a load (an upfront fee). This fee generally is just used as an advertising expense; basically, it just goes towards someone else’s commission. These loads can be very hefty, often 5% of your initial investment. There’s little evidence that mutual funds that charge loads do any better than mutual funds that don’t charge loads. If you are going to invest in mutual funds, there’s absolutely no reason to put your money in one that charges a load.

Penny Stocks: This is another area where there is often a lot of fraud and stock manipulation. Penny stocks are often very risky. Many novices who invest in them do not really know what they are doing and may be buying a company at a lofty valuation, even though the stock looks ‘cheap’ at $.80 a share. Remember, it’s the P/E, P/S and other ratios that determine how ‘cheap’ a stock is, not the share price.

2. Luby’s has a solid growth plan. Luby’s has a new model in place for its cafeterias. Its new model has a more modern appeal. Additionally, it sells higher margin items through its coffee bar (besides coffee, they offer smoothies and ice cream). These newer models have shown to outperform the traditional Luby’s cafeteria model, likely due to the overall enhanced customer experience. As Luby’s builds more of these types of cafterias and replaces its current cafeterias with these models, we can expect higher revenues and profits.

Additionally, Luby’s has been expanding its culinary contracting business. Basically, it serves foods at hospitals and other health care facilities. Luby’s food has always been a hit with the geriatric crowd, so there is more growth opportunity for this small segment of the company too.

3. Luby’s has valuable real estate holdings, which I believe are underappreciated by the market. Luby’s owns the land on more than 90 of its 128 cafeterias. Many of these cafeterias were built 20-30 years ago. On its balance sheet, Luby’s lists its land assets at cost, so its land values as listed on its books are grossly undervalued. Currently, Luby’s is trading at its book value. Putting two and two together, I think it’s safe to say that Luby’s is trading well below its true book value. I’d venture Luby’s may be even trading at or below its liquidation value.

4. Did I mention the company has no debt?

Disclaimer: Authors owns shares of Luby’s (LUB)

There are other reasons to fear an Obama presidency. His anti-business stance isn’t exactly a secret, and combined with a democratic leadership, could create a wealth of burdensome government regulations that eat away at profits and bring the economy to a standstill. Some businesses might actually do better with an Obama presidency, particularly solar, as Obama’s energy policy is to put about $40 billion towards developing renewable energy, paid for by increased taxes on oil businesses and other businesses.

In short, who you think will win the election is something to consider when investing over the next few months. Who our president is, more so than anything, may have a bigger effect on the stock market in 2009 than anything else.