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Tactical asset allocation strategy is a moderately active portfolio management strategy, which includes adjustments of investments with respect to short-term goals. Although the basic idea is to diversify investments and limit risks, investment preferences are given to different asset classes with respect to short-term yield predictions.

A tactical asset allocation strategy starts just like a strategic asset allocation strategy with diversification of portfolio with respect to long term goals in mind. The investor/portfolio manager then readjusts the investments with different asset classes. If equities are predicted to perform well in the near future, he/she allocates more capital for it; and if bonds are predicted to perform well, then more investments in bonds, and so on. Once the preferred result is obtained, the investor returns to the original allocation ratio desired for long-term goals.

Success with tactical asset allocation requires good money management, and ability to interpret and predict short-term trends. Investors consider P/E and P/B ratio of equities, fundamental indicators, various momentum and sentiment signals, and economic predictions in making decisions. The investor/portfolio manager must be keen enough to go back to original ratio, once the short-term profit opportunity is diminished. Tactical asset allocation strategy, in theory, can offer better results than strategic asset allocation strategy; but it also has more risks associated with it.

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Although Forex trading is becoming the number one choice for many novice traders to make profit, it is not at all free of risk. There are many other risks associated with Forex trading other than the common ‘trading risk’ that occurs as a result of price difference.

1. Credit risk or default risk – Credit risk in Forex trading occurs when the counter party fails to payoff the currency position as agreed. This happens when the counter party has planned to payoff you from future cash flow, which does not occur as planned.
2. Replacement risk or Replacement cost risk – Occurs when one needs to replace a contract, because the counter party fails to meet the terms of contract. The markets/prices may be changed from original, so the replacement contact now has to deal with new changes.
3. Settlement risk – This occurs as a result of difference in prices at different time zones of the world. The creation of CLS (Continuously Linked Settlement) has eliminated the time differences.
4. Exchange rate risk or currency risk – occurs as a result of changes in exchanger rate.
5. Interest rate risk – occurs as a result of changes in interest rate by central banks. Affects Forex futures contracts more than spot contracts.
6. Dictatorship risk – occurs when Governments impose restrictions or interferes with currency trading activities.

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The Week Ahead: Despite consumer confidence at its worst level since the early 1980's, S&P 500 non-financial companies first quarter earnings are still benefiting from a stronger global economy and weaker dollar. The FOMC meeting which begins Tuesday will end Wednesday with a decision on interest rates as a 1/4 point cut is now widely anticipated. Also watch first quarter advanced GDP numbers released on Wednesday, the personal income and spending data on Thursday, and an important April employment report on Friday.

Stocks to Watch: A big 84% surprise revenue increase in Southwestern Energy (SWN) and a doubling in earnings lifted this stock strongly to new highs. Goodyear Tire & Rubber (GT) surged through its 200 day moving average after announcing a big turnaround in first quarter earnings from a loss to a gain on 10% sales growth. The container shipment company, Horizon Lines (HRZ) cut its 2008 earnings target, but the stock could be nearing an important low. MEMC Electronic Materials (WFR) gave a cautious 2nd quarter outlook for its semi-conductor applications.

Special Note: Although another interest rate cut is expected by Wednesday, the bond market is forecasting that the Federal Reserve will stop cutting rates after the April 30 meeting possibly for the rest of the year. The S&P 500 and Dow Industrials could be looking at there best month since April of 2003 halting 5 straight monthly declines. Signs that oil may be peaking are in data suggesting there are no shortages and demand is slowing. Speculation seems to be the driving force for oil price increases.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.


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Margin of Safety is one of the most trusted investing strategies, made popular by highly successful investors like Warren Buffet. The term – margin of safety – was coined by the father of value investing, Benjamin Graham, in 1934. The basic idea of this strategy is to buy low and sell high.

Every stock has an intrinsic value or true work. Any up or down price deviation from this intrinsic value is just deviations, and the stock price ultimately reaches its intrinsic value. Investors can assign a margin of safety with respect to the predicted intrinsic value of the stocks, usually the margin of safety 30 or 40% of the intrinsic value –more the percentage more the chance of profit and low the risk. Investors can buy stocks when they fall below margin of safety and sell them when they move above their intrinsic value.

Margin of safety investing strategy minimizes the downside risk as it offers a margin rather than a fixed price. But the prediction of intrinsic value is the most difficult task; investors have to develop their own strategies for this. Investors can use various value analysis tools for this purpose like P/E ration, book value, asset to liability ratio, investments in other companies, etc for this purpose.

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Simulated or Paper trading is so far the best strategy one has to experiment with trading strategies and tools without putting actual money in the market. Simulated trading really favors novice traders to get experienced to the trading systems, technical analysis tools, market behavior, etc. But paper trading has both benefits and pitfalls, and what you get will mostly depend on how you paper trade.

Simulated trading provides novice traders a chance to experience the actual trading process - placing orders, analyzing real-time data, effect of margin on trading, placing stop-losses and position sizing. They let you to experiment with trading strategies without the fear of losing money. The main use of simulated trading is to get used to a trading system, so it allows you to know all/most tools and performance of your future trading system.

But simulated trading is usually no way near the actual trading. In actual trading, traders’ fear-of-loss, emotions, risk tolerance and trading psychology are strong factors which determine the success. Often most brokers offer a fixed size account, like $1million or half a million, but the trader’s initial capital investment may be far less or high. Many times, paper trading accounts allow you to place orders for quantities which are not available in actual market, and execute orders for unavailable prices. Also many demo traders try to profit very much with their accounts, not respecting many actual market conditions and forces.

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Strategic asset allocation strategy is a portfolio management strategy, which includes periodical adjustments of investments with respect to the long-term goal. The basic idea is to diversify the investments and limit the portfolio volatility. But strategic asset allocation strategy does not include over-investing in either high-profit or low-risk securities.

In general, strategic asset allocation strategies do not consider the short-term performances of allocated assets. They only look for long-term performances, which is often positive to almost all investments. For example if stocks grow at 10% and bonds at 5% annually, then with a 50-50 asset allocation 7.5% yield is predicted, and the portfolio manager adjusts asset allocation to meet this yield.

Strategic asset allocation strategy requires long-term anticipation and forecasting. Portfolio managers consider various economic indicators and industry performances when readjusting the investments. If higher inflation rate is expected then more investments are done in stocks and commodities and less in fixed-income securities. Even the asset allocation for stocks can vary considerably; if low inflation is predicted then growth stocks and/or small-cap stocks are preferred and if high inflation is predicted then value stocks and/or large-cap stocks are preferred.

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The Week Ahead: A number of mixed earnings reports didn't stop the DOW from rising over 500 points despite oil prices reaching there highest levels ever. If the market has further to go it will have to digest many more earnings reports plus the existing home sales and oil and gas inventory reports on Wednesday, and the new home sales and durable goods numbers on Thursday. The consumer sentiment reading for April is due on Friday.

Stocks to Watch: Recent strong earnings in Caterpillar and Honeywell have bolstered expectations in Cummins Inc. (CMI) which reports on April 30. Revenue growth targets for Intuitive Surgical (ISRG) are still shy of expectations even though earnings were higher as the stock dropped 60 points. Carpet maker, Mohawk Industries (MHK) beat earnings estimates by a nickel as its stock pushes up towards its 200 day moving average.

Special Note: The recent market strength has been led by the energy sector climbing 7.68% followed by technology up 6.32%, and financials up 5.20%. The average yield on S&P 500 stocks has now reached 6.78% compared to the 10 year bond yield of 3.82% making stocks appear more attractive even though earnings may be in question for many companies. The Dow Industrials having held the January lows is now officially in a 3 month up trend exceeding the February high.


Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Balanced investing strategies are portfolio management strategies, which are most widely followed by investors. Balanced portfolio management strategy combines the merits of both aggressive and defensive strategies; so that both return and risks are balanced. This strategy suits almost all types of investors who are good in money management and have reasonable risk tolerance.

The key of a balanced portfolio management strategy is the diversification of portfolio. Balanced investing portfolio consists of both low-risk low-return fixed income securities like treasury notes and bonds, and high-risk high-return equity and mutual fund investments. Portfolio may also include investments in precious metals, real-estate, money market investments, cash etc. Balanced portfolio management strategy allows investors to actively control one portion of their portfolio by adopting different investment strategies; and allow the other portion to grow naturally.

Balanced portfolio management strategy is good for medium-term financial goals, usually for 3-5 years. With respect to the portion of portfolio allocated it can be slightly aggressive or defensive. But for enough diversification, the portfolio size must be fairly larger. The success of the strategy greatly depends on the investor’s ability to choose the right products for investment.

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Treasury inflation protected securities or TIPS are treasury notes which offer fixed-income protected from inflations. They offer guaranteed payments which are automatically adjusted with the rise and fall in inflation rate estimated by Consumer Price Index or CPI. TIPS are also known as Treasury inflation index securities and Real Return Bond or RRB (in Canada).

TIPS are referred as safest of the safest. With TIPS, the face value of securities is recalculated in every six months and the interest amount is adjusted with the rise or fall in face value. Thus the security holder will get inflation-protection both in interest rate and capital. TIPS can be used as a measure of diversifying portfolio, reducing risks and minimizing portfolio volatility with time. They can be purchased directly as individual bonds or through mutual funds.

Treasury inflation protected securities are better for long-term income goals. They come handy when inflation rate is expected to increase. But they offer less interest in comparison to other fixed-income securities and bonds; also they offer poor returns when inflation is on downside or in deflation. Unlike equities, TIPS investing are not that much actively controlled.

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Consumer Price Index or CPI is one of the most widely watched economic indicators which give a clear idea about economic situation through 3 different indices. CPI is released by Bureau of Labor Statistics (BLS). The 3 indices include CPI for urban wage earners (CPI-W), CPI for urban customers (CPI-U) and chained CPI for urban customers (C-CPI-U).

Consumer price index releases affect companies and investors in many ways. CPI is one of the factors which affect Federal Reserve interest-rate policy, financial management of big corporations and banks, tax rates, and employee wages. A rise in CPI indicates inflation; fall indicates deflation and staying steady indicates stagflation. Usually growing economies shows modest growing inflation. Rapid rise or fall in CPI is not a good sign for economy; both high inflation and deflation ultimately results in cutting down of profit of companies, thus making them less competitive.

High inflation badly affects fixed-income bonds, pensions and other fixed annuities. Investors can hedge against inflation by diversifying their portfolio, and using futures contracts against inflation or Treasury Inflation Protected Securities (Tips).

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CANSLIM is a stock screening strategy developed by William O’Neil. CANSLIM is a highly successful strategy for trading/investing stocks as it gives proper guidelines, integrates major investment tactics and keeps minimum subjectivity. CANSLIM is an acronym of various factors a trader/investor should look when screening the stock.

• C : Current Earnings – CANSLIM traders look for stocks which have large increase in current earnings per share (more than 18%)
• A : Annual Earnings – Annual earnings per share should show reasonable growth (at least 25% above than last 3-5 years)
• N : New - CANSLIM traders target stocks of companies with new product(s), new management, new changes, new market entry, or new price heights.
• S : Shares Outstanding or Supply/Demand - CANSLIM traders look for companies with less shares outstanding (below 25million; below 5million is better). So they often avoid larger and older companies with large capitalization. The idea is that if good news comes up stocks of companies with lesser number of shares outstanding will go up faster.
• L : Leader or Loser – Every industry should have a leader and followers. It is always good to invest in leaders.
• I : Institutional Sponsor – The number of institutional sponsors should be 3 to 10. Better to look for companies with institutional sponsors with above average performance.
• M : Market Trends – Traders should use various trend prediction and confirmation tools to find market trends. Buy when stocks are going up and major markets are bullish.

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The Week Ahead: Earnings season starts off poorly with General Electric missing its guidance numbers, a sign that even well diversified companies are being impacted by the credit crises. With consumer sentiment continuing to drop as well, watch the retail sales and business inventory numbers on Monday. The PPI is released on Tuesday while the CPI, housing starts, and the Fed's beige book of economic activity are released on Wednesday. Finally, the leading economic indicators and jobless claims are due Thursday.

Stocks to Watch: Continental Resources (CLR) continued its upward move after a report that its Bakken field has 3 to 4 billion barrels of recoverable oil in the North Dakota/ Montana area. Higher commodity prices may be hurting Hershey Co. (HSY) as a major brokerage downgraded it. Another downgrade occurred at Johnson Controls (JCI) because of slowing North American construction orders. Ixia (XXIA) which makes internet test systems lowered it 1st Q earnings estimates from a previous forecast as the stock gapped lower.

Special Note: If the major market averages can withstand the onslaught of earnings reports over the next two weeks without making new lows, then in all likelihood a new up cycle will have started. Further evidence will be another interest rate cut by the Federal Reserve by months end which will add fuel to a positive technical backdrop. Also the anticipated economic spurt caused by the tax rebate checks that will go out in May might not be fully discounted by the markets yet.


Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.


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Aggressive investment management and capital growth strategies are portfolio management strategies which aim at maximizing the return over investment. An aggressive portfolio management strategy often includes high-return high-risk investments such as equities. Aggressive portfolio management requires highest grade of money management and is not at all suitable for those with low-risk tolerance and those with less experience.

In an aggressive portfolio management strategy, usually more than 60% of investments are done in equities. Aggressive investors allocate lesser percentage of their money in low-risk low-return or fixed- income products like bonds, treasury notes, money market funds, etc. They often choose to invest in aggressive stocks from high growth companies, small and mid caps, etc. Although these strategies may include methods for limiting down-side risks, they will not be as strict as defensive investment strategies.

The advantages of aggressive investment strategy include long-term capital growth and higher return over investment. The disadvantages include higher risk, high volatility in asset value, difficulty in estimating the return and the need of active money management. Aggressive investment strategy is suitable for long-term returns and not at all for monthly earnings or living costs. With aggressive strategies, it is better to diversify investments and to include some low-risk investments.

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Trading currencies for profit is always a tough practice and traders must be certain about many things. Traders can trade currencies manually or using automated trading systems which follow specific rules or can take a mixed way. Each of the above trading methods holds their own merits and demerits depending upon trading style, brokerage, leverage, currency pair trading, etc.

Automated forex trading is done using robots which are created by high-level developers. These trading systems automatically generate signals, executes trades and place stop-loss orders. No human emotions like greed, fear, lack of confidence and hesitation interfere with the decisions; and all calculations are done using sophisticated mathematical functions. Other advantages include fast trading, around-the-clock trading, no need of trader’s physical attention, can execute multiple trades simultaneously, etc. Automated forex trading really favors day trading and swing trading as profiting from these trading styles require fast trading. But these systems must be programmed well to reap the success. Any malfunction of the program can seriously harm the trader.

Manual forex trading is good for traders who are really experienced and can calculate things very quickly. Manual trading favors long-term traders who don’t want to interfere much with the short-term currency volatilities. Combination of both manual and automated trading is always a good option, as traders can program systems to finding trading opportunities and to generate signals and he can then manually decide, whether he wants to got for it or not.

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The Week Ahead: The 80,000 jobs lost in March makes the third straight declining jobs report fueling speculation that another interest rate cut is coming. The FOMC Minutes released on Tuesday could shed more light on this topic. The wholesale inventories numbers come out Wednesday while chain store sales figures are released Thursday. March import prices are due Friday, the same day the World Bank and G7 spring meeting takes place.

Stocks to Watch: Shares of ITT Educational Services (ESI) are up on pending legislation that allows the Department of Education to buy student loans from lenders in need of new capital. This news lifted the whole group. Riverbed Technology (RVBD) cut 1st quarter guidance after failing to close on several deals as the stock continues a long slide from its top last October. The stock of Allegheny Technology (ATI) blasted higher on takeover speculation that US Steel (X ) is interested in buying them.

Special Note: News that Lehman Brothers and UBS Securities plan to raise $19 billion in capital eased concerns about Wall Street liquidity, but Friday was the lowest overall trading volume day of the year for markets. This could mean that the recent rally in stocks may need a pause as a lateral trading range has developed since January and could retest the lows. Combine this with the kick-off of earnings season this week and another period of high volatility may rock markets.


Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.


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Both day trading and swing trading are active trading practices which require different strategies, techniques, tools and money management. Both day traders and swing traders usually trade in higher volumes with in short time periods for small price changes; and the processes are really fast. Here is a comparison between day trading and swing trading.

• Day trading is the most active form of trading and is faster than swing trading; day trader completes a number of trades with in the same trading day, while swing traders complete trades after days or weeks.
• Day traders look for very small price changes and swing traders for reasonably high price changes. Thus day traders earn less profit per share.
• With day trading, there is no overnight risk, but swing trading involves overnight risk of holding open positions.
• Day traders usually make full use of marginal trading to maximize their position sizes; swing traders, because of overnight risks, utilizes lesser margins from brokers.
• Day traders typically get much less time to respond to market swings; swing traders can plan for more profitable trades using technical analysis and trend predicting/confirming tools.
• Day trading, because of more number of trades, usually involves higher commission rates compared to swing trading.
• Day trading requires much more market attention in trading hours, and automated trading systems to find a trading opportunity.

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As the name suggests, defensive investment strategy is the portfolio management strategy which aims at investing in low-risk products. Defensive investors choose bonds, treasury notes, money market funds, and defensive stocks. Defensive stocks include stocks which are undervalued, less volatile, steadily growing, and/or offering reasonable dividends. Defensive investors must be very strict with their money management and investment product selection.

The main advantage of a good defensive investment strategy is the minimized risk of losing the capital. Other advantages include better planning of investments, almost steady and predictable income, and better use of risk-minimizing practices like close stop-losses. Defensive investment strategy suits beginners, investors with less risk-tolerance and investors having less time to monitor their portfolio.

Defensive investment strategy is a low profit strategy, and often requires much more capital investment to get a targeted profit. When investing in stocks or similar products, defensive investors are limited with their options and often limited with their profit maximizing techniques such as leverage or margin trading. This type of investment strategy is not so suitable for traders looking for short-term profits and for professional traders willing to spend most of their time trading.

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All the above three are economic indicators showing/predicting past, current and predicted economic trend of a country or market. They can be very useful tools for investors and long-term traders if interpreted correctly. Lagging, coincident and leading indicators are prepared from economic data collected/released by government or non profit organizations, like GDP growth, unemployment rates, agricultural and industrial performance, crude oil and metal price, currency exchange rate, etc. They can be used independently or in conjunction.

1. Lagging Indicator
Lagging indicator confirms long-term economic trends, or is the indicator of near-past economy performance. It takes consideration of factors like GDP, unemployment, labor costs, corporate profits, interest rates, etc.

2. Coincident Indicator
Coincident indicator shows current economic state and changes with changes in economy. It takes consideration of factors like personal income, industrial production and employment, etc.

3. Leading Indicator
Leading indicator predicts economic trends. It takes consideration of factors like bond yields, building permits, money supply, production workweek, stock prices, unemployment insurance claims, long and short interest rate spreads, etc. Remember the prediction is not always accurate.

The Conference Board publishes composite index of all other three above indicators, and is a reliable index to investors.

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Bracketed orders are used to limit trading risk and to lock profit by creating a bracket in both directions. Bracket orders come handy when the trader is not sure about the price trend of stock, or he lacks the time to monitor the stock market, or he is trading on news and rumors. Bracketed orders are of two types - bracketed buy orders and bracketed sell orders.

Bracketed buy orders are orders having an upper sell limit and lower stop-loss limit. On reaching either price level, broker triggers the order execution. For example, trader can place a bracketed buy order for XYZ stocks at $10, and can place a sell limit order at $12 and stop-loss order at $8. Thus once executed the trader will have $2 profit or loss. But remember, once triggered stop-loss orders are executed as market orders, thus can be traded for lower prices than stop-loss price, resulting in more loss.

Bracketed sell orders are orders having an upper buy stop limit and lower buy limit. On reaching either price level, broker triggers the order execution. For example, trader can place a bracketed sell order for XYZ stocks at $10, and can place a buy stop order at $12 and a buy limit order at $10. Thus once executed the trader will have $2 loss or profit.

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