Thursday, June 24, 2010

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Wednesday, June 9, 2010

Forex, Speculating Vs. Gambling by Ivan Cavric

Ivan Cavric

To keep the two activities separate you need to master a few simple concepts.

1. Speculating is a business not a hobby. You must treat it the same as running a business. That means you need to know at all times your working capital, cash flow and percentage return. If you are not prepared to do this go collect coins, it will be more pleasuring for you.

2. Prior to taking a position you have prepared and evaluated all possible outcomes. You will not be relying on a gut feeling or crutches. You will stick with you plan no matter what happens.

3. Hindsight is bullshit. Everything works on paper. Let me rephrase this — everything can be justified on paper. Reality is a much harder judge. Don’t be swayed by second guessing your methods.

4. Whatever you do avoid focusing on how much money you could have made if only…. This is a lot harder to do than it sounds, don’t kid yourself. Conversely don’t focus on how you could have avoided the loss if only…..What’s done is done and each trade is a new trade and does not have the memory of your last trade. Neither should you.

5. Avoid bragging about how much money you made. The market has a way of making all of us foolish. Such behavior forces us to lie when we are losing money to save face. It’s really no one’s business except yours.

Ivan Cavric

Excerpt Taken From

Forex Frontiers

Forex, The Art of Speculating and Trading by Ivan Cavric

Ivan Cavric

In order to become a successful speculator you must learn the art of speculation. This begins with discipline. It starts with the basics. Basics are boring but essential. If you do not master the basics you will not master the art of speculation.

Just like any other artist spends endless hours practicing and perfecting the basics you must do likewise. Before we go into some of the basics let me re-iterate the one essential ingredient – Discipline all others are secondary.

Let us begin with the basics. Treat Forex Trading and Currency Speculation as a business. That means you need a dedicated space to practice your art un-interrupted. Every day you need a place to go and work on being a successful speculator. Set regular hours of work for each day and keep them consistent. If you choose 8 – 12 or 7 -3, it’s not as important as it is sticking with the schedule. Five days per week whether you feel like it or not, go to your work area and stick with the schedule.

Avoid distractions. Pretend that you are working for someone else and at the end of the day you will have to report to him. This means that during your schedule you don’t decide to go shopping, do groceries, and mow the lawn or hundreds of other things that come up during the day. All non-business related phone calls are to be avoided including surfing the Internet and chatting.

You are working! You are becoming a successful speculator not a professional jack of all trades.

Yes, I realize that I spent a lot of time on one point. However if you can not commit to this one point than stop reading now and save yourself the time required to finish the remainder of the book. Do something productive with your time like gardening. Half hearted efforts will not make you a successful speculator any more than driving a car turns you into a competent mechanic.

By this point you should be able to answer the question: Do I have the desire to dedicate a portion of my time to the discipline of learning the art of successful speculation? Remember all you need is a minimum of 2 hours per day to get started, of course the more hours you dedicate the quicker progress you will make, but 2 hours per day is enough to get started.

You took the first step by purchasing this book. So get your money’s worth from it, let’s continue.

When you really think about, currency speculation is like no other job. You have a pleasant working environment, get to choose your own work hours and are surrounded by constant excitement. It’s not much of a sacrifice is it? And the potential rewards, let’s not lose sight of the rewards. Yes, money isn’t everything but it sure is a nice thing to have.

Another reason why it is important to emphasize the basics is daunting statistics. It is generally accepted that only 5% to 10% of all speculators make money, this statistic has held over several decades and there is no reason to believe that it will suddenly improve. Out of 100 people who are reading this book if they do not follow it 90 to 95 of them will lose some or all of their capital. That should be enough to motivate you—be disciplined and learn the basics.

Recently, I had an opportunity to watch and listen as my son learned to play guitar. He would spend hours learning the chords and notes, playing the same song, or parts of a song to be more accurate, over and over again. Barely recognizable, but this did not deter him. Then one day as I was reading I heard music, yes a song that I recognized played almost flawlessly as far as I was concerned. My son became an artist. He learned the art of playing music on the guitar.

Speculating is much like that, fortunately for us it’s easier to learn but still requires daily discipline. Artists aren’t born they are made, same with speculators. You aren’t born a speculator you have to become a speculator.

Another point that needs to be addressed is that speculation is a lot like gambling. In fact it could very easily turn into gambling which would explain why so many lose. In order to be a successful speculator you cannot afford yourself the luxury to depend on luck. You need to know all potential outcomes before you place and order and stick with it. If you don’t you will fall into gambling and in the long run lose your capital.

Not only have we seen this over and over again we have done it to ourselves. The strange thing about it, you don’t realize or admit to what you’re doing. It’s obvious to others and obvious to you when others are doing it but oblivious to you.

Then a strange phenomena occurs. You develop a form of selective amnesia. You can remember everything except how much money you lost. I haven’t heard a speculator yet admit to losing money. Miraculously they always manage to be even. This is quite startling when you consider the statistics. Either decades of data are wrong or our speculators turned gamblers are lying.

You probably have guessed the answer-most speculators are liars. They quickly recall all their profits while totally ignoring or acknowledging the overwhelming losses. Talking about not being able to see the forest from the trees. At all costs avoid this trap. “Don’t be a lying speculator, especially to yourself”. If you’re losing money it’s better to tell someone it’s not any of their business that it is to tell them you are even. They will know you’re lying and you now know that you’re lying.

Ivan Cavric

Excerpt Taken From

Forex Frontiers

Forex Trading Point by Ivan Cavric

Ivan Cavric

If you were to examine Forex trading from a distance and time perspective a few obvious observations will quickly surface.

1. In any trade there are 3 possible outcomes. You will either be up, down or even. That’s it! Simple

2. If you can be profitable 55% of the time you will be successful.

3. The market doesn’t know you, doesn’t know what position you took and it’s not out to get you. The quicker you can dispense with this distraction the more time you will have to focus on what matters.

4. This is similar to Point 3 with some stark differences. When you are on a run and everything is going your way keep in mind this does not make you a genius nor lucky. It’s how markets function and a skilled trader is able to operate rationally in periods of organized chaos.

5. You will have losses. It’s part of the trading experience. You must be prepared to accept them and more importantly learn from them.

Admittedly there are more points than these and you should take opportunities to learn them. However these are sufficient.

Ivan Cavric

Excerpt Taken From

Forex Frontiers

Forex, Are All Systems The Same By Ivan Cavric

Ivan Cavric

Yes! That’s the short answer. They are basically either momentum or trend variations. There is a great deal of pseudo science and complicated algorithms that go into justifying a particular method as a rule of thumb. The more complicated and harder to understand a method is the less likely is the probability that it will work.

I can use up a lot of writing space with complicated arithmetic and what seems to be undoubting equations. As said earlier it will not work. By the time you figure out that it doesn’t work I will have several other variations to further confuse you.

Does this mean that all those systems are useless? Of course not! Consider them as tools to be used. In skillful hands they can be very useful and profitable. Once again the onus shifts to the trader and not the method. A disciplined and skilled trader is able to use any method or system to his advantage. That’s what we were talking about before using systems that you are comfortable with and understand to gain an advantage.

Ivan Cavric

Excerpt Taken From

Forex Frontiers

A Little About Forex Leverage by Ivan Cavric

One of the most compelling reasons for trading Forex is leverage. Leverage gives you the ability to control large assets with little of your own cash.

Typically in Forex the leverage is 100 to 1. What that means is that with as little as $1,000 you have control of $100,000. A 1 % move will produce a 100% profit. As you can see by the tables provided a 1% is typically the average move per day. Yes that’s per day.

When you combine leverage with the magic of compounding - the results are astonishing. A $10,000 account that produces a mere 3% profit per day will be worth over $7 million in a year.

This is the allure of Forex: Leverage & Compounding. However, to make it work requires discipline, persistence and a plan. Profits such as these are not produced by treating Forex trading as a hobby. Actually quite opposite is true. Half hearted efforts will leave you disappointed and most likely without capital. Leverage is a double edged sword, it cuts both ways. It can work in your favor or against you. When it goes against you it usually is quick final.

The key is to master the use of this double edged sword and use it with skill. Fortunately this can be taught just like any other skill. It requires discipline and commitment, both of your time and money. However the end result is worth the exercise.

Ivan Cavric

Excerpt Taken From

Forex Frontiers

A Simple Plan: Buying Stocks At A Discount To The Market by Ivan Cavric

Ivan Cavric Investment Strategy Stocks


Sounds like it should be a title for a movie, doesn’t it? With all seriousness though you can and should be using this strategy especially in a nasty bear market. Lets face it, who really knows when we are at the bottom? Stocks that look like a bargain today can have their values halved in a short period of time. Does that mean you sit on the sidelines and wait for a recovery? The answer is yes, but that is a lot easier said than done. Very few people will invest at the bottom of the market. In fact most people wait till it’s too late to get into the market. With this simple plan you wont have to wait, and you wont have to worry about whether you purchased the stock too early or should have waited. If you follow the strategy as outlined you will be able to purchase a stock at a discount to the current market price and if not still make a return that is above average expectations. Did I get your attention?

A short while ago I wrote Bottom Fishing With the Bears outline a procedure of investing in bad markets. Now I would like to show you another strategy to use for bear market investing, in fact it will work in all kinds of markets as long as you are an investor with realistic return expectations. At this point I would like to urge you to read Bottom Fishing With the Bears, both strategies can be used simultaneously and have the potential to become an important part of your investment planning. Don’t kid yourself serious investing requires planning! Anyone can buy shares in a company but overlook the second and most important part of investing—proper money management.

Bottom Fishing With the Bears used a fictional company trading on the NYSE (New York Stock Exchange) under the symbol DOG. This illustration will use an ETF (Exchange Traded Fund) which is composed of the largest DOG companies in the United States and trades under the symbol (you guessed it) DOGS. Keep in mind that although the stock is fictitious the actual illustration is based on an actual ETF comprised of DOGS and it does trade on a major U.S. stock exchange. We want to keep the strategy as real as possible without giving any specific investment advice. It’s the plan that I would like to focus on and leave the investment decisions and selection in your capable hands. Yes I know I’m stroking you a bit, but since you took the time to read this far you demonstrated that you are open to new ideas and do have enough common sense to decide for yourself.

Back to the Simple Plan: Buying shares at a discount to the current market price. How is it done? Though the concept is simple, take sometime to reread the strategy since some of the instruments used can be complicated and require full understanding. Don’t rely on anyone else, learn it yourself before you begin implementation. There are three things you will require immediately before you begin. They are money, cash brokerage account and an options account. While the first two are obvious having an options account may be unfamiliar. However, you will need all three.

Having everything in place and your account funded with $10,000 in cash, I would not recommend that you should use this strategy with less. We are buying quality investments not speculating. Anything less and your return will be diminished by commission costs. At the $10,000 level the commission costs are almost insignificant, depending which financial institution you have your account. Now that you are ready to go, lets see how and what you would do to buy shares at a discount in the ETF of DOGS.

As of this writing DOGS ETF closed at $8.24 per share. Remember though it’s for demonstration purposes only it is based on an actual trading ETF. Since DOGS is composed of some of the largest U.S. institutions beaten down by the current market conditions, this may be a good time to jump in and invest. Since the market is bad you are not sure whether the shares will go even lower or whether they bottomed out at this level. Your obvious choice is to go out and purchase 1,000 shares of DOGS at $8.24 for a total investment of $8,240 before commission. The rest of the illustration will be based on costs before commission. That’s one way and most of us are familiar with this method. Nothing new here. However, let’s look a little deeper and see what we uncover.

At the time the shares of DOGS closed at $8.24, its 6 month $8 PUTS were trading at $2.34 per PUT. What is a PUT? Good question, I’m glad you asked. A PUT is an option giving the owner the RIGHT to SELL 100 shares of an underlying instrument at a specified price by a specified period of time. In our example for instance the owner of a PUT with a strike price of $8 has the RIGHT (not an obligation) to sell 100 shares of DOGS to the seller of the PUT (also called the writer) at $8 per share at anytime during the 6 month period regardless of the price of the stock. On the other hand the seller or writer of the PUT has an OBLIGATION to purchase 100 shares of DOGS at $8 per share during this 6 month period regardless of the price of the shares. Got all that? If not read it over again before I show you how you can benefit.

Rather than outright purchasing 1,000 shares of DOGS at $8.24 you place your funds into a high yield money market instrument. Then sell (or write) 10 six month $8 PUTS on DOGS for $2.34. Since each PUT represents 100 shares and you sold 10 PUTS you are now OBLIGATED to purchase 1,000 shares of DOGS at $8 per share. For this OBLIGATION you will receive $2,340 ($2.34 x 100x 10). These funds are yours to keep. During the next six months three possible scenarios can occur with DOGS. The price of the stock can go up, down or stay the same. Correct? Well let’s see what happens with each scenario.

The shares of DOGS go up in six months. In this case your upside potential is limited. You are limited to the price you would through ordinary method purchased the stock plus the premium on the PUTS you received ($8.24 + $2.34=$10.58). Anything above $10.58 is your cap. However should this happen your return by using the simple plan is 28.3 percent in six months. This does not include the interest earned on your original capital of $10,000. All in all a pretty good return, a 57 percent annualized rate of return. Should the shares of DOGS remain at $8 or any amount above your return will be exactly the same as above.

On the other hand should the price of the stock drop below $8 per share during this 6 month time period the owner of the PUTS will sell you 1,000 shares of DOGS at $8 per share and you will be OBLIGATED to purchase the stock at $8 per share or $8,000. However since you received a premium for selling (writing) the PUTS your actual cost for 1,000 shares of DOGS is $5,660 ($8.00-$2.34 x 1,000= $5.66). As long as the stock is $5.66 or higher you haven’t lost anything. Had you purchased the shares outright at $8.24 and the stock is trading now at $5.66 your loss would be $2.58 per share or 31.3 percent as opposed to zero. Also, keep in mind that you now have 1,000 shares of DOGS at a cost of $5.66 per share. Any increase from this point is a profit in your pocket.

Think of this strategy as an alternative to outright stock buying. It’s a great way to bottom fish. As I have mentioned before, very few people know when we are at the bottom. Some of us get lucky and buy at the bottom, but this is an exception and not the rule. Investing requires careful planning, luck happens but should not be relied upon. I am reminded of a saying that a broken clock is right at least twice a day. However, I prefer having once that runs. What about you? Apply this Simple Plan to your investment ideas and workout the possible returns. It’s worth the effort.

Ivan Cavric is the president and managing director of PrimeQuest Capital Corp. Ivan Cavric is also managing consultant of Associated Financial Corp. For over 20 years Ivan Cavric has been involved with venture capital and start up companies. During this period Ivan Cavric has been on advisory boards of several public, private and start up companies providing management services and personnel.


Ivan Cavric

Bottom Fishing With The Bears (Ivan Cavric)

Bottom Fishing With The Bears (Ivan Cavric)

A famous quote attributed to Baron Rothchilds encourages us that “the time to buy is when there is blood in the streets.” It is somewhat dramatic but it does get your attention. Reading and listening to the latest financial news one would have to conclude that there is “blood in the streets”, at least figuratively speaking.

Certain market sectors have been pummeled, primarily the Financials and Auto industries. Each day brings more bad news and it seems that there is no light at the end of the tunnel. Foreclosures, bankruptcies and government bailouts dominate the financial headlines. You hear things like no one is too big to fail. Yet our system is such that periodically these events must occur and that the survivors end up much stronger and more competitive when it’s all over.
It’s in times like these that opportunities arise. For the brave souls who go against the tide they become beneficiaries of great rewards. Others may see them as reckless or in most cases simply “lucky”. However it’s more than that. It’s the ability to act when others remain paralyzed. The only question is how to prudently go against the tide? Problem with bottom fishing is that no one really knows with certainty where the bottom is and when will the turnaround occur.
The next few paragraphs will attempt to outline a strategy to us for bottom fishing. It has been my experience that having a plan gives you the courage to act when the majority remain on the sidelines. Is this strategy foolproof? Of course not! Nothing is, and if you are one of those who believe otherwise, save yourself some time and stop reading the rest. However what it will do is greatly increase the probability in your favor. It will give you a blueprint as to how to proceed through the everyday noise. I know you must have heard this saying hundreds of times before, so one more time won’t hurt. “People don’t plan to fail, they fail to plan.” Investing in the market isn’t any different, you need a plan. Especially in a bad market! The strategy that is outlined works on individual stocks as well as EFT’s (exchange traded funds). You choose your own investment vehicle. As a suggestion it would be wise to use quality stocks listed and or quoted on major markets such as NYSE and NASDAQ as an example. And preferably purchase stocks that compose the S&P 500 Index. Only you know your risk tolerance, this is merely a suggestion.
Enough with the prelude, lets get down to the Bottom Fishing Strategy or BFS for short. In the demonstration I will use a fictional automaker listed on the NYSE trading at $10 per share under the symbol DOG. That’s right DOG, and it’s fictional and for illustration purposes only, so don’t go out and try to buy it or worse say that I am recommending the stock. As with most of the auto sector DOG has been hit hard. The price of the stock is down 60% from its 52 week high. Could this be the bottom? Who knows? As you research the company you feel that it may be a good long term investment and this seems like a buying opportunity. You have $10,000 to invest, what would be the best way to proceed?
Well, let’s put the BFS (bottom fishing strategy-remember) to work. Follow the seven steps carefully. They will apply equally to any investment decision you make.

1. Divide your $10,000 allocated for investment into four groups of $2,500. The procedure is the same whether investing $1,000 or $1 million. If you have under $1,000 than it would be best to consider other options.

2. Immediately purchase 250 shares of DOG at the current market price of $10 per share using your first $2,500 allocation and keeping the remainder in cash hopefully earning interest. (NOTE: commissions are not included in our illustration because they vary greatly between firms).

3. If and when the stock drops by 7% or $.70 to $9.30 buy 268 shares of DOG using your second $2,500 allocation. Now you are holding 518 shares of DOG at an average cost of $9.68 per share and still have $5,000 to invest.

4. DOG drops another 7% to $8.65, buy 289 shares suing your third allotment. You are currently holding 807 shares of DOG at an average cost of $9.20 per share and still have $2,500 to invest.
5. Stock drops again by another 7% to $8.04, buy 311 shares of DOG. Your total holdings of DOG are 1,118 shares at an average cost of $8.94 per share and you are fully invested.

6. This step is VERY IMPORTANT. Place a stop loss order 15% below your last purchase price which in our fictional illustration was $8.04. Therefore an open stop loss to sell 1,118 shares of DOG would be entered at $6.84. DO NOT CHANGE THIS!

7. If stopped out of the trade, which would mean the stock traded at or below $6.84, DO NOT BUY THIS STOCK AGAIN! UNDERSTAND! Go elsewhere. You have lost $2,359.59 or approximately 23.5% of your investment but it could have been worse. This is your worst case scenario and you know it before you even place your first trade. Look elsewhere for opportunities.

Follow this procedure for every investment you are considering. BFS allows you to
plan out your purchases systematically before you execute your first trade. Always keep in mind, once you decide to use the BFS, stick with the plan.
Yes I know, I can hear some of you already saying, “well that sounds good but what if the price of the stock doesn’t drop after my initial purchase”? Or “I purchased a couple of times and it stopped going down”! Congratulations! You have managed to pick the bottom, now hold on for the ride up and enjoy your profits. And yes I do have a strategy to maximize your profits when your stock is rising. However that is being saved for another article, maybe even a book. Now that you have a tool the rest is up to you, put it into practice, plan wisely and trade with confidence.

Ivan Cavric

Art Collecting: For Profit and Pleasure by Ivan Cavric

Have you ever considered collecting art for investment purposes? If you are at home or in your office take a quick look around. Chances are that you have some sort of art hanging on your walls. You or some else selected it because you need something to put on your walls and you liked the how it looks. In some cases the price may have been a consideration. Since you will buying art, why not select works that have investment potential?

When it comes to collecting art most people feel inadequate or intimidated. We have been led to believe that you require specialized knowledge to be an art collector. The critics and most experts don’t offer any help either. Some are more interested in selling their particular showings rather than educating you how to become an art lover and a long term collector.

Collecting art can be very profitable and enjoyable. It is one of the few areas where you can have your proverbial cake and eat it too. Anyone can become a successful art collector. All it takes is to learn a few ground rules, most of which are common sense. Since you have read this far you have demonstrated that you possess common sense, now all you need to learn is a few basic rules.

However, before I get into the basics one point needs to be clarified. I am not writing about collecting the works of masters such as Dali, Monet, Van Gogh etc. For this type of collecting you do indeed need specialized knowledge that comes from years of study. Most of these works have proven their investment quality and serve as motivation for us to find the next great masters. And there will be new masters! The only question is which ones.

That’s where the fun in art collecting is! You just may be the one of the few who started buying the early works of an artist who suddenly becomes famous. It is possible! Imagine for a moment having purchased some early works of an unknown artist named Picasso. Early in his career his works were affordable and easily available to anyone. Now, look where the prices for originals have gone to - some sell for millions. And since we have already established that you will be buying art anyway, why not buy art as an investment? Who knows, in 5, 10 or 20 years the artist may be the next Dali.

Collecting art for investment purposes is much like treasure hunting. You have to dig through a lot of dirt to get a few gems, but they do exist. Collecting art is very affordable. Remember we only want to buy works of the yet undiscovered. There is a lot to choose from so be discriminate.

In order for you to build a collection, a valuable collection, lets go over a few basic rules. I call them basic because it is enough to get you started with confidence. Once you begin you will be able add to your knowledge from your own experiences. The great part about treasure hunting is that there is always something new to discover. So never stop learning!


Now to the basics.

Collecting Art for Profit and Pleasure

  1. Have a fixed budget allocated for collecting. Know how much you are willing to spend on an acquisition and how often acquisitions will be made. This is the first step because it will keep you focused. If you are starting out with only a few hundred dollars it doesn’t make any sense looking at works in the thousands. Remember you are just starting out, stay focused.
  2. Buy art that you like! Since you are collecting for pleasure as much as for profit you have to like the work. Never mind what anyone tells you about the investment potential, it’s going on your wall and you have to like it!
  3. Step 2 doesn’t always work and there is a good chance that you may miss out on some extraordinary artists. Art is subjective and what one person considers as art others may think its junk. To avoid this, for every 3 pieces you purchase that you like, buy one that you particularly don’t like, yet it fits your criteria as a possible investment grade collectible.
  4. BUY ONLY ORIGINALS! Originals are one of a kind. Once an artist becomes well known there will be many collectors bidding but only one original will be available.
  5. Limited Edition Prints are glorified POSTERS. In most cases the framing is worth more than the print. Serious collectors should avoid prints of any kind, even the prints of well known famous artists. In all probability the prices have been inflated. They should not be purchased or considered for investment purposes. For now don’t waste your time.
  6. Get a biography of the artist. Get as much documented information about the artist as possible. Most artists will provide you with information about themselves, where they studied and where their works have been shown. THIS IS A MUST, and it should be accompanied with the art. If they don’t have a biography or basic information about themselves go to another artist. Move on!
  7. Talk to the seller of the art. Try to verify that the work is an original and not a copy of an original. There are many talented artists who are able to duplicate the works of well known painters. The obvious copies you will be able to identify yourself (such as an oil of the Mona Lisa), others are more difficult. Ask questions and purchase only when you are satisfied with the answers.
  8. YOU DON’T HAVE TO PAY THE ASKING PRICE! This is the fun part. Bargain, haggle and try to get it below the asking price. Prices are not set in stone. You just may be able to get it 50% or more below the asking price. You never know, some artists are truly starving artists. There is always room for negotiation.
  9. Keep your receipts, cancelled checks and any other written information that accompanies the purchase. This is often overlooked yet it is a key part of serious collecting, regardless of the value of the piece. It is a good idea to write down where you purchased the art and the reasons why chose that particular piece. These records become part of the history of the art. Keep them in a safe place, I cannot stress enough how important this is for future valuation.
  10. Take care of your collection. Keep the art out of direct sunlight, damp places and out of reach from unruly children and pets. Use common sense. Have proper insurance on valuable pieces and frequently update your records on various artists you are collecting.

Now you have the ten basic tools of collecting art for profit and pleasure. The Internet is a phenomenal resource. All kinds of information is available at the click of the mouse. It is also a good tool to share and promote your newly discovered artist. Keep in mind that the reason artists are famous is that they are well known. The more people you tell about the works you acquired the more they will get to know the artist. Don’t be shy, share your discovery with others. Everyone will benefit.

Finally, don’t procrastinate, go out and start collecting. There is only one way I know of to become an experienced collector and that is to start as a novice. Everyone has to start somewhere. Don’t get discouraged. It’s true that everyone is a critic, but the only critic that matters is YOU!



Friday, June 4, 2010

Trade Like an Insider, Legally By Ivan Cavric

Granted legal insider trading may not be as profitable as illegal insider trading, but it will keep you out of jail and enable you to enjoy the benefits of your profits. Company insiders are required to report any trades made in their company to the SEC within 2 business days of the trade. This is information is available to the public through various internet sites. The trick is to sift through the enormous amount of data to select a company that has the most potential to make you money. Easier said than done! Well in fact it is actually quite simple and it doesn't take up too much of your time.

In order to simplify the search a few parameters have to be set before you consider an investment. Once you have this in place you will be amazed at how quickly you will identify a potential investment and eliminate numerous others. There are five main points that have to be met before you consider the company for investment purposes. Once you have chosen your stock then we will use a money management technique to maximize profits and minimize losses. More on the money management part later after we discussed the five points that comprise our search criteria.

After you selected a free insider trading report site your first criteria is to consider only BUYS. There is a good reason for this. People sell shares for various reasons such as college tuition for the kids, divorce, vacation, buying a house and many others. However there is only one reason people buy shares and that is to invest and make a profit. Since it is our intention to make a profit we will only consider the recent INSIDER BUYS, those made within the past 2 weeks.

The second point to consider is only BUYS made by senior officers such as CEO, CFO, EVP etc. Directors and owners have a different agenda sometimes for buying shares whereas the senior officers are employees of the company and are close to day to day operations. They are the ones on the front line, they generally have a feel as to how the business is doing. The lower their rank, the lower their pay scale, hence all the more significant is their purchase of shares.

Third, and this is subjective, however for our purposes we will use a general rule of thumb. Only consider purchases that appear to be an investment and represent investment dollars. Purchase of 30 shares at $9.00 is not what we would call a significant investment, or for that fact a serious one, especially for a senior officer. However, a purchase of 1500 shares at $9.00 made by the same officer carries more weight and considers our attention. As a rule of thumb the investment should be over $10,000 and be at least a reasonable number of shares.

Fourth, only consider company's whose shares trade over $5.00 per share and are on a major exchange. Stay away from penny stocks. A definition of a penny stock is any stock whose shares trade below $5.00 per share. There are times when large companies will fall below $5.00 per share but they are still on a major exchange and usually the circumstances are extraordinary. It is best to wait till they are back over $5.00 before considering an investment.

Last but least is to only consider those company's whose shares are trading near where the insiders made their purchase. If the insiders bought shares substantially lower than the current market price then the stock should be eliminated from the list. Once again this is subjective but 50 percent below the current market price would be considered as substantially lower. On the other hand 15 percent to 20 percent is tolerable. You are looking for value, so be patient.

Once you have finished with the fifth and final step you should have two or three good potential candidates to consider for investment purposes. While this is not part of our main criteria to narrow the field and choose the best investment you need to consider liquidity. If you have two or three to chose from pick the stock with the highest daily volume average. Daily volume is a measure of liquidity and the more liquid a stock is the easier it will be to purchase and sell.

Now that you have your pick don't rush out yet and make that investment. Remember we were going to implement a money management system. This is a good idea no matter what system you are using for choosing your investments. The money management technique is simple by effective. For demonstration purposes I will use a fictional company, symbol ABC trading at $9 per share. An Executive Vice President of Marketing purchased 2,000 shares at $8.15 four days ago. We are willing to invest $9,000 by purchasing 1,000 shares. However, rather than buying it all at once we divide our investment into three tranches of $3.000 each.

An initial investment is made by purchasing 333 shares at $9 per share for a total of $2997.00 before commissions. Immediately a stop loss is placed at 15 percent below the purchase price or $7.65. A stop loss is where you will get out should the price of the stock drop. At the same time you will make another purchase if the price of the stock drops to $8.10 per share or 10 percent below the initial purchase price. At this time you will purchase 370 shares at $8.10 for a total of $2997.00. Now you have a total of $5994.00 invested and 703 shares at an average price of $8.52. Move your stop loss to $7.24 and make another purchase should the share price drop by 10 percent from your average cost of $8.52 which is $7.66. The trade keeps going against us and drops to $7.66 at which point we invest our last tranche and purchase 391 shares for a total cost of $2995.00.

As you can see you have a total of $8989.00 invested and own 1094 shares at an average cost of $8.21. Now you place a final stop loss at 15 percent below $8.21 or $6.98. At this point should the stock trade this low your position will be liquidated and you will be out of the market. Do not enter again. You have suffered a 15 percent loss but still have sufficient capital to invest elsewhere. On the other hand if the price of the stock never gets near your stop loss but keeps rising follow it weekly with a trailing 15 percent stop loss from the high of the week.

This simple method allows you to maximize profits and limit your losses. It prevents you from falling in love with a company and leaves little room for second guessing. It allows for timing since stocks have a tendency to go down after you make an initial purchase and it preserves you capital. In short it's a great tool.

One final note, for insider trading reports do a search for free insider trading reports and go to the most comprehensive and easy to use site. You will be surprised how quickly you will find a user friendly site.

Ivan Cavric is the president and managing director of PrimeQuest Capital Corp. Mr. Cavric is also managing consultant of Associated Financial Corp. For over 20 years Mr. Cavric has been involved with venture capital and start up companies. During this period Mr. Cavric has been on advisory boards of several public, private and start up companies providing management services and personell.

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Ivan Cavric I was born in 1959 in Croatia. I hold a degree in Religious Studies and I am an ordained minister in the Universal Life Church. During the early part of my life I worked at various jobs while continuing my education and later on became a fully registered Investment Advisor with the OSC (Ontario Securities Commission). I have successfully completed all the necessary requirements to be an Investment Advisor, as well as an Options, Commodities and Future Specialist. In 1995, I formed PrimeQuest Capital Corp. (formerly known as PrimeQuest Financial Group Inc.), which was structured as a virtual venture capital corporation with the capability of acting as an incubator for new ideas and start up ventures. Using the PrimeQuest model, I assisted in funding and developing several start-up ventures and acting as director and advisor to management. Some of these companies include Biosource Solutions Inc., Merritt House Media Inc., and Wolsley Finch Inc. Since then, I have been instrumental in providing venture capital and management assistance to over 70 companies, both private and public.

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