Day Trading Strategies With Beta
Day Trading Strategies With Beta
By Steven Tor
In stocks trading and Forex trading, a trader should be well verse with technical analysis as well as fundamental analysis and it is in these analysis that traders should look at Beta to manage their risk takings.
Beta is the measurement of risk in trade and investment. It measures the volatility of a stocks or mutual funds in relation to the entire market It is usually used as a tool to assess the risk in buying and selling of stocks. The total market has a Beta of 1. If stocks have a Beta of above 1, it means the stocks move more then the market overtime (stocks price will be more volatile then the market). If the stocks move less then the market (stocks price will be less volatile then the market), its Beta will be less then 1.
The importance of Beta is that it helps the investors and traders to make trading and investing decision. In stocks trading, stocks with higher Beta are far more risky but have a potential of giving higher returns while stocks on lower Beta are less risky and thus may face a lower returns.
Traders and investors could find utility stocks to have a Beta of less then 1 while high tech stocks and financial stocks to have Beta of greater then 1.
1. What is a finance Beta?
A finance Beta indicates the expected return of a stock that is correlated to the return of the overall market.
2. Where can traders or investors locate Beta?
Beta can be found easily in most stock brokerage sites, trading platform and trading system.
3. What does a zero Beta means?
A Beta of 0 means that its price is not at all correlated with the market.
4. What does a positive Beta means?
A positive Beta means that the stocks generally follow the market.
5. What does a Beta more then 1 means?
It means the stocks are highly volatile in correlation to the overall market.
6. What are the disadvantages of Beta?
Beta is poor indicators of what lies ahead as they reflect only what had happened. Thus, it is useful for short term trading and not for long term investing.
Traders could use the Beta readings to manage their risk in the trading system and their trading strategies. It is basically an important Risk Management Tools.
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