What is a Lump-Sum Distribution from a 401(k)?
Lump sum distributions are when the entire balance of an account is paid out at once. After you retire, you can elect to receive your money in a lump sum. Of course, you will end up paying income taxes on the entire distributed amount that year. There is also what’s called the mandatory 20% withholding, which requires custodians to withhold 20% from retirement plan distributions if they are not part of a trustee-to-trustee transfer (such as funding an IRA). Continue reading...
How Do I Invest Money in My 403(b)?
Investing in a 403(b) is done by making contributions via payroll deductions and selecting investment options from among the available choices with your custodian. Payroll deductions on a pretax basis are routed into your 403(b) account with your consent. This can be done by telling the payroll department what percentage of your compensation you would like to send there, or by telling the plan custodian company, who tells your payroll department. Continue reading...
What is an Alternative Trading System (ATS)?
An ATS is a platform separate from an exchange where securities are traded. ATSs provide marketplaces for buyers and sellers to transact in securities, much like a stock exchange. However, they are not available to the entire investment public, and they do not necessarily provide public information on the best prices available to traders within their system. They also do not set rules governing the conduct of subscribers and they perform no self-regulation, while exchanges perform all of these functions. Continue reading...
How to use the Cup-and-Handle (Bullish) Pattern in trading
Once the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying a security or a call option at the upward breakout price/entry point. To identify an exit, compute the target price for the Cup-and-Handle pattern by adding the pattern’s height (the difference between the highest high and the bottom of the cup) to the price at the right cup lip. The confirmation move is when the security moves past the breakout price above the right cup lip. Continue reading...
What is the Falling Flag (Bearish) Pattern?
The Falling Flag (or Bearish Flag) pattern looks like a flag with the mast turned upside down (the mast points up). The pattern forms when falling prices experience a consolidation period, and the price moves within a narrow range defined by the parallel lines through points 2-4 and 3-5. After the consolidation, the previous trend resumes. This type of formation happens when anticipation of a downtrend is high, and when a pair’s price consolidates during a broader decline. It may indicate growing investor concern of an impending downtrend. Continue reading...
How to Trade Moving Averages: The Death Cross
The Death Cross is the inverse of a Golden Cross: a chart pattern occurring when a security’s short-term moving average crosses underneath its long-term counterpart, typically followed by an increase in trading volume. A death cross, which like a golden cross most commonly uses long-term 50-day and 200-day moving averages to detect the pattern, usually signifies an incoming bear market to traders. Continue reading...
What is Exponential Moving Average?
Moving averages are important components of many technical indicators. The Exponential Moving Average (EMA) uses the closing prices of all the previous trading days for a given interval to calculate an average price from that for the period, but is weighted to give the most recent days more influence over the final number. The weighted averages are plotted in a line that helps traders follow trends. Continue reading...
What is CAGR?
The Compound Annual Growth Rate (CAGR) is the compound discount rate which an investor would have to get to go from a present value to a future value. The compound annual growth rate can be computed using the ending value of an investment and taking the Nth root of it for the number of compounding periods (usually years). The idea is to have a smoothed average number that an initial would have to have received in a compounding investment to end up at the future value. Continue reading...
What is a Bear Squeeze?
Investors who were bearish on a stock may have chosen to short-sell shares in the hopes that they could cover at a lower price. Short selling is when a broker facilitates the actions of an investor who wishes to take on the risk of replacing sold shares of a particular stock because he or she believes the price will be lower when he or she replaces the inventory. The broker passes the proceeds of the sale (minus a fee) along to the investor who is taking the risk of replacing the shares, and charges the investor interest or fees as long as the shares are outstanding. Investors need to cover the short before prices go up and it results in a loss for them. Continue reading...
What is a Certificate of Deposit?
A Certificate of Deposit, commonly referred to as a CD, is a financial product that essentially pays risk-free interest (though typically at very low rates). CDs are typically offered by banks and credit unions, and usually span in duration from one month to 5 or 10 years. They are FDIC guaranteed up to $250,000, so customers may generally consider them risk-free. But because there is very little risk to purchasing a CD, they also typically pay very low annual interest rates. Continue reading...