Some might think that stacking your cash under your bed while you sleep is a good idea to hedge yourself against risk. Well, it might be far more risky avoiding risk all in all as this may not meet your financial goals and it might not even beat inflation. Hedging yourself with risky asset classes could not only mean giving your portfolio a way to minimize exposure to risk but also a way to perk up your portfolio that has long been following the market’s mood.

1.       Currency Futures

One of my closest relatives, my aunt to be exact, moved to the United States to be a Registered Nurse. She is now retiring with her husband in Canada with all those US Dollar denominated income. In times where the greenback is getting hit hard, is it a nice idea to not protect her income with the dollar’s weakness?

A way to protect your portfolio from currency depreciation is hedging yourself by buying other currency as well. If you were to hedge yourself against the weakness of the greenback by buying Euros back then, you could have sold the Euro Dollar at a high of 1.60 to the US dollar a long time ago.

2.       Short Selling

Short-Selling is definitely not for everyone. As the risk for capital loss is endless, and the reward measured by how close the company is for de-listing or chapter 11, short-selling could be a rewarding way to: Bail you out from your wrong sizing of position, or a way to reduce your position to a very comfortable level.

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Traders are looking to commodities as a hedge against inflation while the US dollar succumbs to the euro in the midst of crude oil price increases. This just goes to show that commodities can be an attractive alternative and tool against inflation.

Crude oil advanced by 33 percent in 2008 while the US dollar dropped by 6.6 percent against the euro. This made oil as well as other commodities more attractive to traders in other currencies. There has been a decline in prices this week following a government report regarding a falling fuel consumption in the US last week as compared to the same period last year.

There has been a rise in the prices of crude oil for July by 73 cents, or 0.6 percent, which translates to $127.35 per barrel. Futures on May 22 attained a record level of $135.09. There was also a decline in prices this week by 3.7 percent. During the past year, these prices have even doubled, but now the decline has been tremendous, and is now at its lowest drop in a week since March.

“The dollar has a big impact on crude prices. Any shift in the dollar’s direction will prompt investors to look at crude as a store of value,” said oil practice director Rick Mueller, Energy Security Analysis Inc., Wakefield, Massachusetts.

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For the first time this week, US stocks made tremendous gains after Boeing Co. and Philip Morris International Inc. have astonishingly proved speculations that overseas growth will offset domestic economic slowdown.

Boeing, the world’s second-biggest maker of jetliners, appears at the top of the list of best-performers, rising beyond expectations in the Dow Jones Industrial Average. Philip Morris, on the other hand surpassed profit estimates by 15 percent.

Survey reveals that out of 263 companies that reported first-quarter results in the Standard & Poor’s 500 Index, 73 percent either matched or have exceeded the average estimate of analysts, according to Bloomberg.

“The market was too pessimistic … you still see companies executing, doing well, coming in better than expectations,” said Mark Freeman, asset manager at Westwood Holdings Group in Dallas, which manages $8 billion.

Philip Morris reported a 29 percent jump in profit as new varieties of Marlboro cigarettes and acquisitions spurred sales in Indonesia, Pakistan and Mexico. The world’s largest tobacco company outside of China also said profit this year will exceed its forecasts. The shares advanced 2.7 percent to $51.30.

Technology stocks were up more than 1 percent after EMC Corp, the world’s largest maker of storage computers, said revenue increased 14 percent in North America despite fears of a US recession.

Insurer Safeco shares shot up after it agreed to be bought out by Liberty Mutual Group for 6.2 billion dollars, but worse-than-expected results from Ambac Financial Corp kept alive fears of more credit- crisis related writedowns from banks.

The blue-chip Dow Jones Industrial Average rose 42.99 points, or 0.34 percent, to 12,763.22. The broader Standard & Poor 500 Index was up 3.99 points, or 0.29 percent, to 1,379.93. The Nasdaq Composite Index added 28.27 points, or 1.19 percent, to 2,405.21.

The dollar rose against the euro to 62.96 euro cents from 62.55 euro cents on Tuesday, and to 103.44 Japanese yen from 103.01 yen.

Gold fell 16.20 dollars to 909.00 dollars per fine ounce.

Trading the markets makes one a winner and another loser. As my mentor used to tell me, “Markets are summarized by greed, hope, fear and desperation”, all mistakes traders commit including me are always related to the four market moods. I have listed 5 of the most common mistakes we traders make and feel free to choose your own weakness.  

1.       Failing to cut losses

We have to admit that we are humans and we are susceptible in making mistakes. Failing to cut losses not only is expensive for your portfolio, but also a way to wipe it clean.

2.       Adding up to a Losing Position

Cutting loses is bad. Adding up to a losing position is even worse. Some people use this measure to bail out on a position. Simply put you bought 10 shares of XYZ at $50.00 and it fell to $45.00. Some people would buy another 10 shares at $45.00 and sell the whole position at $47.50. Sounds great right? Not really. It is not only getting riskier, but it also gives you more tension in your trading knowing that you are averaging down and might wipe your portfolio clean.

3.       Trading with Emotions

Remember what my mentor told me a while ago? Greed, Hope, Fear and Desperation is the way to go in telling what the current mood of the market is. We have to admit that we traders are motivated with greed, but we also need to understand that in order to be successful in this field, we have to operate like a system, operating without our emotions. Emotions cloud our judgement and logic.

4.       Loving A Position

Yes we understand you made a lot of money in that trade. Even if that issue made you a lot of money previously, you have to take into consideration that past performance is not an indication of future results. No shortcuts are to be made in trading. We really have to do our homework.

5.       Trading the Board and the News

Some trading hours could be boring. And when boredom and impatience strikes traders, all they do is look at the board or the Newswire and stare. Now here comes the fun part, you’ve been staring at ticker symbol ABC for quite some time and you see that it steadily rises to 7%. Sounds great right? You type a buy order at your terminal and the trade is executed. Minutes before closing, you see the ABC correcting and those people who are buying it 2 hours ago are now dumping it. Now you are forced to liquidate and cut your losses. Sounds familiar? Never enter a trade without a trading plan and without doing your homework. What separates gamblers from traders is that traders have systems and plans to follow while gamblers throw their darts at the board.

We have to admit that we cannot remove these overnight. It entails discipline and determination. After all, sometimes you have to get hurt in order to learn, and learning is required if you dream of beating the street.

There are two main schools of thought in analyzing the capital markets. Fundamental Analysis, the use of the company’s books and economic data to determine it’s value, and Technical Analysis, where the supply and demand of an issue, contract, commodity, etc. is being analyzed to forecast future results.

There are a lot of disparities between the two schools of thought. Fundamentalists would go long or short because of valuations while technicians go long or short because of trend continuations or reversal. A Fundamentalist could buy shares of an issue that is nose-diving with his belief that it’s getting cheaper, while a technician would definitely not like it in his portfolio because it broke major trend lines or averages.

There has been an unspoken conflict between the two schools of thought for the past years. A Fundamentalist could be buying the company because of its valuations while a Technician could be shorting it because of its trend.

Fundamentalists call Technical Analysis a “self-fulfilling prophecy” while Technicians do believe that all data are already discounted into the market and books can be cooked. While both of them can be true, the fact is, both of these schools of thought make money.

Ultimately, it’s for the investor to choose what he would like to believe in as long as it makes him money. After all, it’s the profits that really matters in the bloody streets.

The Nikkei 225 index slipped 38.29 points, or 0.3 percent, to 13,540.87 Thursday as cautious investors awaited the release of corporate earning results.

“The consensus is companies will report conservative forecasts but with perceptions that the credit crisis is easing, we look to be at a comfortable level for the overall market,” said Yoji Takeda, head of Asian investments at RBC Investment Management.

As worries about the global credit crunch starts to ease, Tokyo shares will likely be anchored around the 13,000 mark over the coming weeks.

Among blue chip stocks, shares in Japan’s top automaker, Toyota Motor Corp., edged down 0.2 percent to 5,130.00 yen.

The company on Wednesday announced its global sales in the January-March quarter rose 2.7 percent from a year ago to 2.41 million vehicles, beating its U.S. rival and the world’s top automaker General Motors, with 2.25 million units.

Shares in Japan’s No.2 automaker, Honda Motor Co. rose 0.3 percent to 3,210.00 yen, but Nissan Motor closed 0.5 percent lower to 870.00 yen.

The Topix index of all the Tokyo Stock Exchange First Section issues fell 6.82 points, or 0.5 percent, to 1,307.57.

In currencies, the dollar slipped against the yen, standing at 103.52 midafternoon in Tokyo from 103.68 late Wednesday in New York. The euro was quoted at 1.5851 to the dollar from 1.5896.

Credit Suisse Group declared a $2.1 billion net loss for the first quarter as the global effects of the U.S. subprime mortgage crisis continued to spread. This is a first in the history of Switzerland’s second largest bank.

The company also disclosed net writedowns of $5.3 billion for big buyout loans and mortgage securities.

Although other operations of the bank did well, “[o]ur first-quarter results are clearly unsatisfactory,” said Chief Executive Officer Brady Dougan.

Credit Suisse is the first of the major European investment banks to report the quarter, but others have warned investors to brace for more write-downs.

The bank posted a net profit of $2.7 billion in the first quarter of 2007; however, Credit Suisse shares slid 43% in the last 12 months, despite efforts to reduce exposure to risk in the market.

“Other than the areas affected directly by the credit crisis, most of our businesses performed well, with revenues near, or in some cases above, those in the first quarter of 2007,” CEO Dougan said.

He said the bank “remains well positioned in an extremely challenging environment.”

Credit Suisse’s capital position is strong, Dougan said, adding that the bank would continue to manage its liquidity conservatively.

“I am confident that we will continue to serve as a safe haven for clients in uncertain and volatile markets, and to seize the opportunities that arise in times of market dislocation to create long-term value,” Dougan said.

Credit Suisse took the bulk of its writedowns - $2.64 billion - for collateralized debt obligations.

But it also marked down $1.67 billion for buyout loans granted but failed to sell to investors and $937 million for mortgage securities.

Credit Suisse trimmed its exposures to the troubled areas during the quarter. Leveraged loans outstanding fell to $20.6 billion. Subprime CDOs shrank to $695 million from $1.6 billion.

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In the recent past, you used to be able to fetch around $0.90 a euro. Nowadays the euro fetches nearly twice as much. It doesn’t take a math genius to figure out that European goods now cost more in terms of dollars, which has devalued tremendously, hurting the US economy.

However, there is a bright side to this situation. This has also brought a new influx of visitors from Europe who are exchanging their money for cheap American goods and services.

If you’re a manufacturer of goods and stuff, this is good news for you. A weak local currency favors producers of stuff because they have one big advantage over their foreign counterparts - cheap goods.

Cheap currencies are a way of transferring economic power from consumers to domestic producers. A weak dollar makes it cheaper to buy local goods than it is to buy imported ones.

Low currency means high returns on capital; it also means that foreign investors will enter to acquire relatively cheap assets. It also stimulates employment and production, and domestic corporate profitability soars.

So, if you look at the situation from a slightly different angle, it would seem that having a weak dollar could work in our favor.