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How does trading pairs works when it comes to stocks?

Question:
I just overheard about trading pairs, and I am very interested to know how does this technique work. Please be specific or use an example.

Answer:
I have a great trading pair for you. Basically you pick 2 stocks that are very similar, but you think one is better than the other. So you short the one you don't like (Sell-short) and go long on the one you do like. I think wind energy is going to be a better investment than coal, so I want to go long on Florida Power and Light (FPL), because they are the nation's largest owner of wind farms. I want to sell-short TXU, because they are planning on building up to 10 new coal-fired power plants.

Now, even if both stocks go down, as long as FPL goes down less than TXU, you will make money.

If you are looking for other strategies, and to see what the best traders are buying and selling, I would suggest http://www.top10traders.com - this is a free site that lets you create a portfolio of stocks with $100,000 in "play" money. Each day the site ranks the best performing portfolios, so you can see how your picks perform compared to other investors. You can also read posts on investing from the best traders, as well as share your own investing ideas.

Here are this month's best traders:

http://www.top10traders.com/top10standin...

Good luck!
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