forex Archives — Beating Broke

“If you are a newbie to the trading world, it is a good idea to make use of a demo account to get a feel of what trading real markets with real currency will be like,” confirms an expert trading consultant at Olsson Capital. This helps you to build experience and gears you for what trading feels like.

It does not matter if it is big or small; it still counts

One very important thing to remember is to know what the trading market as a whole looks like. The trading market is built up of traders that have millions of dollars invested as well as the part-time trader who only has a few dollars. This, in its entirety, makes the trading market what it is.

Long-term and short-term trades

If you are looking to make a few trades and want to make a profit from it, it is considered that you do short-term trading. If you keep your trades open for weeks at a time, it is considered long-term trading and the risk regarding these trades become higher as the days go by. By making use of long-term trading rather than short-term trading, you are making your trades more of an investment rather than a profit-making option.

Keeping it simple

If you trade Forex or other commodities, you might become overwhelmed by the number of tools at your disposal to execute a profitable trade. You need to take into consideration that making use of all the tools available to you will not help you make a profit. Instead, learn how to use a few of the tools very well as you will see that the trading game becomes less stressful with fewer tools.

Learn the technical analysis lingo

While trading, you need to learn about the Forex market charts, graphs and other elements of understanding a trade. Technical analysis includes knowing and being able to read trend lines as well as support and resistance lines. You also need to stay up to date with things happening in the world that might have an effect on the Forex market price.

Don’t trade with what you think but with what you see

If the market is volatile, you might think that you are going to make a profit if you ride along with the trend. The fact of the matter is that anything can happen at any given time. What you think might happen will not always happen. On the other hand, what you see when looking at market charts is the best way to indicate what a specific market trend is. Having said that, you need to trade with the trend as you can see what it is, rather than trading by what you think will happen.

Trading is regulated by the government

If you decide to become a market trader, you need to ensure you are legally protected. As you are trading with international currencies and have a stake of your own investments in these currencies, it is vital that you are protected. If you are looking for a secure trading platform for executing trades, you need to take the following into consideration:

Make sure your broker does not use the money you have invested for anything else. That way, when you want to withdraw your money, it is available within a few minutes.
Should your broker become bankrupt, you need to make sure what the amount is that will be issued over to you as a return on your investment.
If you have a Forex query that is not solved within a certain period of time, you need to ensure that the query will be forwarded onto a customer support agent that would be able to assist you.

You need to know that the process of trading is a long but fruitful one. One can never develop a guide that will give you profitable traders every single time as trading is a learning process and always will be. All you need to do is investigate, read, listen, learn and know when it is time to make the trade and when you should wait for the next opportunity to come along.

For students of investing, one of the first principles taught is that commerce occurs in cycles, much like the ebbs and flows of waves in nature. The demarcations of these business cycles are typically recessionary periods, a time for consolidation and regrouping in order to recover and begin the next positive wave. No matter what the prevailing trend might be in the cycle, various market sectors are known to historically perform better than others, providing opportunities in both bear and bull market periods. Understanding these business “seasons” and how to recognize related investment opportunities is commonly referred to as seasonal investing.

The key point is that whether you are in a down market or one in recovery, there are specific sectors that traditionally offer better returns than others. The following diagram portrays the relationship between sector performance in the stock market cycle and the peak and trough activity of the economic cycle:

The positioning of various sectors is based on a study of years of historical data and should not be construed to mean that this representation will always hold. Past performance is never a guarantee of future results, but from a pure probability perspective, there is enough consistency in the above pattern that “seasonal” investors have taken advantage of these relationships and profited in the process.

The first “takeaway” from the diagram is that the stock market generally precedes actual results in the business cycle. Analysts have estimated that the markets anticipate results six months down the road and factor those results into today’s valuations. On the chart, this timing difference is represented by the difference between the “Top” of the “blue” stock market cycle and the “Peak” of the “gold” business cycle.

The current recession ended last year, but the “trough” has been extended while a mild recovery has gradually developed. However, there has been a mild bull market for the past seven months, driven primarily by government stimulus programs. There is still doubt if our recovery will stabilize once the Fed discontinues its Quantitative Easing program in June, but currently, the market appears to be optimistic.

As mild as our recovery has been, initial attention last year focused on UPS and Fed-Ex. Transportation stocks signal that commerce is moving again. Increases in transactions are confirmation that favorable trends are imminent. Banking stocks typically move early also, reflecting more financial support for business growth, but in the current case, banks are more the exception than the rule due to persisting problems with foreclosures in the real estate industry. Technology and basic industry are next in line and have shown appreciation in the recent run-up in stock values.

Seasonal investors need not focus only on domestic offerings. Today’s investor must be global in perspective since much of the growth in global commerce has been in emerging market countries. Overseas investing does involve more risk, as anyone engaged in forex trading would advise. Gains in a foreign company can be wiped out if the Dollar appreciated materially versus the other company’s currency. A forex broker can provide hedging tools, but hedging is not for the inexperienced.

The best way to invest “seasonally” and in markets overseas is by way of the many exchange-traded fund offerings on the market. One can easily construct a well-diversified portfolio of shares from a variety of funds devoted to investing in specific market sectors. If an individual stock appeals to you, then that can also be added to the mix.

Seasonal investing benefits from the business cycle’s “rollercoaster” ride. Use these principles to get the most out of your ride.

A Complete Guide to Forex Trading