If you’re wondering why there seems to be so much buzz these days about forex trading, you’re not alone. There are a number of reasons why forex trading is one of the hottest “new” investment opportunities for average folks. Fortunately, more and more information is surfacing about forex, making it a great time to start doing your research.
The purpose of this short article is to present a basic overview of key aspects which differentiate forex from other investment vehicles with which most of us are more familiar.
Today, the average person has a home computer with an internet connection. In addition, the number of people with a hi-speed broadband connection is rapidly increasing. This places a power and control in our hands that we’ve never before experienced. It’s no longer necessary to have to rely upon the technical infrastructure of banks, brokerage firms and mutual fund advisors. This is incredibly significant. The internet represents more and more independence and choice for the individual to handle investing activities.
The nature of forex fits right in with the independence and freedom of the having your internet connection. You can trade anytime from anywhere, starting with a very low investment; under $1000. There are no fees to pay and although the currency market is very liquid, it’s also very predictable. You can also make money whether markets are up or down. That’s why it works. The really fun thing is that you can get online and practice by paper trading and learn without any risk. Then, after gaining a better understanding of how it works, you can begin with a small amount and make it grow.
Previously, only the “big boys” and financial institutions were in-the-know about forex trading and very active in it as well. Seasoned investors have also been involved over the last few years. Experienced stocks and commdities traders have discovered the power of forex trading. The daily forex trading volume is said to be somewhere in the neighborhood of 1.5 trillion dollars., which is 30x the combined volume of all the US equity markets. That's some pretty tall talkin', but certainly worthy of your investigation. Now, because of certain regulatory changes that occurred in the late ‘90’s and the explosion of home computing & internet technology, forex has become an investment opportunity that most people can be involved with in the comfort of their home as they control their own investment strategies.
Like I said, this is really just a light overview, but I urge you to give some attention to forex trading and discovering more about it. You may find it quite rewarding.
Saturday, July 18, 2009
Fast vs Slow money
It is a known law of physics that an object in motion tends to stay in motion. Why then would a person expect that investing small amounts of money each month ever expect to receive the windfall profits they hope for? Small efforts produce small rewards. The rabbit will most often prevail over the tortoise in the game of life. That is why it is necessary to learn to use fast money instead of slow. That is the reason to trade the forex market.
The market is open Sunday afternoon until Friday at 4pm eastern. There are opportunities for profit at almost any time of day. No one is left out in any time zone.
The forex market is the best trending market in existence. Money is constantly changing hands. Trading opportunities abound day and night. Minimal investments can create large profits. With the proper use of leverage, a simple $300 investment can become a massive $30,000 in as little as six months.
Government data is released on a regular basis almost everyday. These releases can produce huge price swings which are easily tradable. Most notable is interest rate decisions, payroll data and speeches by the heads of individual countries central banks.
There are many resources for free charts and demo trading platforms available on the net. It is possible to have a firm grasp of the basics of trading forex in as little as 30 days. While it may not be possible to be master trader overnight, there are many who have achieved success in extremely small amounts of time. With the proper use of risk control and money management anything is possible.
The market is open Sunday afternoon until Friday at 4pm eastern. There are opportunities for profit at almost any time of day. No one is left out in any time zone.
The forex market is the best trending market in existence. Money is constantly changing hands. Trading opportunities abound day and night. Minimal investments can create large profits. With the proper use of leverage, a simple $300 investment can become a massive $30,000 in as little as six months.
Government data is released on a regular basis almost everyday. These releases can produce huge price swings which are easily tradable. Most notable is interest rate decisions, payroll data and speeches by the heads of individual countries central banks.
There are many resources for free charts and demo trading platforms available on the net. It is possible to have a firm grasp of the basics of trading forex in as little as 30 days. While it may not be possible to be master trader overnight, there are many who have achieved success in extremely small amounts of time. With the proper use of risk control and money management anything is possible.
Forex prices-influences on prices
This article will explain some of the differences between Technical Analysis and Fundamentals and explain a bit about each type of trading. Excerpts are taken from the best-selling book ‘Market Wizards’ where Jack Schwager interviews Ed Seykota and Bruce Kovner.
Ed is a trend trader (uses technical analysis) and also relies on hunches from 20 years of experience. He definitely emphasizes his reliance on technical analysis. While reading this, I liken, the ‘hunches’ to knowing the effect fundamentals can have on a market although I could be mistaken, they could be purely from reading lots of charts so well. Here are is exact words “Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them ‘funny-mentals.’ However, if you catch on early, before others believe, then you might have valuable ‘surprise-a-mentals.’”
Ed says his priorities when trading are the long term trend, the current charts and picking a good spot to buy or sell, in that order.
Bruce says technical is awesome and very useful but by no means disregards fundamentals.
It’s important to note that technical analysis is a critical method of understanding the history of market movements and hence useful to identify trends. It doesn’t actually tell us where the currency is going but analyses historical data. We then need to use our own intelligence to see what the activity of trading says about future trades.
Technical Analysis can be compared to taking a patient’s temperature. To ignore it is ignorance and it can tell you whether a market is active, or cold and dormant.
It also picks up unusual behaviour. Anything that creates a new chart pattern is something unusual. He also says “Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes.”
It’s the fundamentals that will help to indicate whether a trading value will increase or decrease.
Everything that makes a country tick, in Forex terms. Consumer spending, government spending, employment cost index, government policy, political concerns and even an individual event can influence the market heavily.
In summary, the fundamentals will indicate the direction of a price but not exact prices. The chart analysis or technical analysis is better for that, so together you can really increase your chances of coming away with some pips.
The reason technical analysis is so emphasized is that many traders use charts to trade and at any given time, will be drawing the same lines of resistance and same lines of support. So if you can read the charts well, you have an awesome chance of predicting market movements. The best way to learn about the effect of fundamentals is to learn one piece of economic data at a time. This will help you make better-educated trades.
Ed is a trend trader (uses technical analysis) and also relies on hunches from 20 years of experience. He definitely emphasizes his reliance on technical analysis. While reading this, I liken, the ‘hunches’ to knowing the effect fundamentals can have on a market although I could be mistaken, they could be purely from reading lots of charts so well. Here are is exact words “Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them ‘funny-mentals.’ However, if you catch on early, before others believe, then you might have valuable ‘surprise-a-mentals.’”
Ed says his priorities when trading are the long term trend, the current charts and picking a good spot to buy or sell, in that order.
Bruce says technical is awesome and very useful but by no means disregards fundamentals.
It’s important to note that technical analysis is a critical method of understanding the history of market movements and hence useful to identify trends. It doesn’t actually tell us where the currency is going but analyses historical data. We then need to use our own intelligence to see what the activity of trading says about future trades.
Technical Analysis can be compared to taking a patient’s temperature. To ignore it is ignorance and it can tell you whether a market is active, or cold and dormant.
It also picks up unusual behaviour. Anything that creates a new chart pattern is something unusual. He also says “Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes.”
It’s the fundamentals that will help to indicate whether a trading value will increase or decrease.
Everything that makes a country tick, in Forex terms. Consumer spending, government spending, employment cost index, government policy, political concerns and even an individual event can influence the market heavily.
In summary, the fundamentals will indicate the direction of a price but not exact prices. The chart analysis or technical analysis is better for that, so together you can really increase your chances of coming away with some pips.
The reason technical analysis is so emphasized is that many traders use charts to trade and at any given time, will be drawing the same lines of resistance and same lines of support. So if you can read the charts well, you have an awesome chance of predicting market movements. The best way to learn about the effect of fundamentals is to learn one piece of economic data at a time. This will help you make better-educated trades.
Benifits and advantages of FOREX
Many people are looking at getting into day trading, and start with studying the Stock Market, and the different stock exchanges. What many don’t realize is that there are different markets and financial instruments that one can profit from. One market that has recently become available to the public to trade is the Foreign Currency Exchange, the FOREX.
The foreign exchange market is the largest financial market in the world. It trades upwards of 2.5 trillion dollars per day, which is approximately 1000 times the volume of the New York Stock Exchange. Quite easily, the foreign exchange market dwarfs the stock market of any country.
So, where is the foreign currency market? Well, unlike the stock exchanges of the world. The foreign currency market is a virtual market that is connected by the internet, phones, and fax.
The advantage of having a worldwide currency market is that it is open 24 hours a day, 5 days a week. Living in the USA, one could trade 24 hours per day Sunday 5pm to Friday 4pm EST. One can only trade stocks during normal market hours, so for those that have jobs during the day, the FOREX market is much more accessible as trading can be done at night or early in the morning before going to work.
Other benefits of the foreign currency exchange include:
1. High Leverage: Currency brokers usually give their traders 100:1 leverage, meaning that if there is $1000.00 in ones account, they will let one control $100,000.00, which allows currency traders to reap large gains from relatively small price movements in the market.
2. High Liquidity: Because the currency market is the largest market in the world with huge daily volumes, one is always able to get in and out of trades as liquidity is never an issue.
3. Stops are always honored: Except in extremely volatile markets, which is rare, limits and stops are always honored. Because of the market’s liquidity and 24 hour continuous trading periods, dangerous trading gaps are eliminated altogether. Orders are executed very quickly, without slippage. In the stock market, it is much more frequent that stops get skipped over as stock prices plummet, but in the FOREX, one can be much more confident that the stops are honored.
4. Entry orders are instant: There is no lag time in placing an order. Orders are processed instantly at the current market price, or the price at which you set the order to enter the market in the future.
5. No Commissions: There are no commissions in currency trading, the broker just takes a small difference between the bid price and the ask price as its fee for the transaction.
As currency markets are some of the most volatile markets, many fundamental variables such as weather, and war affect the price of the currency, however, since there is no one apparent reason much of the time for price movement, the fundamentals get discounted and one can use an almost purely technical approach to trading. This is why the FOREX is considered one of the most predictable trending markets that follows technical analysis methods more than any other market.
As one can see, there are many great benefits to using the FOREX as a highly profitable financial instrument. One can trade from home in their spare time, but first it is important to get a solid education in learning specific FX trading methods. Before trading in a live account, it is important to first get educated using books, or online courses. There are many courses online selling for upwards of $3000.00, but it is not necessary to spend that kind of money to get a good education. Usually the expensive courses come with DVD’s and other expensive items that raise the price. Much of the time one can find a course for under $500 that teaches the exact same content for much less money.
Wishing You Success in Trading!
The foreign exchange market is the largest financial market in the world. It trades upwards of 2.5 trillion dollars per day, which is approximately 1000 times the volume of the New York Stock Exchange. Quite easily, the foreign exchange market dwarfs the stock market of any country.
So, where is the foreign currency market? Well, unlike the stock exchanges of the world. The foreign currency market is a virtual market that is connected by the internet, phones, and fax.
The advantage of having a worldwide currency market is that it is open 24 hours a day, 5 days a week. Living in the USA, one could trade 24 hours per day Sunday 5pm to Friday 4pm EST. One can only trade stocks during normal market hours, so for those that have jobs during the day, the FOREX market is much more accessible as trading can be done at night or early in the morning before going to work.
Other benefits of the foreign currency exchange include:
1. High Leverage: Currency brokers usually give their traders 100:1 leverage, meaning that if there is $1000.00 in ones account, they will let one control $100,000.00, which allows currency traders to reap large gains from relatively small price movements in the market.
2. High Liquidity: Because the currency market is the largest market in the world with huge daily volumes, one is always able to get in and out of trades as liquidity is never an issue.
3. Stops are always honored: Except in extremely volatile markets, which is rare, limits and stops are always honored. Because of the market’s liquidity and 24 hour continuous trading periods, dangerous trading gaps are eliminated altogether. Orders are executed very quickly, without slippage. In the stock market, it is much more frequent that stops get skipped over as stock prices plummet, but in the FOREX, one can be much more confident that the stops are honored.
4. Entry orders are instant: There is no lag time in placing an order. Orders are processed instantly at the current market price, or the price at which you set the order to enter the market in the future.
5. No Commissions: There are no commissions in currency trading, the broker just takes a small difference between the bid price and the ask price as its fee for the transaction.
As currency markets are some of the most volatile markets, many fundamental variables such as weather, and war affect the price of the currency, however, since there is no one apparent reason much of the time for price movement, the fundamentals get discounted and one can use an almost purely technical approach to trading. This is why the FOREX is considered one of the most predictable trending markets that follows technical analysis methods more than any other market.
As one can see, there are many great benefits to using the FOREX as a highly profitable financial instrument. One can trade from home in their spare time, but first it is important to get a solid education in learning specific FX trading methods. Before trading in a live account, it is important to first get educated using books, or online courses. There are many courses online selling for upwards of $3000.00, but it is not necessary to spend that kind of money to get a good education. Usually the expensive courses come with DVD’s and other expensive items that raise the price. Much of the time one can find a course for under $500 that teaches the exact same content for much less money.
Wishing You Success in Trading!
Forex-the future investment option
There are many many advantages over the various other ways of investing. First of all it is a 24 hr market, except for weekends of course. You have the US market then the European and then the Asian. One of the great times to trade is during the over lapping periods. The USA and European overlap between 5am & 9am eastern and the Euro & Asian between 11pm & 1am eastern. Usually the busiest time and best to trade.
The is also the risk factor for the accounts. With futures and options you can get margin calls that can wipe you out. If you get caught in a bad trade not only do you lose the money in the account but you may have to come up with a lot more from your pocket. It can be very risking. But not in Forex. Worst case scenario you could lose whats in you account. But you would have to do something really stupid. Like making a big trade on a Fundamental day and leave it alone. If market takes a bad move and you weren't there. OOOPS. But That wouldn't happen with a smart trader.
Then there are the demo accounts which is an account where you can trade using all the right things, platform, charts, and information. But you are using play money, or what we call paper trading too.
Plus with Forex you have a mini account. Instead of needing thousands of dollars to get into it. You can open an account with as little as $300.00. Now of course you will be trading at 1 tenth of a trade. IN other words you controling 10,000 instead of 100,000.00 These are call lots. Which also means you will only risk 1 tenth too!
So if you would love to learn to do investing and not have near the risk you really need to take a closer look at Forex trading.
The is also the risk factor for the accounts. With futures and options you can get margin calls that can wipe you out. If you get caught in a bad trade not only do you lose the money in the account but you may have to come up with a lot more from your pocket. It can be very risking. But not in Forex. Worst case scenario you could lose whats in you account. But you would have to do something really stupid. Like making a big trade on a Fundamental day and leave it alone. If market takes a bad move and you weren't there. OOOPS. But That wouldn't happen with a smart trader.
Then there are the demo accounts which is an account where you can trade using all the right things, platform, charts, and information. But you are using play money, or what we call paper trading too.
Plus with Forex you have a mini account. Instead of needing thousands of dollars to get into it. You can open an account with as little as $300.00. Now of course you will be trading at 1 tenth of a trade. IN other words you controling 10,000 instead of 100,000.00 These are call lots. Which also means you will only risk 1 tenth too!
So if you would love to learn to do investing and not have near the risk you really need to take a closer look at Forex trading.
Getting Started with 4x-market
I was first introduced to the FOREX (4X) market, the cash market for currencies, at a "4X Made Easy" seminar. The speakers made it sound easy to profit in the market using their trading systems and software, but I was discouraged by the high cost (several thousand dollars) to get started and the recurring monthly fees to continue using their systems and software, so I began to do some research of my own. With a little bit of searching, I found resources that were of little or no cost to get started. It took a little more time and effort, but I was able to gain the knowledge and information necessary to feel comfortable investing in the FOREX market. The purpose of this article is to share with you the resources I found so you can begin investigating this lucrative financial market as soon as possible.
I began my quest with an internet search using such key words as FOREX, FX market, FOREX trading systems, charts etc. This search pulled up a multitude of resources, many requiring and additional investment to access their knowledge, but many free resources were also revealed. One of my favorite sites that I frequent often is fxstreet.com. This site is mostly free giving one access to free live and delayed streaming quotes, free access to real-time charts, free education and training and links to many other sites that can help as well. They are also linked to many of the preferred trading sites that you can actually use to get your trading business started as well.
Before investing real dollars into this market, I would suggest doing two things first: 1) develop a trading system and plan that will allow you to get in and out of the market with the least amount of risk or loss possible; and 2) paper-trade the market to test drive your systems before you invest real dollars into the market. Unfortunately, most of the free information regarding trading systems is basic and introductory; you will have to invest in some training and courses to get started, but you do not have to spend thousands of dollars to get the information.
The 4X Profit Professor is one site that is dedicated to on-going 4X education at a fraction of the price other sites are charging. Many of the trading sites will provide you with free access to a paper trading account as an incentive to register with their site. I won't make a specific recommendation here, but browse through several of the links on fxstreet.com and find one you are comfortable with. Realistically, you should plan on paper-trading for three to six months before ever investing any real money into the market.
Many people ask, "Why would I want to invest in the FOREX market anyway?" To conclude, I would like to share with you some of the reasons I think the FOREX market is one of the best investment opportunities around today. 1) Easy of entry into the market. You can get started for as little as three-hundred dollars, where most other markets require an opening balance of five thousand or more to get started.
2) You can big money just working a few hours a week from you computer. You don't have to wait weeks and months for the investment to grow and give you a positive return.
3) The FOREX market is highly liquid with 1.8 trillion dollars exchanging hands daily, you can get in an out of a position at a fair price and have access to the market daily, 24x7, because there are markets open around the world, which you can easily access with an internet connection from you computer.
4) Because of the liquidity of this market, you can leverage your account 100:1 allowing you to invest smaller amounts (compared to stocks 1:1; commodities 15:1) and have higher returns quicker.
5) You can paper-trade the market first, without risking any of your own money, so you can develop the trading systems and plans that will work best for you. Technical analysis works very well in this market and you can make money whether the market is moving up or down, or not moving at all.
6) Finally, once you have a proven trading system down, you can supplement or replace your income, increase your savings and retirement accounts and retire from your regular job much sooner than you ever thought possible.
Take a serious look at the FOREX market. It is real. People are making a ton of money and so can you.
I began my quest with an internet search using such key words as FOREX, FX market, FOREX trading systems, charts etc. This search pulled up a multitude of resources, many requiring and additional investment to access their knowledge, but many free resources were also revealed. One of my favorite sites that I frequent often is fxstreet.com. This site is mostly free giving one access to free live and delayed streaming quotes, free access to real-time charts, free education and training and links to many other sites that can help as well. They are also linked to many of the preferred trading sites that you can actually use to get your trading business started as well.
Before investing real dollars into this market, I would suggest doing two things first: 1) develop a trading system and plan that will allow you to get in and out of the market with the least amount of risk or loss possible; and 2) paper-trade the market to test drive your systems before you invest real dollars into the market. Unfortunately, most of the free information regarding trading systems is basic and introductory; you will have to invest in some training and courses to get started, but you do not have to spend thousands of dollars to get the information.
The 4X Profit Professor is one site that is dedicated to on-going 4X education at a fraction of the price other sites are charging. Many of the trading sites will provide you with free access to a paper trading account as an incentive to register with their site. I won't make a specific recommendation here, but browse through several of the links on fxstreet.com and find one you are comfortable with. Realistically, you should plan on paper-trading for three to six months before ever investing any real money into the market.
Many people ask, "Why would I want to invest in the FOREX market anyway?" To conclude, I would like to share with you some of the reasons I think the FOREX market is one of the best investment opportunities around today. 1) Easy of entry into the market. You can get started for as little as three-hundred dollars, where most other markets require an opening balance of five thousand or more to get started.
2) You can big money just working a few hours a week from you computer. You don't have to wait weeks and months for the investment to grow and give you a positive return.
3) The FOREX market is highly liquid with 1.8 trillion dollars exchanging hands daily, you can get in an out of a position at a fair price and have access to the market daily, 24x7, because there are markets open around the world, which you can easily access with an internet connection from you computer.
4) Because of the liquidity of this market, you can leverage your account 100:1 allowing you to invest smaller amounts (compared to stocks 1:1; commodities 15:1) and have higher returns quicker.
5) You can paper-trade the market first, without risking any of your own money, so you can develop the trading systems and plans that will work best for you. Technical analysis works very well in this market and you can make money whether the market is moving up or down, or not moving at all.
6) Finally, once you have a proven trading system down, you can supplement or replace your income, increase your savings and retirement accounts and retire from your regular job much sooner than you ever thought possible.
Take a serious look at the FOREX market. It is real. People are making a ton of money and so can you.
Tuesday, July 14, 2009
MARKET INDICATORS
Market indicators add significant depth to techinical analysis because they contain much more information than price and volume. A typical approach is to use market indicators to determine where the overall market is headed and then use price/volume indicators to determine when to buy or sell an individual security. The analogy being "all boats rise in a rising tide," it is therefore much less risky to own stocks the market is rising.
Market indicators typically fall into three catagories: 1.Monetary 2.Sentiment and 3.Momentum
1.Monetary market indicator: Monetary indicators concetrate on economic data such as interest rates. They help you determine the economic environment in which business operate. These externel forces directly affect a business profitability and share price.
Exmples of monetary indicators are interest rates, the money supply, consumer debt, and inflation.
2.Sentiment market indicators: Sentiment market indicators focus on investor expectations often before those expectations are discernible in prices. With an individual security, the price is often the only meausre of investor sentiment available. However, for large market suc as the New York Stock Exchange, many more sentiment indicators are available. These include the number fo odd lot sales(i.e., what are the smallest investors doing?), the put/call ratio (i.e., what are the people are buying puts versus calls?), the premium on stock index futures, the ratio of bullish versus bearish investment advisors, etc.
3.Momentum market indicator: The third catogery of market indicators momentum, shows what prices are actually doing. But do so by looking deeper than price examples of momentum indicators include all of the price/volume indicators applied to the various market indices(e.g., the MACD), the number of stocks that made new highs versus the number of stocks making new lows, the relationship between the number of stocks that advanced in price versus the number that declined, the comparision of the volume associated with increased price with the volume associated with decreased price, etc.
A) The external monetary conditions affecting security prices, this tells us what security prices should do.
B) The sentiment of various sectors of the investment community. This tells us what investor expect prices to do.
C) The current momentum of the market. This tells us what prices are actually doing.
Market indicators typically fall into three catagories: 1.Monetary 2.Sentiment and 3.Momentum
1.Monetary market indicator: Monetary indicators concetrate on economic data such as interest rates. They help you determine the economic environment in which business operate. These externel forces directly affect a business profitability and share price.
Exmples of monetary indicators are interest rates, the money supply, consumer debt, and inflation.
2.Sentiment market indicators: Sentiment market indicators focus on investor expectations often before those expectations are discernible in prices. With an individual security, the price is often the only meausre of investor sentiment available. However, for large market suc as the New York Stock Exchange, many more sentiment indicators are available. These include the number fo odd lot sales(i.e., what are the smallest investors doing?), the put/call ratio (i.e., what are the people are buying puts versus calls?), the premium on stock index futures, the ratio of bullish versus bearish investment advisors, etc.
3.Momentum market indicator: The third catogery of market indicators momentum, shows what prices are actually doing. But do so by looking deeper than price examples of momentum indicators include all of the price/volume indicators applied to the various market indices(e.g., the MACD), the number of stocks that made new highs versus the number of stocks making new lows, the relationship between the number of stocks that advanced in price versus the number that declined, the comparision of the volume associated with increased price with the volume associated with decreased price, etc.
A) The external monetary conditions affecting security prices, this tells us what security prices should do.
B) The sentiment of various sectors of the investment community. This tells us what investor expect prices to do.
C) The current momentum of the market. This tells us what prices are actually doing.
Monday, July 13, 2009
INDICATORS
An indicator is anything that can be used to predict future financial or economic trends. For example, the social and economic statistics published by accredited sources such as U.S. government departments are indicators. Popular indicators include unemployment rates, housing starts, inflationary indexes and consumer confidence. Official indicators must meet certain set criteria; there are three categories of indicators, classified according to the types of predictions they make.An indicator is a mathematical calculation that can be applied to a security's price/or volume fields.The result value that is used to anticipate future changes in prices.
Lagging indicator: "Lagging" indicators are also known as trend following indicators. These indicators are superb when prices move in relatively long trends. They dont warn you of upcoming changes in prices; they simply tell you what prices are doing(i.e., rising or falling) so that you can invest accordingly, trend following indicators have you buy & sell late and, in exchange for missing the early oppurtunities, they greatly reduce your risk by keeping you on the right side of the market, trend following indicators do not work well in side ways market.
moving averages and the MACD are edxamples of trend following, are "lagging" indicators.
A lagging indicator is one that follows an event. Back to our traffic light example: the amber light is a lagging indicator for the green light because amber trails green. The importance of a lagging indicator is its ability to confirm that a pattern is occurring or about to occur. Unemployment is one of the most popular lagging indicators. If the unemployment rate is rising, it indicates that the economy has been doing poorly.
Leading indicators: "Leading" indicators help you profit by prediciting what prices will do next. Leading indicators provede greater rewards at he expence of increased risk, they perform best in side ways, "trading" markets. Leading indicators typically work by measuring how "overbought" or "oversold" the security is. This is done with the assumption that a security that is "oversold" will bounce back.These types of indicators signal future events. Think of how the amber traffic light indicates the coming of the red light. In the world of finance, leading indicators work the same way but are less accurate than the street light.
What type of indicators you use, leading or lagging, is a matter of personal preference. It has been my experience that most investors are better at following trends than predicting them.Sunday, July 12, 2009
TRENDS
A trend represents a consistant change in prices.Trends differ from support/resistance levels in that trends represent change,whereas support/resistance levels represent barriers to change.
RISING TREND:
A rising trend is defined by successively higher low-prices.A rising trend can be thought of as a rising support level-the bulls are in control and are pushing prices higher.
RISING TREND:
A rising trend is defined by successively higher low-prices.A rising trend can be thought of as a rising support level-the bulls are in control and are pushing prices higher.
FALLING TREND:
A falling trend is defined by sucessively lower high-prices.A falling resistance level-the bears are in control and are pushing prices lower.
TREND LINES:
Trends areoften measured and identified by"trend lines".A trend line is a sloping line that is drawn between two or more prominent points on a chart.Rising trends are defined by a trend line that is drawn between two or more troughs(low points) to identify price support.Falling trends are defined by trend lines that are drawn between two or more peaks(highs) to identify the resistance.
INTERPRETATION: A principle of technical analysis is that once a trend has been formed(two or more peaks/troughs have touched the trend line and reversed direction) it will remain intact untill broken.
That sounds much more simplistic than it is!The goal is to analyse the current trend using trend lines and then either invest with the current trend untill the trend line is broken,or wait for the trendline to be broken and then invest with the new(opposite) trend.
One benefit of trendlines is that they help distinguish emotional decisions ("I think it's time to sell...") from analyticaldecisions(I will hold untill the current rising trendline is broken").Another benefit of trendlines is that they almost always keep you on the "right" side of the market.When using trendlines,it's difficult to hold the security for very long when prices are falling just as it's hard to be short when prices are rising--either way the trendline will be broken.
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