Forex Trading Guide

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What Are Financial Markets And Ways To Invest?

What are financial markets and how do they affect the economy? Financial markets are known by many terms like markets, capital markets, and even stock markets, although this is one of many financial markets. These loose terms tend to confuse people.

However, the best definition of a financial market is that it is a financial transaction that allows a business to grow and an investor to make money. Of course, if the company does not prosper, the investor has also assumed a risk of loss.

The most common financial markets are the stock market, mutual funds, bond market, and commodities. In considering what are financial markets, it's important to recognize the role of the stock market. And shares in a public corporation that are sold so investors can raise a large sum of money immediately. When the company makes money, the investors make a profit. The stock market, as a whole, also keeps the US economy growing. While it is easy enough to buy stocks, profitable investments come from buying stocks in a successful company.

Most people think of the stock market as the Dow, but the stock market is more than the Dow. The Dow is a moniker for the Dow Jones Industrial Average, but there are also other types of Dow markets, like the Dow Jones Transportation Average and the Dow Jones Utility Average. The stocks that compose these averages can be found on the NASDAQ, the New York Stock Exchange, and others.

Mutual funds are a way to buy numerous stocks simultaneously. This is easier than buying stocks individually. Mutual funds benefit the US economy because they reduce the volatility of the stock market. Like stocks, an investor has to learn how to pick the right mutual funds to earn a profit.

A bond is security for a debt, much like an IOU An investor who purchases a bond is lending money to a federal agency, municipality, corporation, or government. Bonds often work in contrast to stocks. When stocks go down, then bonds go up, and the other way around. There are many types of bonds: municipal bonds, corporate bonds, and Treasury bonds, for example. Bonds provide liquidity for the US economy. They also affect mortgage interest rates.

Also, in defining what are financial markets, it's important to consider the significance of commodities. Commodities are essential raw materials necessary for an economy. They are natural products like oil, gold, cattle, wheat, and orange juice. Investors buy and sell on speculation, and they are often called speculators. Some commodities can affect the entire US economy, including the stock market. When oil goes up or down, the price is a result of what happens in the commodities future market. A future is payment for something now that will be delivered later. Futures can be leveraged, meaning money can be borrowed to buy the commodity.

Source by Cedric Welsch

The Dangerous World of E-Currency

Over the last six to seven years we have all seen numerous eCurrencies come and go. OsGold, Evocash, E-bullion, AlterGold, the list goes on and on. There were literally millions of dollars lost when these self proclaimed electronic currencies collapsed and scammed thousands of individuals and business’s. So how can we trust the numerous new eCurrencies that have been popping up seemingly every month? The answer is we really can’t.

For those of you who are unfamiliar with the term e-currency, let me just quickly explain it. An E-currency is an online fiat currency that people use to make transactions online. Most of these currencies are used in order to make their users, particularly sellers feel more secure. Companies like Paypal allow charge backs and other methods of payment reversals. While this is great to protect protect buyers from fraudulent charges and scam sellers, it doesn’t do anything to protect the sellers themselves. For instance if a merchant was to sell something that was not really tangible, like a service, a domain name, etc, the buyer could feasibly reverse the transaction and in turn get away with the service for free. What most eCurrencies do is eliminate the seller risk and place it solely on the buyer. This is why e-currencies are the preferred payment choice of online investment programs.

The problem with E-currencies is that they all operate outside the US Jurisdiction. This is because one needs to be licensed to run any type of currency online, meaning that they have to obide by strict United States regulation, which are in place to protect the public. When these currencies go offshore, it often means they are not regulated, and can pretty much do as they choose. This includes setting up their e-currencies with a ponzi scheme like backdrop. This is what companies like OsGold, Altergold, and Evocash were accused of doing. They stored money for people, and when they get millions of dollars in storage, simply run off. Luckily most of these crooks are caught eventually, but the clients of these eCurrencies are stuck holding a bag of worthless electronic money.

In conclusion it is very important to make sure you do not simply trust every company out there. Never leave extraordinary sums of money laying around in your eCurrency account, and always do proper due diligence on the company before you start accepting them as a form of payment for your business.

Source by Brian Krassenstein

The RSI Paint Indicator Makes Your Trade Entry Objective, Not Subjective

Much is being written these days about objective and subjective trade entry methods. If you are unfamiliar with this I will attempt to explain the difference in this article and provide and example of an objective signal using The RSI Paint Indicator.

What is a subjective trading signal?

Most of us are aware of subjective trading signals because most of us learn from others who are using these signals who learned them from others. For example, the hand drawn trend line. Although there are rules to drawing trend lines, nearly everyone draws them differently. Given the same trading chart 10 traders might select 10 different places to draw their trend lines. Who is to say which is right or wrong?

That is the point, subjective signals like hand drawn trend lines are interpretive. There can be any number of reasons for placing them from spot to spot and it is impossible to prove them right or wrong because they can’t be programmed to be the same each time.

Chart patterns fall into the same category and although we see them and think they tell us something specific there is no statistical data that proves that what they tell us is significant; again because the pattern is not programmable. It tells a story but that is it, the story has many meanings depending on who is telling it. This is true of many of the methods that traders use each day in the market and swear by such as; Elliott Wave, Gann, and Fibonacci.

What is an objective trading signal?

An objective trading signal is algorithmic. It is programmed.

“The acid test for distinguishing an objective from a subjective method is the programmability criterion: A method is objective if an only if it can be implemented as a computer program that produces unambiguous market positions (long, short, or neutral). All the methods that cannot be reduced to such a program are, by default, subjective. David Aronson, Evidence-Based Technical Analysis

The RSI Paint Indicator

The RSI, the Relative Strength Index, when used in conjunction with The RSI Paint Indicator and the 4 RSI Trading Signals is a standalone system that generates a signal that is objective and then allows the trader to decide based on other decision-making parameters whether the signal is a good one or not. These parameters include knowing where and when momentum is most likely to occur in the market. This information can be tracked and reported as frequently as needed based on the time frame of the currency pair(s) being traded.

Knowing whether the signal you are trading is objective or subjective can improve profits and make the trading signal clearer to the trader. Not all objective signals are successful however so research into the type of signal is important and a topic for perhaps another article. You can read more about RSI by reading RSI Fundamentals: Beginning to Advanced or by downloading the free eBook at the link below.

Source by Paul W. Dean

CFD Corporate Actions – Share Splits and Rights Issues

Corporate actions are a frequent occurrence in the Australian Market. Typically your CFD position will mirror the corporate actions associated with owning the underlying share. Holders of a CFD position can participate in Corporate actions, including share splits and rights issues however in certain circumstances where a corporate action involves a number of options your CFD provider may not allow you to choose but will rather select an option which will be applied to all of their clients open CFD positions.

A stock split is corporate action that involves dividing the number of existing shares on issue into smaller parcels. Stock splits result in an increase in the number of shares on issue by a specific multiple however the total dollar value of the shares remains the same as the value prior to the share split, this is because no value has been added as a result of the split. The main reason why stock splits occur is because a company’s share price has increased to a level making them too expensive for investors to afford.

When the underlying share over which your CFD is based undergoes a stock split the price will usually fall in proportion to reflect the an increase in the number of shares on issue. Your CFD provider will also adjust the number of CFDs you own meaning that you will be in the same financial position as owners of the underlying stock.

A rights issue is an offer to existing shareholders in a company to purchase additional new shares. Rights Issues involves issuing shareholders new securities called “rights”, which give them the right to purchase new shares at a discount to the market price at a date in the future. Essentially the company is offering shareholders an opportunity to increase their share holding at a discounted price.

Until the date at which the new shares can be purchased, shareholders can trade the rights, in much the same way as the shares themselves. The rights issued have a value which is determined by the market to compensate existing shareholders for the dilution of the value of their shares.

When the underlying share over which your CFD is based undergoes a rights issue, owners of the CFD position also receive rights that are tradeable in the same way as the rights issued to shareholders. There may be certain circumstances where your CFD provider will simply credit your account with the cash value of the rights on their last of trading or simply allow you to purchase additional CFDs at the price attributable to owners of the rights.

Before you start trading CFDs it is important that you understand how corporate actions can affect your CFD positions.

Source by Marcus Portland

Day Trader Confessions – Time to Come Clean

By definition I would be a day trader. Why? Because I trade online regularly, make the trades myself and trade at least one stock per day.

I have a great respect for day traders. Day traders are the real juice in the markets because there are thousands of us willing to play the game every day. One institution buying a million shares does little to affect the market, compared with 25 day traders each buying 40,000 shares. It’s the smaller trades that add liquidity to the markets every day. So yes, long live the day trader.

But I do need to be honest and make a few day trader confessions:

1 – Sometimes I trade too often, and spend too much on commissions. Guilty!

2 – Sometimes I buy stocks on rumour and then get stuck holding the bag. Guilty!

3 – Sometimes I hold on to a stock for far too long to avoid a loss. Guilty!

Honest Day Trader Confessions do have an upside. As I write them down and review them daily, I am far less likely to keep repeating the same mistakes. At least that’s the hope.

Day traders can live in isolation and that’s a huge mistake. I don’t advocate you jump into all the message boards either. There are some real dangers lurking there for the unsuspecting. What I am talking about is learning a few tricks that will turn around your day trader skills.

1 – Learn how to follow the money. Meaning, go where the action and heavily traded stocks are. These are liquid, easy to enter and exit stocks. Watching the trading patterns with Level 2 will allow you to pick very good entry positions.

2 – Learn to buy the news. You heard right! Good news brings volume to a stock and volume allows you to be a part of the action. Example: Evolving Gold Corp EVG.V a junior Canadian mining company traded 15 million shares on Tuesday July 14, 2009. The good news allowed the stock to trade between .58 and .95 in a single day. So buying into the news smartly, can be highly profitable.

3 – Learn to take a loss. Hanging on to a bad stock for too long means dead money. Better to lose a few hundred dollars today and make it back in a few days than wait six months and potentially lose thousands more. Remember, every day your money is sitting still, is another day of lost opportunities. Read that again!

So after you make your own day trader confessions where do you go. I can tell you what I did. I went to the Stock Research Portal. It’s a free site that focuses on the mining, oil and gas sectors. Sectors that I personally follow all the time.

Source by Mike Perras

Best Scalping Strategy For Day Traders

I’ve listened to several of my local banker buddies talk about trading in general, and scalping in particular. These bankers explain to me that “there is no way to make money day trading” because of excessive risk involved in the enterprise. Not being the most genial fellow on planet earth, I explain to them that scalping, done properly, is one of the most profitable trading strategies available to retail-class traders, given a certain level of experience and knowledge. Of course therein lies the rub.

Since I am a dyed in the wool scalper and teach individuals how to scalp effectively, I run into a plethora of different strategies taught to new traders by well-meaning trading rooms and educators. Of course, I want to emphasize that trading in the shortest time frame is an acquired skill and inexperienced traders will struggle mightily without the proper tools and mindset. Consistency in scalping is the name of the game and scalping consistently takes a good deal of discipline and self-control. You don’t need to take every mildly attractive set-up, and should focus on the high-probability set-ups that pop-up throughout the course of the day.

What is the secret to consistently profitable scalping?

Real time indicators are the most realistic path to becoming successful in trading. Yet, the general trading public (especially e-mini traders) have been slow (which is a huge understatement) to accept what institutional traders have known all along; the market is dynamic in movement and reaction to that movement has to be interpreted quickly and trade set-ups recognized as they transpire.

Given that the general trading population is still mired in J. Wells Wilder’s groundbreaking market analysis published in his 1978 book, “New Strategies in Technical Trading Systems,” trader after trader that enters my small trading room insists on perpetuating and arguing the merit of attacking the market with these lagging indicators, which are far better suited to swing trading than scalping. I am not debating the genius of Wilder and his contemporaries; I am simply stating that recent improvements in technology and data feeds provide new traders with the type of information to scalp that has, until recently, been unavailable to traders at the retail level.

What are these tools that I am touting so highly?

Quite simply, modern day order flow programs that allow you to analyze volume and direction in real time put lagging indicators to shame. I also happen to utilize some older analysis methods too, especially Market Profile. Using these tools with a specific trading methodology and a written trading plan can genuinely improve your scalping results dramatically. I have converted many lagging indicator traders to this system of trading thinking. Of course, many traders at the onset are skeptical of new and different takes on day trading, but most have generally come around and learn to trade consistently and profitably.

One quick note on Market Profile; I am not of the opinion that this system is particularly effective in indicating specific trades. However, by understanding general areas in the daily range that are most conducive to high-probability set-ups, then using order flow analysis to identify specific levels for those trades’ results in some astounding results. Further, I do use one “old school” indicator (the Commodity Channel Index) as a confirming indicator in my trade set-up analysis.

In short, if you are trying to scalp out 20 ticks per trade and using lagging indicators to this end, you will find yourself several bars behind the order flow guys. In other words, you will be consistently late to the party; and in the scalping world being late to the party cuts deep into your profits. Of course, programs similar to the current order flow programs have been available at the institutional level for years, but now retail traders can enjoy trading on a more level playing field with the big boys. Still, I haven’t seen a high level of acceptance among retail day traders of these newer technological developments. It’s a conundrum I don’t fully understand; perhaps the charts look a bit complicated, but with some time spent studying the order flow tools they can be understood and interpreted with relative ease.

In summary, I have continued to urge traders to move away from traditional scalping methodology and embrace the more sophisticated and effective order flow/tape reading programs available. I am convinced that they are a significant upgrade over the lagging indicators of time past. Technology has changed, and its high time traders adapted their trading style to these new developments.

Source by David S. Adams