Before you can start using trends to guide your stock trades, you must first understand what stock trends are. A trend is the direction the stock price travels over a given period of time. Stocks can trend up, which means the prices are going up. Or they can trend down, which means prices are dropping. There are both short-term and long-term trends in the market to watch out for.
That said, trends are pretty unpredictable. So you should be wary of the vast number of stock trading systems that promise to predict market trends using complicated indictors. Many of these systems promise to accurately predict what will happen in the market and when. Over time, these indicators will fail, because the only constant in the stock market is change.
Trend trading is a method of risk management that takes into account the current market price (what the stock can be bought or sold for), the market volatility (how big the swings are in the market right now), and the equity level in a trader's account (how much money the investor has to invest).
Here's how it works. A general risk assessment tells the investor when to get into the market(basically when the chance of return is better than 50%), and an evaluation of the trader's equity determines by how much they go in for (too much and you risk going broke fast, too little and you limit your gains).
The trend trading method helps the investor to buy low and sell high. It does this by setting some general rules regarding when to buy a certain stock, how much money to risk on that stock, and the best time to sell (whether the stock is doing great, or if it's tanking).
Like any other stock method, trend trading is based on the unpredictability of the market. The only certainty is the current price of the stock, which is important. However, by studying the trends, the investor can manage and reduce investment risks.
You can learn more about the market and its trends by reading stock trading newsletters dedicated to this trading method. Studying these newsletters can help you deepen your understanding of the trend trading method. However, steer clear of scams and get-rich-quick schemes that offer to sell you stock information. Do your homework. But also don't fall into a false sense of security by blindly following long-successful trend traders. Their long successes can't assure that they won't stumble in the future.
Never take risks you don't personally understand. This is your hard-earned money that you are investing. The best strategy is still to follow a careful, well-planned-out and well-researched approach when trend trading stocks.
1. Low Transaction Costs There are no hidden fees for forex brokers as they are not paid by the traditional commission based fees. The fee paid to the forex broker is calculated directly from the trade in the form of the bid ask spread. In forex trading, the spread is the difference in how much you pay for a currency and how much you sell it for. This spread is commonly expressed in "pips" or points.
2. Forex Trading is a 24 Hour Market Forex can be traded anytime of the day, the forex market is open for business twenty-four hours a day. This is considered a huge advantage for individual small investors who are just starting out to trade foreign exchange in their spare time. This allows forex traders to juggle their schedule around their trading opportunities; they can schedule their forex trading when it is convenient for them.
For those of you who are night owls and prefer to trade at 1am, then foreign exchange trading is just right for you. Depending on where you stay, there are banks opposite the globe open for you to trade.
3. Fast Trade Execution and High Liquidity Trading the foreign exchange means that you are trading in cash. No other form of investment has more liquidity than cash and as such, trades are executed almost instantly. There is no lag time in forex trading.
4. Having Leverage and Margin One of the significant advantages that forex traders have is the ability to trade on margin. This gives them a huge leverage in their trading and presents the potential for extraordinary profits with relative small investments. Let's take for example; with a forex broker that allows a margin of 100:1, you can buy $100,000 in currency with only a small $1,000 deposit. A word of caution for the uninitiated, leverage can go both ways and may lead to large losses if you are not careful.
5. Forex Trading Requires Only a Small Sample to Study Stocks trading present thousands upon thousands of stocks to trade. Small and large companies, international companies, newly issued IPOs etc. It is highly impossible to follow them all.
Forex trading, on the other hand, presents only seven major currencies to follow so that you can devote more time to each of them. Many successful currency traders do not even trade in all seven major currencies; they just choose three or four and master them to achieve success in forex trading.
6. No Bear Markets In forex trading, since you can trade either short or long, you will be able to make money whether the prices go up or down, that is if your predictions are accurate of course.
7. Forex Market is Not Easily Influenced. The forex market is so amazingly huge that no one individual, bank, fund or government body can influence it for a long period of time. Foreign exchange trading is the opposite of stocks trading where one negative television appraisal of a company's stock could possibly send it into a tailspin.
Based on the above advantages, forex trading is a clear winner for the beginner and individual small investors. If you are deciding on a form of trading to enter and master, then forex trading is the choice for you.
Both Jesse Profit & Marcus Boo are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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