Don’t Believe These Forex Myths!
95% of traders lose when trading currencies and they don’t need to – in many cases they believe various myths that are spread by vendors, using hyped advertising copy which appeals to greedy and naive traders to buy courses and forex trading systems, which simply don’t work.
Below you will find the six common myths that cause the bulk of currency traders to lose and if you believe any of them - you will lose too.
1. You should always be in the Market
Many traders love excitement, and their view is, if they are in the market they will catch the big move. Well they may - but chances are they won’t.
The really big trends only come a few times a year in each currency - and you should stay out the market until they come, otherwise you will take losses, as you will be trading low odds trades, with little chance of success.
You don’t earn a reward in currency trading for effort or how often you trade – you earn your reward from being right.
Be selective in your trading and you will see your profits soar.
2. Diversification Reduces Risk
Diversification simply dilutes your profit potential if you have a small currency account.
You catch a big move, and your other trades lose, or give you only marginal profits, reducing your overall profitability.
You need to have confidence to go for the big moves, when they occur, and hit them hard with as much as you can afford.
Currency trading success is all about taking calculated risks when the odds are in your favor.
If the trade looks good, then you need to have the courage and conviction to go for it and risk as much as you can afford.
3. Day Trading Makes Money
This is perhaps the biggest myth in currency trading – Forex day traders DON’T make money!
Many vendors spread this myth, as it makes a good story.
It’s a good story and they make their money from course sales NOT trading.
All short-term volatility is random – prices can and do move anywhere in a day and support and resistance levels are meaningless.
In forex day trading you 100% guaranteed to lose over time as you cant get the odds in your favor – PERIOD.
4. Predicting is the Correct Way to Make Profits
Trying to PREDICT where prices are going to top and bottom will see you lose.
Why?
Because, you are relying on hope and guessing and that’s not a good way to make money in any venture, especially currency trading.
The only way to trade is to wait for the market to CONFIRM a trend is under way, and then execute your trading signal.
You will not buy the bottom or sell the high, but you can’t do that anyway, so there is no point in trying.
By trading with price momentum on your side, you have the odds in your favor.
So Remember:
Don’t predict confirm all your trading signals with momentum before you enter a trade and trade with the odds.
5. Buy Low sell high Is The Best Way To Make Money
This point is related to the above. You cannot do it as you are involved in prediction. Always keep this point in mind:
Most big trends start from new market HIGHS NOT market lows.
So if you fail to trade these moves you will miss a lot of the best moves waiting for pullbacks that never come.
6. Markets Move Scientifically
Again this is related to the myth of predicting currency moves.
You will see many vendors saying they can trade market tops and bottoms with scientific accuracy – RUBBISH!
If markets moved to a scientific theory, we would all know the price in advance and there would be no market!
It’s the difference of opinion and unpredictability of price direction that makes a market – this is common sense.
Despite the above, many Forex traders still believe in scientific theories such as - Elliot Wave and The Fibonacci Number Sequence.
These theories don’t work and never will.
Elliot made no money from his theory and neither will you.
As for the Fibonacci number sequence – This was devised in the 12th century, to solve a problem to do with the copulation of rabbits and has nothing to do with finance.
Leave the above theories to the dreamers and traders who believe it’s easy to make money.
When you trade you are involved in trading odds NOT certainties, don’t believe anyone who tells you otherwise.
7. Markets are the Same Today as they Were Hundreds of Years Ago
No there not!
Trends now are much more volatile than they were even 50 years ago.
Why?
Today, with the Internet, price information and news reaches traders in a split second.
This increases volatility as everyone has the same information at once - and everyone tries to enter and exit the market at the same time.
This was not so even 20 years ago - the trends are still there, but volatility is much higher - traders get the direction of the trend right, but they find themselves stopped out by the volatility of the market and watch as the trade they were stopped out goes on to pile up huge profits.
How often has this happened to you?
It happens to all Forex traders.
Dealing with volatility, is one of the major challenges of any trader wanting to develop a successful Forex trading strategy.
8. You Can Buy Success From Someone Else
You cannot buy success from someone else.
Some vendors can help you but success comes from within.
Even if you follow someone’s advice, always make sure you know the logic it’s based upon.
You need to do this to have the confidence and discipline to stick with your trading plan when you hit a losing period
In conclusion, someone can help you achieve currency trading success but you need to know how and why their methods and not follow them blindly.
The above myths are commonly accepted - avoid them or you will join the majority of traders that lose in currency trading.
Wednesday, January 16, 2008
Forex News - a Tip For Massive Gains and an Opportunity Right Now
The true value is about 80.00 a barrel. Every time sentiment has pushed it up toward the psychological $100.00 we have sold it - look at our other articles.
If you would sold on the last two pops to this level, you will have seen the decline is $20,000 based upon 1 contract.Its only sentiment that drove prices up - greed and fear drove the market NOT Supply and demand.
A CURRENCY TRADE EXAMPLE
Now let's look at a currency that is overbought and a huge profit to be made. The euro against the dollar is the trade. Regular readers again will know that 1.50 is the psychological number that traders want to target. 1.50 is too high just like $100 in crude is. This is simply sentiment driving prices near these levels and the euro will not trade above this level in our view.
The last time it got up we sold (see our other articles) and said it would target 1.46 it did and that's a tidy 600 pips profit. It's up testing the highs again - but the bad news for the dollar is discounted in the price and its now only greed and fear driving the euro. All the arguments you here for dollar weakness are discounted: A 50 bps rate cut, a housing market in trouble, sluggish growth etc and there is no more bad news that's not known.
Now throw into the equation that the euro zone has problems of its own (which traders seem not to bothered about) and you could see a break in the dollars favour. How far?We expect the dollar to trade back to 1.46 and if this level gives way target 1.40 The majority don't agree with us (they didn't in crude either) but we won't let that bother us, were sticking with our euro short view to give us another thumping profit.
When looking for extreme bullish or bearish news to break a price always get confirmation of weakening momentum on your forex charts, so you are trading the reality and not getting in to soon. Will Rogers once said:"I only believe what I read in the papers" He was joking but many traders simply take it as gospel when a news story says the dollar is going to fall into oblivion. Hold your head, look at the facts and if prices gone too far to soon, get ready to trade against the losing herd. Can you do the above? Of course you can - it simply means standing back, examining the facts and then looking for trading signals on your forex charts.
If you would sold on the last two pops to this level, you will have seen the decline is $20,000 based upon 1 contract.Its only sentiment that drove prices up - greed and fear drove the market NOT Supply and demand.
A CURRENCY TRADE EXAMPLE
Now let's look at a currency that is overbought and a huge profit to be made. The euro against the dollar is the trade. Regular readers again will know that 1.50 is the psychological number that traders want to target. 1.50 is too high just like $100 in crude is. This is simply sentiment driving prices near these levels and the euro will not trade above this level in our view.
The last time it got up we sold (see our other articles) and said it would target 1.46 it did and that's a tidy 600 pips profit. It's up testing the highs again - but the bad news for the dollar is discounted in the price and its now only greed and fear driving the euro. All the arguments you here for dollar weakness are discounted: A 50 bps rate cut, a housing market in trouble, sluggish growth etc and there is no more bad news that's not known.
Now throw into the equation that the euro zone has problems of its own (which traders seem not to bothered about) and you could see a break in the dollars favour. How far?We expect the dollar to trade back to 1.46 and if this level gives way target 1.40 The majority don't agree with us (they didn't in crude either) but we won't let that bother us, were sticking with our euro short view to give us another thumping profit.
When looking for extreme bullish or bearish news to break a price always get confirmation of weakening momentum on your forex charts, so you are trading the reality and not getting in to soon. Will Rogers once said:"I only believe what I read in the papers" He was joking but many traders simply take it as gospel when a news story says the dollar is going to fall into oblivion. Hold your head, look at the facts and if prices gone too far to soon, get ready to trade against the losing herd. Can you do the above? Of course you can - it simply means standing back, examining the facts and then looking for trading signals on your forex charts.
Tuesday, January 8, 2008
Key Terms To Stock Market
Market Capitalization
A company's market capitalization (or "market cap") is calculated by taking the number of outstanding shares of stock multiplied by the current price-per-share. It is the amount of money you would have to pay if you bought every share of stock in a company.
The price that an investor pays for a security. This price is important, as it is the main component in calculating the returns achieved by the investor.
For example, if an investor buys XYZ at $35, then this would be the purchase price. When looking at the return on the investment, the investor would compare the purchase price of $35 to the price the investment was sold at or the current market price for XYZ.
Share
Certificates representing ownership in a corporation. Shares are also known as stocks or equities.
P/E Ratio
The P/E ratio is how much money you are paying for $1 of the company's earnings. If a company were currently trading at a P/E of 20, an investor would be paying $20 for $1 of earningsThe P/E looks at the relationship between the stock price and the company's earnings. You calculate the P/E by taking the share price and dividing it by the company's EPS.
In other words, if a company is reporting a profit of $2 per share, and the stock is selling for $20 per share, the P/E ratio is 10 because you are paying ten-times earnings [$20 per share dividend by $2 per share earnings = 10]In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, or to the market in general, or against the company's own historical P/E.
It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
Price / Earnings To Growth - PEG
RatioA ratio used to determine a stock's value while taking into account earnings growth. The calculation is as follows:PEG Ratio = Price to Earnings ratio / Annual EPS GrowthPEG is a widely used indicator of a stock's potential value. It is favored by many over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued.
Keep in mind that the numbers used are projected and, therefore, can be less accurate. Also, there are many variations using earnings from different time periods (i.e. 1 year vs. 5 year). Be sure to know the exact definition your source is using.
Short Selling
The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short. Selling short is the opposite of going long. That is, short sellers make money if the stock goes down in price.
A company's market capitalization (or "market cap") is calculated by taking the number of outstanding shares of stock multiplied by the current price-per-share. It is the amount of money you would have to pay if you bought every share of stock in a company.
The price that an investor pays for a security. This price is important, as it is the main component in calculating the returns achieved by the investor.
For example, if an investor buys XYZ at $35, then this would be the purchase price. When looking at the return on the investment, the investor would compare the purchase price of $35 to the price the investment was sold at or the current market price for XYZ.
Share
Certificates representing ownership in a corporation. Shares are also known as stocks or equities.
P/E Ratio
The P/E ratio is how much money you are paying for $1 of the company's earnings. If a company were currently trading at a P/E of 20, an investor would be paying $20 for $1 of earningsThe P/E looks at the relationship between the stock price and the company's earnings. You calculate the P/E by taking the share price and dividing it by the company's EPS.
In other words, if a company is reporting a profit of $2 per share, and the stock is selling for $20 per share, the P/E ratio is 10 because you are paying ten-times earnings [$20 per share dividend by $2 per share earnings = 10]In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, or to the market in general, or against the company's own historical P/E.
It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
Price / Earnings To Growth - PEG
RatioA ratio used to determine a stock's value while taking into account earnings growth. The calculation is as follows:PEG Ratio = Price to Earnings ratio / Annual EPS GrowthPEG is a widely used indicator of a stock's potential value. It is favored by many over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued.
Keep in mind that the numbers used are projected and, therefore, can be less accurate. Also, there are many variations using earnings from different time periods (i.e. 1 year vs. 5 year). Be sure to know the exact definition your source is using.
Short Selling
The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short. Selling short is the opposite of going long. That is, short sellers make money if the stock goes down in price.
Beginner Stock Market Tips
You can handle your new investments in the stock market by getting a good broker who you trust, by reading and studying up about it - which includes learning lots of economic thought or you can dive into it without adequate information and get creamed. And no one wants their beginner stock market to result in them losing lots of money.
The point of this article is to help you to the next level and show you what this amazing subject has to offer.
The unruly is, as rapidly as you beginning your beginner stock market you will be practically bombarded by guidance. You can get ironic hurriedly if you invest here, you can make money practically risk limitless if you buy that book. It is all nonsense. Your beginner stock market is no safer than someone bedside’s stock market and each knows at slightest one self who is an practiced at the stocks and has still full a tremendous dive. No one wants that to transpire, but you're no different from someone besides just because you're just beginning. Don't be a mark. Don't let your beginner stock market front you to pecuniary ruin.
Investment clubs can grant some help with being a beginner in the stock market because they can put you in feel with a group of people who might be more weathered and experienced at investment. That can give you the competitive verge you must, by allowing you to profit from the gear that they already know.
Seminars can also be valuable for your beginner stock market, but memorize there is no wealth without risk. They are regularly gifted wealth without risk at these tutorials, but that is completely bogus any effort involves risk, and your beginner stock market is one of the riskiest of them all, so memorize: a tutorial which promises wealth without risk is perhaps a dodge and should be avoided. Bond to your books of classical and then useful economics, and rapidly you will be investing like a pro. Your beginner stock market will be a bizarre fancy of the previous as you are swept up by ever compounding investments haulage you away to fancy lands of unchecked and unimagined wealth. That is, if you are blessed. But for now, keep fancying, and keep studying, and keep developing your beginner stock market selection.
The point of this article is to help you to the next level and show you what this amazing subject has to offer.
The unruly is, as rapidly as you beginning your beginner stock market you will be practically bombarded by guidance. You can get ironic hurriedly if you invest here, you can make money practically risk limitless if you buy that book. It is all nonsense. Your beginner stock market is no safer than someone bedside’s stock market and each knows at slightest one self who is an practiced at the stocks and has still full a tremendous dive. No one wants that to transpire, but you're no different from someone besides just because you're just beginning. Don't be a mark. Don't let your beginner stock market front you to pecuniary ruin.
Investment clubs can grant some help with being a beginner in the stock market because they can put you in feel with a group of people who might be more weathered and experienced at investment. That can give you the competitive verge you must, by allowing you to profit from the gear that they already know.
Seminars can also be valuable for your beginner stock market, but memorize there is no wealth without risk. They are regularly gifted wealth without risk at these tutorials, but that is completely bogus any effort involves risk, and your beginner stock market is one of the riskiest of them all, so memorize: a tutorial which promises wealth without risk is perhaps a dodge and should be avoided. Bond to your books of classical and then useful economics, and rapidly you will be investing like a pro. Your beginner stock market will be a bizarre fancy of the previous as you are swept up by ever compounding investments haulage you away to fancy lands of unchecked and unimagined wealth. That is, if you are blessed. But for now, keep fancying, and keep studying, and keep developing your beginner stock market selection.
Principles Of Investments In The Stock Market - Part 1 Of 4
People have been asking me lately if they should invest in the Philippine stock market or not. Majority of them also wanted to know how they should start. I am not sure if they are really serious about it. They could just be curious considering that it is all over the news that the stock market's performance is very positive.Investing in the Philippine stock market is not for the faint hearted.
As an investor you must have expectations as to how much you are going to earn for a certain vehicle of investment. Such is expectation is measured in terms of how much your money will grow at a certain period of time. (Most usually this is measured in interest per annum) Because the Philippine Stock market is in its all time high for several months now, people think that they should join the band wagon. They do not even understand the basic principles involved nor do they understand how the stock market works. I am not saying that you should be an economist before you should invest in the stock market.
What you should understand is that you must know the basic principles involved first before you can achieve a level of success in investing in the stock market. Fortunes are made on the Stock market. But take note that huge losses are also incurred. Those who just plunge into the stock market without a grasp of the basic principles of investment end up convincing themselves that the stock market is no good at all, does not make them any money and finally quit after some time.
Before I would even begin to tackle the ins and outs of the how to invest in the Philippine stock market you should first understand the basic principles of investment in order that you might enjoy trading and possibly succeed in the stock market. I will be discussing ten of them. We will discuss the first one here. The other points will be tackled on coming articles. If you wish to see the entire article please visit my blog.
1.) You must realize that the stock market is just another vehicle of investment - There are several investment vehicles where you could place your money. One is not more superior than the other. They have their advantages and disadvantages, but this will not be discussed in depth here.
In economic parlance, the stock market is categorized as belonging to the "Capital Markets." Even in the Capital market category there are different types of investment vehicles. You have several alternatives here. Aside from the stock market, you could place your investment in pension funds, bonds, insurance, real estate, time deposit accounts different types of savings.
It is important to know this because it will help you determine whether or not you should invest in the Stock Market considering that there are other alternative vehicles of investment in the Capital markets.Bear in mind that each vehicle of investment has their own advantages and drawbacks. The secret here is not to place all of your eggs in one basket. Even if most of my investments are in the Capital Markets, I diversified by placing investments in the stock market, bonds through mutual funds, pension, deposits and insurances.
As an investor you must have expectations as to how much you are going to earn for a certain vehicle of investment. Such is expectation is measured in terms of how much your money will grow at a certain period of time. (Most usually this is measured in interest per annum) Because the Philippine Stock market is in its all time high for several months now, people think that they should join the band wagon. They do not even understand the basic principles involved nor do they understand how the stock market works. I am not saying that you should be an economist before you should invest in the stock market.
What you should understand is that you must know the basic principles involved first before you can achieve a level of success in investing in the stock market. Fortunes are made on the Stock market. But take note that huge losses are also incurred. Those who just plunge into the stock market without a grasp of the basic principles of investment end up convincing themselves that the stock market is no good at all, does not make them any money and finally quit after some time.
Before I would even begin to tackle the ins and outs of the how to invest in the Philippine stock market you should first understand the basic principles of investment in order that you might enjoy trading and possibly succeed in the stock market. I will be discussing ten of them. We will discuss the first one here. The other points will be tackled on coming articles. If you wish to see the entire article please visit my blog.
1.) You must realize that the stock market is just another vehicle of investment - There are several investment vehicles where you could place your money. One is not more superior than the other. They have their advantages and disadvantages, but this will not be discussed in depth here.
In economic parlance, the stock market is categorized as belonging to the "Capital Markets." Even in the Capital market category there are different types of investment vehicles. You have several alternatives here. Aside from the stock market, you could place your investment in pension funds, bonds, insurance, real estate, time deposit accounts different types of savings.
It is important to know this because it will help you determine whether or not you should invest in the Stock Market considering that there are other alternative vehicles of investment in the Capital markets.Bear in mind that each vehicle of investment has their own advantages and drawbacks. The secret here is not to place all of your eggs in one basket. Even if most of my investments are in the Capital Markets, I diversified by placing investments in the stock market, bonds through mutual funds, pension, deposits and insurances.
Wednesday, January 2, 2008
Forex Foreign Exchange Spreads
Forex trading is one of the most popular and fastest growing financial trading opportunities. Exchange rates for currencies in the forex market are quoted as 'bid/ask' rates. The difference between the purchase (ask) and the sale (bid) rates is called the 'spread'. Forex spread is one of the most important single parameter to make the difference between a successful and losing trading.
Forex spread is expressed in percentage in point (pip) which is the smallest measure of price move. For example, if the currency pair EUR/USD is trading at 1.3000 and then changes to 1.3020, the pair is said to move by 20 pips. A pip in most currencies is 1/10,000 of an exchange rate, but in USD/JPY, it is 1/100.
The bid/offer spread is the difference between the buying (bid) and selling (offer) price. The ask price is the immediate execution prices for quick buyers or traders and bid price is for quick sellers.
In forex market brokers generally do not charge any commission from you. But they get their money by charging you a spread. As the spread is the difference between the bid price and the ask price for any currency being traded, the broker adds this spread onto the price of the trade and keep it as their fee for service.
Therefore, for you, lower the pips and spreads, higher the forex profits. If the spread is big, you have to pay more when you buy and get less when you sell. Forex spread is charged only on one side of the transaction, usually on the "buy" side of the trades. So, as a forex trader your aim should be to buy low and sale high.
If the quote between EUR/USD is said to be 1.2222/5, the spread equals 3 pips (5-2). Although it seems to be small, forex spread difference of one pip can make significant difference in your profit. You may find the difference to be as high as 25% on your trading costs.
Therefore, we advise you to choose a low spread forex broker. Most brokers offer different spreads for different currencies. For the most popular currency pairs like the EUR/USD or GBP/USD, you get the lowest spreads, while less popular currencies are traded with higher spreads.
The forex trade can also vary with the type of your account and volume of trades. But there are brokers who offer same spread to all accounts and any trade volume. You can even opt for fixed foreign exchange spread, but they are generally higher than floating spreads.
It should always be remembered that spread is the difference between bid prices and ask prices as determined by the free market and therefore can never be guaranteed. Spreads are generally tighter when there is good market liquidity but it widens as liquidity goes down. Find a forex broker, who is honest and transparent with the operations. Make sure there is no hidden spread and the execution is fast and accurate.
Forex spread is expressed in percentage in point (pip) which is the smallest measure of price move. For example, if the currency pair EUR/USD is trading at 1.3000 and then changes to 1.3020, the pair is said to move by 20 pips. A pip in most currencies is 1/10,000 of an exchange rate, but in USD/JPY, it is 1/100.
The bid/offer spread is the difference between the buying (bid) and selling (offer) price. The ask price is the immediate execution prices for quick buyers or traders and bid price is for quick sellers.
In forex market brokers generally do not charge any commission from you. But they get their money by charging you a spread. As the spread is the difference between the bid price and the ask price for any currency being traded, the broker adds this spread onto the price of the trade and keep it as their fee for service.
Therefore, for you, lower the pips and spreads, higher the forex profits. If the spread is big, you have to pay more when you buy and get less when you sell. Forex spread is charged only on one side of the transaction, usually on the "buy" side of the trades. So, as a forex trader your aim should be to buy low and sale high.
If the quote between EUR/USD is said to be 1.2222/5, the spread equals 3 pips (5-2). Although it seems to be small, forex spread difference of one pip can make significant difference in your profit. You may find the difference to be as high as 25% on your trading costs.
Therefore, we advise you to choose a low spread forex broker. Most brokers offer different spreads for different currencies. For the most popular currency pairs like the EUR/USD or GBP/USD, you get the lowest spreads, while less popular currencies are traded with higher spreads.
The forex trade can also vary with the type of your account and volume of trades. But there are brokers who offer same spread to all accounts and any trade volume. You can even opt for fixed foreign exchange spread, but they are generally higher than floating spreads.
It should always be remembered that spread is the difference between bid prices and ask prices as determined by the free market and therefore can never be guaranteed. Spreads are generally tighter when there is good market liquidity but it widens as liquidity goes down. Find a forex broker, who is honest and transparent with the operations. Make sure there is no hidden spread and the execution is fast and accurate.
Spot Forex Trading Part 3: Parallel And Inverse Analysis
This article is Part 3 of a series of 9 articles dedicated to help anyone to trade the foreign exchange.
Very few spot forex traders conduct any form of parallel and inverse analysis of the major pairs and exotics to determine the best way to trade the forex on a day-to-day basis. Even though it would be nearly impossible to trade the forex successfully not knowing where the overall strength and weakness was in the spot forex across multiple pairs.
Lets look at some examples. Many people like to trade the GBP/USD they spend countless hours losing sleep waiting to trade this pair even when no trend or parallel/inverse confirmation is available. Losses occur. They could increase their odds dramatically by setting up some entry rules and examples like the ones shown below.
Only buy the GBP/USD if the GBP/CHF and GBP/JPY are strengthening as well. This would be parallel confirmation on the GBP strengthening across the board.Only buy the GBP/USD if the EUR/USD is strengthening and the USD/CHF is weakening. This would be confirming the entry with two other pairs and across the board weakness in the USD. In either situation you have confirmed the entry with at least two other pairs. Both of these entry rules would include a stop order, and you can enhance the rules further by examining the EUR/GBP for weakness. This is inverse confirmation.
But this is not what traders do. They want to trade the GBP/USD so badly that they manufacture a trade, or the they want to use indicators, or trade the news. This is a mistake and is equivalent to betting or gambling. There is no logic to support the entry, the forex works in a logical way. Lets look at some other examples. Lets say you prefer to hold carry trades and prefer to trade the GBP/JPY, you could set up rules for entry as follows:
Only buy the GBP/JPY if the GBP is strong across the board based on parallel and inverse pairs, or only enter the GBP/JPY if the GBP/USD and USD/JPY are both strengthening somewhat or a lot.
In the second scenario the GBP/JPY will slingshot upward at a very fast pace.Or another scenario is to only buy the GBP/JPY if the EUR/JPY, CHF/JPY and AUD/JPY are all strengthening as well, in this case the USD is not in the picture because of across the board weakness in the JPY. Either way you have confirmed the entry with other pairs.Another example would be to buy the USD/CAD only if the EUR/CAD and AUD/CAD are also strengthening.
Similar rules can be applied to any major or exotic pair and easily monitored upon entry. In the case of the three CAD pairs, if you also do a careful analysis of support and resistance, you can trade the pair with the most potential rather than just trading the USD/CAD.
But this is not what traders do, they get stuck trading the same pair and wind up justifying a trade when a trade is not there. These trade entries are not based on logic they are based on emotional needs. This leads to losses. The forex works in a very logical process and you must let the logic work for you. Stop looking at indicators and start looking at other pairs to support your entries, these are the best indicators available.
Across the board strength and weakness in groups of pairs occurs weekly in the forex. But if you search the internet far and wide you will see that it is rarely and in fact never discussed by traders, analysts, and trade planning services charging hefty monthly fees. People are too busy looking at indicators and absolutely no discussion of the market forces governing the spot forex ever occurs.
It is very rare if nearly non-existent for one forex pair to move strong without other pairs to confirm the move. This is true for any major or exotic pair. If you are stuck trading the same pairs while other pairs and exotics are making strong moves its time to look at all of the pairs every night then pick the best opportunities based on parallel and inverse analysis.
In order to trade the spot forex daily and weekly, you must analyze 15-20 pairs every day to determine the current market forces, this will lead to less entries, more logical entries, and better confirmation of entries when the movement starts. Parallel and inverse analysis is the logic behind the spot forex.
Very few spot forex traders conduct any form of parallel and inverse analysis of the major pairs and exotics to determine the best way to trade the forex on a day-to-day basis. Even though it would be nearly impossible to trade the forex successfully not knowing where the overall strength and weakness was in the spot forex across multiple pairs.
Lets look at some examples. Many people like to trade the GBP/USD they spend countless hours losing sleep waiting to trade this pair even when no trend or parallel/inverse confirmation is available. Losses occur. They could increase their odds dramatically by setting up some entry rules and examples like the ones shown below.
Only buy the GBP/USD if the GBP/CHF and GBP/JPY are strengthening as well. This would be parallel confirmation on the GBP strengthening across the board.Only buy the GBP/USD if the EUR/USD is strengthening and the USD/CHF is weakening. This would be confirming the entry with two other pairs and across the board weakness in the USD. In either situation you have confirmed the entry with at least two other pairs. Both of these entry rules would include a stop order, and you can enhance the rules further by examining the EUR/GBP for weakness. This is inverse confirmation.
But this is not what traders do. They want to trade the GBP/USD so badly that they manufacture a trade, or the they want to use indicators, or trade the news. This is a mistake and is equivalent to betting or gambling. There is no logic to support the entry, the forex works in a logical way. Lets look at some other examples. Lets say you prefer to hold carry trades and prefer to trade the GBP/JPY, you could set up rules for entry as follows:
Only buy the GBP/JPY if the GBP is strong across the board based on parallel and inverse pairs, or only enter the GBP/JPY if the GBP/USD and USD/JPY are both strengthening somewhat or a lot.
In the second scenario the GBP/JPY will slingshot upward at a very fast pace.Or another scenario is to only buy the GBP/JPY if the EUR/JPY, CHF/JPY and AUD/JPY are all strengthening as well, in this case the USD is not in the picture because of across the board weakness in the JPY. Either way you have confirmed the entry with other pairs.Another example would be to buy the USD/CAD only if the EUR/CAD and AUD/CAD are also strengthening.
Similar rules can be applied to any major or exotic pair and easily monitored upon entry. In the case of the three CAD pairs, if you also do a careful analysis of support and resistance, you can trade the pair with the most potential rather than just trading the USD/CAD.
But this is not what traders do, they get stuck trading the same pair and wind up justifying a trade when a trade is not there. These trade entries are not based on logic they are based on emotional needs. This leads to losses. The forex works in a very logical process and you must let the logic work for you. Stop looking at indicators and start looking at other pairs to support your entries, these are the best indicators available.
Across the board strength and weakness in groups of pairs occurs weekly in the forex. But if you search the internet far and wide you will see that it is rarely and in fact never discussed by traders, analysts, and trade planning services charging hefty monthly fees. People are too busy looking at indicators and absolutely no discussion of the market forces governing the spot forex ever occurs.
It is very rare if nearly non-existent for one forex pair to move strong without other pairs to confirm the move. This is true for any major or exotic pair. If you are stuck trading the same pairs while other pairs and exotics are making strong moves its time to look at all of the pairs every night then pick the best opportunities based on parallel and inverse analysis.
In order to trade the spot forex daily and weekly, you must analyze 15-20 pairs every day to determine the current market forces, this will lead to less entries, more logical entries, and better confirmation of entries when the movement starts. Parallel and inverse analysis is the logic behind the spot forex.
Forex Day Trading And Scalping - A Guaranteed Way To Lose Your Money Quickly
I have been involved in trading forex for 25 years and still amazes me how many people think forex day trading or scalping makes money - it doesn't its simply the dumbest way to trade and will lose you your money. Let's examine why.
Countless millions of traders trade trillions of dollars each day and it is impossible to determine what this mass of people will do within such a short time span as a day or a few hours.
Support and resistance levels are meaningless, as volatility can and does move prices anywhere in a day session. If you don't believe me lets look at the proof.
The first question you need to ask yourself is if forex day trading really did make money why is there no real track record of gains to show the success? There are thousands of day trading systems promising gains and none of them have a real track record - what do you get? A lot of hype and a track record that is simulated (not traded for real) in hindsight (knowing the closing prices). Here is the normal one you will see which is a CFTC standard one:"cftc rule 4.41 - hypothetical or simulated performance results have certain limitations. unlike an actual performance record, simulated results do not represent actual trading.
Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown".
Put the above disclaimer on a track record and you can say anything you want and vendors do. They appeal to lazy or greedy traders and the trader buys and gets a guaranteed loss and the vendor makes a guaranteed profit from the sale. Day trading is simply the dumbest way to trade and sensible knowledgeable people fall for it all the time - maybe the don't stop to think or simply miss the disclaimers when they buy these systems. You can if you want to prove me wrong try and find a track record ( that's real dollars and audited) I saw one day trading system show his bank balance of evidence of his success - success in selling day trading courses, NOT trading that's for sure!
So if you find one be sure to let me know. I have been looking for a day trader to prove me wrong for 25 years and I Haven't found a long term track record of profits and know I never will. So avoid day trading and pick another method that will help you gain currency trading success by trading the odds.
Countless millions of traders trade trillions of dollars each day and it is impossible to determine what this mass of people will do within such a short time span as a day or a few hours.
Support and resistance levels are meaningless, as volatility can and does move prices anywhere in a day session. If you don't believe me lets look at the proof.
The first question you need to ask yourself is if forex day trading really did make money why is there no real track record of gains to show the success? There are thousands of day trading systems promising gains and none of them have a real track record - what do you get? A lot of hype and a track record that is simulated (not traded for real) in hindsight (knowing the closing prices). Here is the normal one you will see which is a CFTC standard one:"cftc rule 4.41 - hypothetical or simulated performance results have certain limitations. unlike an actual performance record, simulated results do not represent actual trading.
Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown".
Put the above disclaimer on a track record and you can say anything you want and vendors do. They appeal to lazy or greedy traders and the trader buys and gets a guaranteed loss and the vendor makes a guaranteed profit from the sale. Day trading is simply the dumbest way to trade and sensible knowledgeable people fall for it all the time - maybe the don't stop to think or simply miss the disclaimers when they buy these systems. You can if you want to prove me wrong try and find a track record ( that's real dollars and audited) I saw one day trading system show his bank balance of evidence of his success - success in selling day trading courses, NOT trading that's for sure!
So if you find one be sure to let me know. I have been looking for a day trader to prove me wrong for 25 years and I Haven't found a long term track record of profits and know I never will. So avoid day trading and pick another method that will help you gain currency trading success by trading the odds.
Forex Education - 3 Vital Tips To Make Money Fast In 2008
As we turn into the New Year it's a good time to make changes and take action - if you are trader who is not doing well or a potential trader then these 2 tips will help you make money fast not just in 2008 but at anytime and they should be a cornerstone of your forex education.
The first point I want to make needs serious thought 95% of traders lose money not because they can't learn forex trading (anyone can) but because they believe certain myths and commonly accepted wisdoms that are wrong.
The tips below are not conventional but don't let that worry you the bulk of traders don't make money so being in the minority is good so here are your 3 tips
1. Be Patient Trade Less
Many traders think the more they trade the more they will win but this is simply not true in forex trading in fact the opposite is true - the more you trade the greater the chances are you will lose. You don't get paid for the effort or amount of trades you make - you get paid for being RIGHT that's it. I know traders who trade every day and make nothing and others who trade a few times a year and make over 100% annualized gains!
The majority of novice traders believe the day trade and make money myth and that's all it is a myth. Day traders don't make money period. If you don't believe me, try and find a real track record on a day trading system and you will be looking for ever. You have to catch the big high odds moves and they can ONLY be spotted by looking at longer term data and data within a day is meaningless. If you like the buzz of trading you will lose - if you are patient and wait for high odds trades you will win.
2. Diversification
You will have heard it countless times diversify; don't put all your eggs in one basket etc. On a small account of $1,000 or less you don't have enough to diversify and make big gains at the same time. All diversification does is dilute gains - wait for the big moves and load them up with as much as you can afford.
3. Take Bigger Risks
You will hear many give you the advice of only risking a maximum of 2% on a trade - well on 1,000.00 that's $20 you won't make much doing that!Wait for the good trades and load them and risk up to 20% on a small account. You can only diversify and risk less per trade if you have enough cash and that's $10,000 + if you don't you need to risk more - period!4. Have Courage Learn to accept big gains! Hang on you may say all traders can do that because that's why their trading currencies.
They are - but they don't understand accepting a big gain is harder than taking a loss. Why? Because as soon as a trader sees a profit he wants to take it and the bigger it becomes the harder the temptation is to resist. As open equity swings keep eating his open profit it becomes too much and he snatches a mediocre or minor gain. What happens next? The trade goes on to make 10,000 20,000 or more and he's not in.
If you want to make money you need to have courage and accept that open equity will eat into your profits and have confidence to hold for a bigger longer term gain. If you want to make more money from your forex trading and you are starting off with a small account make the above part of your forex education and you will see your profits increase dramatically.
The first point I want to make needs serious thought 95% of traders lose money not because they can't learn forex trading (anyone can) but because they believe certain myths and commonly accepted wisdoms that are wrong.
The tips below are not conventional but don't let that worry you the bulk of traders don't make money so being in the minority is good so here are your 3 tips
1. Be Patient Trade Less
Many traders think the more they trade the more they will win but this is simply not true in forex trading in fact the opposite is true - the more you trade the greater the chances are you will lose. You don't get paid for the effort or amount of trades you make - you get paid for being RIGHT that's it. I know traders who trade every day and make nothing and others who trade a few times a year and make over 100% annualized gains!
The majority of novice traders believe the day trade and make money myth and that's all it is a myth. Day traders don't make money period. If you don't believe me, try and find a real track record on a day trading system and you will be looking for ever. You have to catch the big high odds moves and they can ONLY be spotted by looking at longer term data and data within a day is meaningless. If you like the buzz of trading you will lose - if you are patient and wait for high odds trades you will win.
2. Diversification
You will have heard it countless times diversify; don't put all your eggs in one basket etc. On a small account of $1,000 or less you don't have enough to diversify and make big gains at the same time. All diversification does is dilute gains - wait for the big moves and load them up with as much as you can afford.
3. Take Bigger Risks
You will hear many give you the advice of only risking a maximum of 2% on a trade - well on 1,000.00 that's $20 you won't make much doing that!Wait for the good trades and load them and risk up to 20% on a small account. You can only diversify and risk less per trade if you have enough cash and that's $10,000 + if you don't you need to risk more - period!4. Have Courage Learn to accept big gains! Hang on you may say all traders can do that because that's why their trading currencies.
They are - but they don't understand accepting a big gain is harder than taking a loss. Why? Because as soon as a trader sees a profit he wants to take it and the bigger it becomes the harder the temptation is to resist. As open equity swings keep eating his open profit it becomes too much and he snatches a mediocre or minor gain. What happens next? The trade goes on to make 10,000 20,000 or more and he's not in.
If you want to make money you need to have courage and accept that open equity will eat into your profits and have confidence to hold for a bigger longer term gain. If you want to make more money from your forex trading and you are starting off with a small account make the above part of your forex education and you will see your profits increase dramatically.
Forex Education - No Trading Experience, 2 Weeks Training To Millions In Profit
This story is about a famous experiment in 1983, when trading legend Richard Dennis wanted to prove anyone could learn to trade so he taught a group of people who had never traded before then set them off to trade - the result? They made $100 million in 4 years. There is a lot you can learn from this story and use in your own forex education.
The turtle experiment proved ANYONE can become a successful trader, with the right Forex education and everything about trading can be specifically learned by anyone with the desire to succeed.
This is Of course true - but still 95% of traders lose their money and the turtle experiment can give you an insight into why and how you can enjoy currency trading success.
The Experiment
The people Dennis selected represented a variety of different people of all ages, both sexes and from all walks of life including:An actor, security guard, a couple of professional card players, an auditor, a boy fresh from school and a female exchange clerk - so a diverse group of people! They then went on to make annualized 70% returns and make $100 million and many went on to become trading legends.
Dennis taught a Trend Following simple trading methodology - but also the confidence and the discipline to follow it through periods of drawdown, to long term currency trading success.
What You Can learn
The reason most forex traders fail is simply they cannot adopt the right mindset to succeed. Having a sound method is only part of the equation for success - you must have the confidence and the discipline to follow your system through draw down periods to win longer term. If you can't follow your method with discipline, you really have no method at all.
Dennis proved that a simple system that traders could understand, applied with discipline, could lead anyone to success and he was proved right. This logic of course still applies today.
The way to make money in forex trading is based upon the following:
A Simple Logical Method + Understanding of It = Confidence = Discipline = Forex Success.
Most traders however use methods that are not logical with good examples being day trading or scientific methods, or they follow someone else. Of course if you use a method that's not logical you stand no chance but if you try and follow someone else without believing or testing their logic you will fail as well. You are going to get losses (don't let anyone tell you won't) and its here the correct mindset is so important your discipline is based on confidence and you need this to stick with your method.
Discipline is vital to success and this is based upon inner knowledge and understanding.The turtle experiment is part of trading history, the story should act as inspiration to anyone who wants to learn currency trading and enjoy currency trading success. It imspired me to start my trading career 25 years ago and has inspired countless traders over the years, as it shows that anyone has the oportunity to achieve success if they learn the right knoweledge. If you understand the above then you to could become a successful trader and make the income you desire from trading global forex markets.
The turtle experiment proved ANYONE can become a successful trader, with the right Forex education and everything about trading can be specifically learned by anyone with the desire to succeed.
This is Of course true - but still 95% of traders lose their money and the turtle experiment can give you an insight into why and how you can enjoy currency trading success.
The Experiment
The people Dennis selected represented a variety of different people of all ages, both sexes and from all walks of life including:An actor, security guard, a couple of professional card players, an auditor, a boy fresh from school and a female exchange clerk - so a diverse group of people! They then went on to make annualized 70% returns and make $100 million and many went on to become trading legends.
Dennis taught a Trend Following simple trading methodology - but also the confidence and the discipline to follow it through periods of drawdown, to long term currency trading success.
What You Can learn
The reason most forex traders fail is simply they cannot adopt the right mindset to succeed. Having a sound method is only part of the equation for success - you must have the confidence and the discipline to follow your system through draw down periods to win longer term. If you can't follow your method with discipline, you really have no method at all.
Dennis proved that a simple system that traders could understand, applied with discipline, could lead anyone to success and he was proved right. This logic of course still applies today.
The way to make money in forex trading is based upon the following:
A Simple Logical Method + Understanding of It = Confidence = Discipline = Forex Success.
Most traders however use methods that are not logical with good examples being day trading or scientific methods, or they follow someone else. Of course if you use a method that's not logical you stand no chance but if you try and follow someone else without believing or testing their logic you will fail as well. You are going to get losses (don't let anyone tell you won't) and its here the correct mindset is so important your discipline is based on confidence and you need this to stick with your method.
Discipline is vital to success and this is based upon inner knowledge and understanding.The turtle experiment is part of trading history, the story should act as inspiration to anyone who wants to learn currency trading and enjoy currency trading success. It imspired me to start my trading career 25 years ago and has inspired countless traders over the years, as it shows that anyone has the oportunity to achieve success if they learn the right knoweledge. If you understand the above then you to could become a successful trader and make the income you desire from trading global forex markets.
Forex Trading - 6 Character Traits That Cause 95% Of Traders To Lose
Forex trading is all about having the right method but also the right attitude. Here we will look at 10 character traits that the losing 95% of traders have and if you want to enjoy currency trading success you need to avoid them.
Here they are in no particular order of importance.
1. I am not responsible
A symbol of losers - they think success will come with no effort on their behalf and blame everyone else for their failure from the tip they got from friend, newswire or broker, to the market being against them. These people make up a surprising amount of the losing majority and they fail to see that no one can give them success but themselves. Instead of seeing this they do the following.
2. I Like to take expert advice
If you do be very careful as most of the people who put themselves out as experts on the net are anything but - their marketing companies and have never traded in their lives. Again a vast amount of traders buy systems with unbelievable track records and then are surprised when they fail in real time (they never look at the disclaimer that says the track record is a simulation and not real). If something looks to good to be true it probably is and this is very true in forex trading.If you follow an expert and have not done your homework on the logic they base their views on, then you are unlikely to have the confidence to follow their method with discipline when it hits a losing period. If you don't follow a method with discipline then you have no method at all.
3. I don't like being wrong
Well in forex trading your going to be wrong a lot of the time, as only you can be wrong and the market price is always right - no matter what you or I think. Most traders hate taking a loss and looking stupid but the markets do that to everyone and even the best traders lose at times. If you try and argue with the price and justify your position, you will run up losses and lose and your emotions will take over.
4. I deserve to win I am smart
I have met some very clever people in forex trading and the majority of them lose - if you think that being smart helps you then it won't. In forex trading you get paid for being right with your trading signal that's it and it's a fact that the best forex trading systems are simple. They work far better than complicated ones as they have fewer elements to break. Clever people tend to over elaborate their trading and think the more they put in the more they get out but this does not apply in forex trading. If you want to make money keep it simple and remember forex trading is probably 20% method and 80% mindset.
5. I am not a patient person
If you are an anxious or nervous person then you are unlikely to win at forex trading. You need patience to wait for the right opportunities and you need patience to hold positions through short term volatility to bigger profits. If you are an anxious trader you will probably let your emotions get the better of you trade too much, engage in revenge trading etc and lose.There of course other losing traits but the above are very common ones and hold anyone of them and you will lose.
Forex trading is not hard to learn anyone can do it but most fail because they don't realize that correct mindset is the key to success. To be successful at forex trading you need to rely on yourself, have a deep understanding of why your method works, so you can have the confidence to apply it with discipline. If you understand the above you can avoid these common losing traits and get a mindset for forex trading success.
Here they are in no particular order of importance.
1. I am not responsible
A symbol of losers - they think success will come with no effort on their behalf and blame everyone else for their failure from the tip they got from friend, newswire or broker, to the market being against them. These people make up a surprising amount of the losing majority and they fail to see that no one can give them success but themselves. Instead of seeing this they do the following.
2. I Like to take expert advice
If you do be very careful as most of the people who put themselves out as experts on the net are anything but - their marketing companies and have never traded in their lives. Again a vast amount of traders buy systems with unbelievable track records and then are surprised when they fail in real time (they never look at the disclaimer that says the track record is a simulation and not real). If something looks to good to be true it probably is and this is very true in forex trading.If you follow an expert and have not done your homework on the logic they base their views on, then you are unlikely to have the confidence to follow their method with discipline when it hits a losing period. If you don't follow a method with discipline then you have no method at all.
3. I don't like being wrong
Well in forex trading your going to be wrong a lot of the time, as only you can be wrong and the market price is always right - no matter what you or I think. Most traders hate taking a loss and looking stupid but the markets do that to everyone and even the best traders lose at times. If you try and argue with the price and justify your position, you will run up losses and lose and your emotions will take over.
4. I deserve to win I am smart
I have met some very clever people in forex trading and the majority of them lose - if you think that being smart helps you then it won't. In forex trading you get paid for being right with your trading signal that's it and it's a fact that the best forex trading systems are simple. They work far better than complicated ones as they have fewer elements to break. Clever people tend to over elaborate their trading and think the more they put in the more they get out but this does not apply in forex trading. If you want to make money keep it simple and remember forex trading is probably 20% method and 80% mindset.
5. I am not a patient person
If you are an anxious or nervous person then you are unlikely to win at forex trading. You need patience to wait for the right opportunities and you need patience to hold positions through short term volatility to bigger profits. If you are an anxious trader you will probably let your emotions get the better of you trade too much, engage in revenge trading etc and lose.There of course other losing traits but the above are very common ones and hold anyone of them and you will lose.
Forex trading is not hard to learn anyone can do it but most fail because they don't realize that correct mindset is the key to success. To be successful at forex trading you need to rely on yourself, have a deep understanding of why your method works, so you can have the confidence to apply it with discipline. If you understand the above you can avoid these common losing traits and get a mindset for forex trading success.
Different Kinds Of Bonds
Investing in bonds is highly insured, and the returns are most often extremely credible. There are four basic Kinds of bonds on tap and they are sold through the Government, through corporations, state and local governments, and foreign governments.
The paramount thing about bonds is that you will get your initial investment back. This makes bonds the flawless investment vehicle for those who are new to investing, or for those who have a low risk resistance.
The United States Government sells Treasury Bonds through the Treasury Department. You can procure Treasury Bonds with maturity dates ranging from three months to thirty years.
Treasury bonds include Treasury Notes (T-Notes), Treasury Bills (T-Bills), and Treasury Bonds. All Treasury bonds are acclaimed by the United States Government, and tax is only owing on the interest that the bonds earn.
Corporate bonds are sold through public securities markets. A corporate bond is mainly a company selling its debt. Corporate bonds most often have high interest rates, but they are a bit risky. If the company goes belly-up, the bond is valueless.
State and local Governments also sell bonds. Contrasting bonds issued by the federal government, these bonds altogether have higher interest rates. This is because State and Local Governments can indeed go bankrupt contrasting the federal government.State and Local Government bonds are free from income taxes even on the interest. State and local taxes may also be waived. Tax-free Municipal Bonds are common State and Local Government Bonds.
Buying foreign bonds is manifestly veritably difficult, and is often done as part of a mutual fund. It is often remarkably risky to invest in foreign countries. The safest type of bond to buy is one that is issued by the US Government.
The interest earned might be much less, but again, there is completely little or no risk involved. For first-rate results, when a bond reaches maturity, reinvest it into another bond.
The paramount thing about bonds is that you will get your initial investment back. This makes bonds the flawless investment vehicle for those who are new to investing, or for those who have a low risk resistance.
The United States Government sells Treasury Bonds through the Treasury Department. You can procure Treasury Bonds with maturity dates ranging from three months to thirty years.
Treasury bonds include Treasury Notes (T-Notes), Treasury Bills (T-Bills), and Treasury Bonds. All Treasury bonds are acclaimed by the United States Government, and tax is only owing on the interest that the bonds earn.
Corporate bonds are sold through public securities markets. A corporate bond is mainly a company selling its debt. Corporate bonds most often have high interest rates, but they are a bit risky. If the company goes belly-up, the bond is valueless.
State and local Governments also sell bonds. Contrasting bonds issued by the federal government, these bonds altogether have higher interest rates. This is because State and Local Governments can indeed go bankrupt contrasting the federal government.State and Local Government bonds are free from income taxes even on the interest. State and local taxes may also be waived. Tax-free Municipal Bonds are common State and Local Government Bonds.
Buying foreign bonds is manifestly veritably difficult, and is often done as part of a mutual fund. It is often remarkably risky to invest in foreign countries. The safest type of bond to buy is one that is issued by the US Government.
The interest earned might be much less, but again, there is completely little or no risk involved. For first-rate results, when a bond reaches maturity, reinvest it into another bond.
The Bubble Really Does Not Burst
"The bubble has bursted." You hear it stated whenever any investment market has been doing so well for so long and then all of a sudden is not a hot thing anymore. It happened during the internet/tech boom of the late 90's. It happened recently with real estate throughout the United States. It happens to just about every market at one time or another.
The internet/tech boom that we all recall, when just about everyone and their friends were throwing a majority of their money into technology stocks is a great example. Companies that we never heard of and had no idea how they even made their profits, suddenly became our favorite investments. Why not? Every other technology and internet stock was sky rocketing. After all the internet and computers were our future. When there is a wave, and your friends are surfing it, you're going to do the same thing. Investing in companies that were internet related was the "cool" thing to do.
When people see their friends and family making a fortune in a certain market, they tend to not want to be left out. I'm sure you know many people who invested in certain internet stocks that they had no clue whatsoever what the company actually did. Unfortunately these companies were relying mostly on their hype which caused their stocks to soar even though their earnings were not up to par. A few experts began looking at these companies P/E ratios (price per share divided by earnings per share), which showed that most of them were extremely overpriced. Companies that are considered to be "high growth companies" are usually allowed to have higher P/E ratios. However there was no proof that these companies were growing at a large enough rate to off set the high P/E's.
After these experts started criticizing certain internet stocks with extremely high P/E ratios, we saw the stocks for these companies fall enormously. In turn some of these companies were forced to go out of business, signaling a not so good future for similar companies. The bubble didn't really burst. The market didn't just collapse all at once, but it was a gradual process which took months. This is the business cycle in a micro economical sense. The sub market (internet technology) began to fall on a steeper then normal slope. People who had made literally millions in the stock market were now in the negative.
The same thing happened in the real estate market just recently (2006/2007/2008). Real Estate everywhere was soaring. Homes that were selling for just $300,000 in 2000 were going for over $600,000 in many markets just a year or two later. People took out mortgages that had arms on them, and invested their money in real estate. What these people were expecting was that the market would continue to go up for years to come, and that they would be able to sell for a significant profit before the mortgage arm would kick in. What these people didn't take into consideration is that real estate, just like any other investment market, has a cycle of it's own. What goes up much come down, and come down it did.
In this case again, the bubble didn't simply burst either. It rather deflated like a basketball with a slow leak in it. Slowly people could not afford to pay their mortgages because their rate increased (due to the arm). As their rate increased so did the rates of other investors. The price of real estate leveled off, so these people could not sell their investments for a profit. This began happening on a massive scale, and these investors had no choice but to sell at a price lower then they paid in order to make their mortgage payments.
This happens in just about every investment market. There is always hype when things are good, and people jump in at this point. There is a saying "Buy low, sell high", yet even the people that say this all the time buy when prices are high because of this hype. Usually when something seems too good to be true it turns out it is. Remember that. The Bubble will eventually deflate no matter what!
The internet/tech boom that we all recall, when just about everyone and their friends were throwing a majority of their money into technology stocks is a great example. Companies that we never heard of and had no idea how they even made their profits, suddenly became our favorite investments. Why not? Every other technology and internet stock was sky rocketing. After all the internet and computers were our future. When there is a wave, and your friends are surfing it, you're going to do the same thing. Investing in companies that were internet related was the "cool" thing to do.
When people see their friends and family making a fortune in a certain market, they tend to not want to be left out. I'm sure you know many people who invested in certain internet stocks that they had no clue whatsoever what the company actually did. Unfortunately these companies were relying mostly on their hype which caused their stocks to soar even though their earnings were not up to par. A few experts began looking at these companies P/E ratios (price per share divided by earnings per share), which showed that most of them were extremely overpriced. Companies that are considered to be "high growth companies" are usually allowed to have higher P/E ratios. However there was no proof that these companies were growing at a large enough rate to off set the high P/E's.
After these experts started criticizing certain internet stocks with extremely high P/E ratios, we saw the stocks for these companies fall enormously. In turn some of these companies were forced to go out of business, signaling a not so good future for similar companies. The bubble didn't really burst. The market didn't just collapse all at once, but it was a gradual process which took months. This is the business cycle in a micro economical sense. The sub market (internet technology) began to fall on a steeper then normal slope. People who had made literally millions in the stock market were now in the negative.
The same thing happened in the real estate market just recently (2006/2007/2008). Real Estate everywhere was soaring. Homes that were selling for just $300,000 in 2000 were going for over $600,000 in many markets just a year or two later. People took out mortgages that had arms on them, and invested their money in real estate. What these people were expecting was that the market would continue to go up for years to come, and that they would be able to sell for a significant profit before the mortgage arm would kick in. What these people didn't take into consideration is that real estate, just like any other investment market, has a cycle of it's own. What goes up much come down, and come down it did.
In this case again, the bubble didn't simply burst either. It rather deflated like a basketball with a slow leak in it. Slowly people could not afford to pay their mortgages because their rate increased (due to the arm). As their rate increased so did the rates of other investors. The price of real estate leveled off, so these people could not sell their investments for a profit. This began happening on a massive scale, and these investors had no choice but to sell at a price lower then they paid in order to make their mortgage payments.
This happens in just about every investment market. There is always hype when things are good, and people jump in at this point. There is a saying "Buy low, sell high", yet even the people that say this all the time buy when prices are high because of this hype. Usually when something seems too good to be true it turns out it is. Remember that. The Bubble will eventually deflate no matter what!
Matching Stocks And Strategies With Your Goals
Various stocks are out there, as well as various investment approaches. The key to success in the stock market is matching the right kind of stock with the right kind of investment situation. You have to choose the stock and the approach that match your goals. Before investing in a stock, ask yourself, “When do I want to reach my financial goal?” Stocks are a means to an end. Your job is to figure out what that end is or, more importantly, when it is. Do you want to retire in ten years or next year? Must you pay for your kid’s college education next year or 18 years from now? The length of time you have before you need the money you hope to earn from stock investing determines what stocks you should buy.
Dividends are payments made to an owner (unlike interest, which is payment to a creditor). Dividends are a great form of income, and companies that issue dividends tend to have more stable stock prices as well. Every investor has a unique situation, set of goals, and level of risk tolerance. Remember that the terms large-cap, mid cap, and small-cap refer to the size (or market capitalization, also known as market cap) of the company. All factors being equal, large companies are safer (less risky) than small companies.
Investing for the Future
Are your goals long term or short term? Answering this question is important because individual stocks can be either great or horrible choices, depending on the time period you want to focus on. Generally, the length of time you plan to invest in stocks can be short term, intermediate term, or long term.
Investing in stocks becomes less risky as the time frame lengthens. Stock prices tend to fluctuate on a daily basis, but they have a tendency to trend up or down over an extended period of time. Even if you invest in a stock that goes down in the short term, you’re likely to see it rise and possibly go above your investment if you have the patience to wait it out and let the stock price appreciate.
Investing for a Purpose
When the lady was asked why she bungee jumped off the bridge that spanned a massive ravine, she answered, “Because it’s fun!” When someone asked the fellow why he dove into a pool that was chock-full of alligators and he responded, “Because someone pushed me.” Your investment in stocks shouldn’t happen unless you have a purpose that you understand, like investing for growth or investing for income. Even if an advisor pushes you to invest, be sure that your advisor gives you an explanation of how that stock choice fits your purpose.
An elderly lady who had a portfolio brimming with aggressive- growth stocks because she had an overbearing broker. Her purpose should’ve been conservative, and she should’ve chosen investments that would preserve her wealth rather than grow it. Obviously, the broker’s agenda got in the way. Stocks are just a means to an end. Figure out your desired end and then match the means.
Dividends are payments made to an owner (unlike interest, which is payment to a creditor). Dividends are a great form of income, and companies that issue dividends tend to have more stable stock prices as well. Every investor has a unique situation, set of goals, and level of risk tolerance. Remember that the terms large-cap, mid cap, and small-cap refer to the size (or market capitalization, also known as market cap) of the company. All factors being equal, large companies are safer (less risky) than small companies.
Investing for the Future
Are your goals long term or short term? Answering this question is important because individual stocks can be either great or horrible choices, depending on the time period you want to focus on. Generally, the length of time you plan to invest in stocks can be short term, intermediate term, or long term.
Investing in stocks becomes less risky as the time frame lengthens. Stock prices tend to fluctuate on a daily basis, but they have a tendency to trend up or down over an extended period of time. Even if you invest in a stock that goes down in the short term, you’re likely to see it rise and possibly go above your investment if you have the patience to wait it out and let the stock price appreciate.
Investing for a Purpose
When the lady was asked why she bungee jumped off the bridge that spanned a massive ravine, she answered, “Because it’s fun!” When someone asked the fellow why he dove into a pool that was chock-full of alligators and he responded, “Because someone pushed me.” Your investment in stocks shouldn’t happen unless you have a purpose that you understand, like investing for growth or investing for income. Even if an advisor pushes you to invest, be sure that your advisor gives you an explanation of how that stock choice fits your purpose.
An elderly lady who had a portfolio brimming with aggressive- growth stocks because she had an overbearing broker. Her purpose should’ve been conservative, and she should’ve chosen investments that would preserve her wealth rather than grow it. Obviously, the broker’s agenda got in the way. Stocks are just a means to an end. Figure out your desired end and then match the means.
Subscribe to:
Posts (Atom)
