How Momentum Investing Can Make You Rich?

There is a difference between trading and investing. Trading is always short term while investing is long term. The time horizon in trading can be as short as a few minutes to a few days to a few weeks. Whereas in investing, the time horizon can be months to years. Many people day trade or swing trade stocks, currencies, futures, options, ETFs, commodities or other markets. In day trading, a trader opens a position and closes it in the same day making a quick profit. In swing trading, a trader tries to ride a trend in the market as long as it lasts. On the other hand, an investor is least pushed about the short term swings in the market. He or she has a long term time horizon like a few months to even a few years. This long time horizon matches their investment and financial goals!

Now a company’s stock may have a good long term prospects supported by strong fundamentals. But the stock may stay still for a long time before it catches the attention of the media and the investing public before it’s price get’s bid up. So an investor might have to wait for a long time before realizing a return on his or her investment. Many investors can learn a few tricks from day traders that can help them make a quick profit in a matter of days orn weeks instead of months or years.

There is a general problem with so many investors. They fall in love with their investment after doing so much research and committing so much time for the position to work. Now, day traders are always hit and run types. They have developed an innate sense of discipline among themselves that teaches them when to commit money to a trade and when to cut and run. So, many investors when they fall in love with their investments on the long run forget this cardinal rule of trading that you have to cut your losses. Market least care who you are and how long you have been in it.

Now as a momentum investor, you need to look for securities that are going up in prices especially if accompanied by the underlying growth. What this means is that instead of buying low and selling high, what you will be doing is buying high and selling even higher.

One of the tricks that you can learn from day traders is momentum investing. In momentum investing, you look for securities that are expected to go up in prices accompanied by the underlying momentum. When investing, you try to buy low and sell high. In momentum investing, you buy high and sell even higher!

Now most serious momentum investors are infact swing traders who hold positions for a few weeks or a few months. Most of them employ some sort of momentum indicators to help them identify when it is good time to buy a stock. Some of the indicators that can be used is the Relative Strength Index (RSI), Moving Average Convergence and Divergence (MACD) and the Stochastic Index.

Now, when doing momentum investing, you need to also do some fundamental research behind the company. As most of the momentum investing done during the dot com bubble was on hearsay without being supported by any strong fundamentals! However, if too many investors start practicing momentum investing, it sometimes leads to bubbles like the tech bubble that happened at the end of 1990s.

Mr. Ahmad Hassam has done Masters from Harvard. Turn $200 into $100K in just 3 months with this FREE Penny Stock Report. Read this shocking 40 page PDF FREE FRWC Brutal Truth Report on trading robots!

Trading Euro Against US Dollar

EUR/USD is the most liquid and the most popular currency pair among the forex traders. Trading currencies can be exciting and lucrative. Its a great market because of the way politics affect the trends. Elections, strikes, and sudden developments, both good and bad, can lead to significant trading profits if you stand ready to trade the euro is a convenient currency because it encompasses the policies and the economic activity and political environment of a volatile but predictable part of the world: Europe. EUR/USD is the most heavily traded currency pair in the global currency markets at the moment.

In the United States, where the free-market approach and a usually vigilant Federal Reserve make more frequent adjustments on interest rates. France, Italy, and Germany, the largest members of the European Union (EU), normally operate under high budget deficits and tend to keep their interest rates more stable.

The general tendency of the Fed is to make the dollar trend for very long periods of time in one general direction. Here are some general tendencies of the euro on which you need to keep tabs aside from the technical analysis:

1) Given Germanys history of hyperinflation in the first half of the 20th century and the repercussions of that period, namely the rise of Hitler, the European Central Bank (ECB) is almost fanatical about inflation. That means that the European Central Bank raises interest rates more easily than it lowers them.

2) EUR/USD pair is affected by what is happening politically and economically both in Europe and the US. The European Central Banks actions become important when all other factors are equal, meaning politics are equally stable or unstable in the United States and Europe, and the two economies are growing. For example, if the U.S. economy is slowing down, money slowly starts to drift away from the dollar. In the past that meant money would move toward the Japanese yen; however, because the market knows that Japans central bank will sell yen, the default currency when the dollar weakens is often now the euro.

3) EUR/USD currency pair is heavily influenced by the political developments in the Eurozone. Especially when the European economy is slowing The flip side is that the market becomes jittery and often sells the euro during political problems in the region.

As a word of caution, its okay to form an opinion and have some expectations, but the final and only truth that should make you trade is what the charts are showing you. As usual, you want to closely monitor major currencies and the cross rates. The direction that counts is the one in which the market is heading.

Combining fundamental analysis with the technical analysis can give you the edge as a forex trader. Fundamental analysis can help you determine the strong/weak currency pair. Use fundamental analysis to determine if USD is expected to lose value and EUR is expected to gain more strength that means that the currency pair EUR/USD is perfectly timed for swing trading. Use technical analysis to make the entry and exit decision.

Psychology Of Risk Management

Many new trader think, Why money management has to be so boring and not sexy, when they hear the word money management. They just dont understand the fact that risk analysis and money management is important in currency trading. Its just this kind of behavior that gets average novice trader into trouble. Why money management is so boring?

Everyone wants to make money and a lot of money. At first glance, getting into a trade is thrill enough in itself. You seduce yourself into thinking that once you enter the trade, the currency market will do exactly what you want it to do and you will end up with a trade that can make you a lot of money. This is what most of the novice traders do in fact think.

You find out to your surprise for some reason or another market is not complying with the plan of making a lot of quick cash and is not going in the desired direction. Then all of a sudden it seems that the market is not at all cooperating. Instead, it is going in the wrong direction.

The trade couldnt go wrong in your opinion. It was a sure thing at that time. Now it has gone so far in the wrong direction that you may have difficulty in getting out. The gut feeling was so clear and compelling when you had entered the trade.

What to do now? Most of this evolution of a position gone bad has to do with you entering the market and risking real cash without having a plan, a stop and a tested money management system before entry.

Most of us do not think it painful enough to change our thinking and take sound money management seriously until we suffer a few losing trades to bring the concept home. Now many of us have faced this type of a situation.

The psychology of risk control sooner or later begins with genuinely believing that you will benefit from a risk control plan. When you have mastered your psychology, you will experience less anxiety in your trading and will be able to implement your trading plan more consistently.

You will reduce your level of stress and anxiety during trading by limiting your loss potential on each and every trade. Never ever risk more than 2% of your equity on a single trade. So the most you will lose on a single trade will be $200 if you have a $10,000 trading account. Think of it as getting a step closer to the winning trade instead of fearing a stop out when your trading system tells you that the trade has gone bad.

As you gain confidence in your money management plan, you will begin to see the profits increase. Your pride will increase from generating greater profits from each trade. That increased pride will make you more confident in your abilities to become a successful trader.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Develop your own Forex Trading System. Get Netpicks Forex Signals Free!

Understanding US Dollar Index

The US Dollar Index Futures Contracts are traded on the New York Board of Trade at Finex and at the Chicago Mercantile Exchange (CME). The US Dollar Index is widely quoted in the press and on quote services and is used by traders to get the big picture of the overall trend of the dollar.

The Federal Reserve Board had introduced the US Dollar Index in 2003. The index is the result of the Smithsonian Agreement that had replaced the Bretton Woods Agreement. The US Dollar Index is similar to the Feds Dollar Index which is a trade weighted index. The Fed gives value to each individual currency in the index based on how much it trades with the US.

However, the US Dollar Index and the Feds Dollar Index should not be confused with one another. The value of US Dollar Index and the Feds Dollar Index is different. The US Dollar Index futures contract expires on March, June, September and December. The minimum tick on the US Dollar Index is 0.1. One tick is equals $10.

The overall value of the contract on the index is 1,000 times the value of the index in dollars. Delivery is physical. It means that you receive dollars based on the value of the index on the second business day prior to the third Wednesday during the month of the expiring contract.

Delivery day is the third Wednesday of the contract month. No trading limits are placed on the US Dollar Index. Trading hours are from 8.05 AM to 3:00 PM with the overnight trading from 7 PM to 10 PM.

The US Dollar Index was modified at the inception of the Euro and is weighted in a way thats similar to the Feds trade weighted index as follows: Euro 57.6%, JPY 13.6%, GBP 11.9%, CAD 9.1%, Krona 4.2% and CHF 3.6%. The US Dollar Index is best used as an indicator of trends in the currency markets.

However, you must keep this in your mind that as compared to trading currencies, the US Dollar Index is not a good trading vehicle. The best way to trade the index is by using the currency mutual funds. There are a few good currency mutual funds that you can find. You should know that one of the secrets of knowing trading success is understanding what kind of personality you have. You should know whether you are weak nerved or strong nerved.

Spot Currency trading where you trade the spot currency market is not for the weak nerved. Suppose you are afraid of taking a coffee or bathroom break for the fear the market will move against you and in a blink of an eye you will end up with a margin call. In such a case you need to invest in currency mutual funds based on US Dollar Index and relax.

By trading these currency mutual funds you are taking away the big part of the risk involved in trading currencies. If you check the dollar index a few times during the day, then you have a pretty good idea as to how your fund is going to close at the end of the day.

Tips and Tricks for Starting Stock Investors

First of all, you must remember that as a beginning investor, earning money will not be easy and simple on the stock exchange. If it were that easy, every investor would already have struck it rich their first few times. Investing will take up a lot of your time and it needs a lot of study, discipline, and of course, independet thought.

That being said: the stock market may be confusing for the beginning investor. There are a few basic tips that will help investors with the choices they may need to make. As it happens, the goals of one person will be very different from the next, and will play a big impact on one’s investing habits.

Stock Market Investing is really not as complex as some financial advisors would like you to believe. It’s really not as complex; anyone can do it. Remember this, and follow some basic tips that will help you get started on your way.

1. Remember that there are no set rules for investing. Guarantees do not exist, and there is no perfect way to invest.

2. When you have to invest, it’s advisable to be completely knowledgeable about how it will work for you, and be aware of the transaction in detail. The choices you make should be informed and wise.

3. Determine your goals and needs before you jump headfirst into the market. It will aid you in determining which investments to make and how much money to put into these investments.

4. Check the value of the stock, instead of the selling price. In this recession, stock costs are low for a reason. Open your eyes to the whole picture, and figure out the reason why the price is low, and if it’s possible for these prices to rise after time.

5. Check the net worth return of the company owning the stock. Try to see a trend of growing return on net worth.

6. Do not put it all on one horse. Spread out your risk and avoid investing in just one stock. Have lower risks and higher risks in different investments. That way, your money is more protected.

7. Have a good understanding of the basics of the stock prices. Depending on future projects, they will move up or down. And last of all:

8. Don’t be like an old, tired, dog. Be open to learning new tricks and go out there to discover and try new things that come up in the stock market.

Think Forward and Invest, Trade

If you listen to my story closely, then you may find something familiar with it. Let me begin: Sometime during my High School years, I realized that my parents would not be able to afford a good university for me. I knew I had to push forward on my own, so what did I do? I did the American thing to do, of course; I persevered for a student loan so that I can secure my future. I got accepted, and save for a few moments of poor judgment, my college life went quite well.

Afterwards, I began to work so that I can pay off my student loan. Beyond that, my paycheck has been reduced by the costs of living alone; rent, food, stuff like that. I still earned enough to start saving up, little by little. My future was set for the moment, at least.

Let’s fast forward to the present. My student loan since been paid off, my rent no longer affects me as much because of my higher pay, and I am considering a housing loan for my fianc? and me. Beyond that, I have extra savings that are just sitting inside the bank. Life has been good, but I can?t help but worry that it may not last.

Life has gotten harder and harder because of the recession, but we are at least aware that there is a problem now. With the Americans’ combined efforts, I believe that we can get out of this plight in the next ten years at most. In the meantime, I find myself thinking about what I usually do: My future.

So it’s not surprising at all for me to look for worthwhile investments for my savings. But how would I know which investment would be best for me? And should I worry about the financial state that the country is in now? Should I wait for it to settle down before I invest? There are many options; from bonds to stocks to individual businesses, and each of them have perks and risks that I have to study first.

Looking for the Best Investment

So you’ve been out of school for a few years now, and you have been working religiously to build up your savings and to pay off that student loan. You take a look at your savings account, and decide that you now have a sufficient capital to invest in something. After all, you don’t plan to be an employee for the rest of your life.

So now that you’ve made up your mind to start investing, where do you place all that hard-earned income? There are a multitude of investments that you can get into, but you have to be able to choose carefully. Here are some of the more popular options:

*Set up your own business. This is probably the best option for you if you feel that your interest or hobby can turn into something that earns. To run this business correctly, though, you must have the capacity to dedicate most of your time to it. Basically, this is not the preferred option if you are employed at the moment.

*Invest in stocks. When many people think of investing, they immediately think of stocks. Essentially having a share in the ownership of a company, stocks have one of the best opportunities for high yield. Do not be disillusioned by that possibility, though, as stocks are also the investment with one of the highest risks. If you do decide to invest in stocks, make sure that you have thoroughly studied about it.

*Checking out the bond market. A bond is a form of debt security; an authorized issuer borrows money from you, and they will pay you back semiannually with a substantial interest. High as it may seem, the bond is perhaps the slowest-gaining option out here, but at least it’s also quite safe. You can, of course, make it more interesting by buying or selling bonds before it matures. This is more profitable, but doing so will also increase the risk factor of an otherwise safe investment.

*Get a mutual fund. These mutual funds are federal approved; the increased security is important because the managers of a mutual fund company will be the ones making the investment decisions for you. At the end of each year, an investor will get a report of where his or her money is, and how much it has grown. This is a very attractive choice for those that want to invest in something, but feel like they can’t afford to do it by themselves.

Summing up, those are some of the most popular investments for people who like to think forward like you. If you know what you’re doing, investing in any of these grows your money better than any old savings account. Just remember; patience is a virtue. Above all, have the sensibility to stick to those investments. Don’t back down at the first sign of trouble.

Learn Currency Correlations

Everything is interrelated in the forex markets. It is important for you to understand that the price action of each currency pair is not mutually exclusive.

Most of the currency pairs move relative to one another. Understand that different currency pairs are correlated. These correlations can be positive or negative.

Knowledge of the strength of this relationship and its direction can help you in developing your trading strategies. Correlation numbers have the potential to become a great trading tool for you.

Correlations are numbers that range between +1 and -1. These numbers are calculated based on past pricing data between different currency pairs. They can provide you with information that can maximize returns, minimize risk and avoid counter productive trading.

Lets use an example to make it clear. Suppose USDJPY and USDCHF has a positive correlation of +0.83 last month. This number is close to +1. It indicates that both pairs move together most of the time in the same direction.

Since both the pairs move together, if you are trading USD/JPY and USD/CHF at the same time, it will double up your position if you go long or short on both at the same time. In other words, if you lose a trade on USD/JPY, the chances are that you will also lose the trade on USD/CHF 83% of the times.

Lets take another example. EUR/USD and USD/CHF both have a negative correlation of -0.9 in the last month. It means both the pairs were moving in opposite directions last month. If you take long position on one, it is not a good strategy to take short position on the other. It will only double up your position again and increase risk.

If you are investing in two currency pairs simultaneously, try choosing such pairs that have correlations near zero. Zero correlation means the two pairs are independent of each other in price action.

Always keep this in mind that currency markets are constantly changing. The correlation between currency pairs also keep on changing. It would be a good idea to calculate the correlations between pairs on a monthly basis.

How To Pick The Best Currency Pair For Trading?

While deciding which currency pair to trade, many traders make the mistake of forming their opinion around only one currency in the pair, ignoring the other currency. Right choice of the currency pair is essential for making profitable trades.

US Dollar is the most important currency in the global economy. It is heavily traded against other currencies like Euro, British Pound, and Yen etc. Many trader trade currency pairs involving USD. They make the mistake of only studying US Dollar while ignoring the other currency in the pair.

In the forex market, this neglect of the foreign economic conditions can greatly hinder the profitability of the trade. It also increases the odds of a loss. You need to understand a little bit of fundamental analysis when you make your choice of the currency pair.

When trading against a strong economy, the chances of failure are more. The weak currency could flop badly while the strong currency may appreciate more than you calculated.

You must study the economies of both the currencies before you decide to trade a particular currency pair. The best trading strategy is to find the strong economy/weak economy pairing. This has the potential of giving maximum returns.

For example, when FED announced its intention of containing inflation in March 22, 2005 FOMC meeting; most of the other currencies tanked against the dollar. A string of other positive economic data also reinforced the dollar.

When the initial market reaction was over, GBP rebounded and recovered its lost strength, due to the consistent economic growth shown by the British economy at that time. However, JPY kept on depreciating due to the week performance of the Japanese economy during that time. Dollar almost gained more than 300 pips in two weeks against the Yen after March 22, 2005.

You can see that the USD strength had a much higher impact on the struggling JPY as compared to the consistently strong GBP. Trading USDJPY would have been much more profitable as compared to trading USDGBP.

When you choose a currency pair, study the economies of both the currencies in the pair. You also need to examine the behavior of various crosses. In nutshell, the best choice is always choose the strong economy/weak economy currencies.

Factors That Affect the Forex Markets in the Short Term

There are two types of forex traders. One type of traders depends on fundamental analysis in trading forex. The second type of traders depends on technical analysis in trading forex. Whether you are a fundamental trader or a technical trader, you should not underestimate the importance of economic data in shaping trading strategies.

Over 90 percent of currency transactions are done against USD. USD is either the base currency or the counter currency in most of the currency trades.

Since majority of the currency trades involve USD, you as a forex trader will also most probably trade USD most of the time. Release of certain economic data has significant and lasting impact on currencies like USD.

With experience, you will understand that currency markets reaction to the release of different economic data with time also changes. A few years back, US GDP figures used to be important for USD but they dont have much impact now.

EUR/USD is the most liquid pair in the forex market and is heavily traded. The release of Nonfarm Payrolls (NFP) data on the first Friday of each month has become important in recent years. These figures makes EUR/USD and other pairs involving US Dollar highly volatile for some time until the markets digest the importance of these figures.

Similarly, a few years back the release of US housing sales number every month was not important for the currency markets. But it has become very significant for USD in the recent years. Currency markets used to give more importance to US Trade Balance in the past but they dont react to these figures much now.

If you depend on range trading as a trading strategy, you should avoid the day NFP data is released for trading. This is a highly volatile and jittery day for the forex market.

However, if you are a breakout trader, the knowledge of which economic data is expected to be released can help you in determining the size and confidence of the trade.

In brief, knowledge that certain economic indicators make the forex markets move most is important for you as a trader. It is also important for you to know that particular economic data, the market considers most important at any point in time.

Knowledge of which economic data causes knee jerk reaction in the currency markets and which economic data usually has lasting reaction in the currency markets is also important for your trading success.

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