The Dow Jones Industrial Average

November 8, 2011 Trades
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The Dow Jones Industrial Average skyrocketed on October 27th. This was the day that the European Union agreed upon a debt relief plan for their problematic economy. One of the main points, it was agreed upon that those holding Greek bonds will receive half of their value in compensation. The Greek government had defaulted on its loans and many people believed that the bonds would go unpaid. Instead, the 50 percent agreement was a big positive to come out of the discussions.

This solution was a big boon to the U.S. economy and took off with the News Trade Sniper. The Dow responded by rising 340 points, bringing its closing price up to over 12,000, making the Dow in the positive for the month of October by over 11 percent from where it was October 1st. Additionally, the Dow is up over 4.5 percent for the year 2011. Good things can happen to our economy when the rest of the world is doing better, it should be clear. This agreement was also a big booster for the S&P 500, which is on pace to have its best month in the last 30 years.

Dow Jones

Europe’s problems are far from solved. This is only the first step in a long process; but it should be clear how reliant the international economy is on each nation’s performance. With Greece and major world banks agreeing on this, it shows that the economy can and will recover from this. It might take some time, but this shows that there is in fact a light at the end of the proverbial tunnel.

Interest Rate Play

September 7, 2011 Trades
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Interest rates play a large role in the world of Forex trading and TomsEA. Because they can reveal the economic health of a nation, traders around the world examine interest rates in order to find which currencies are strong and merit more investing in and which currencies are weaker and should be sold off.

A high interest rate will typically thwart economic expansion since the price of borrowing money becomes higher. Due to high interest rates, people will be less willing to borrow, and thus the economy stagnates a bit. Low interest rates have the opposite effect. When money is cheap to borrow, more people flock to this option, thus expanding the economic landscape.

Keeping track of U.S. interest rates when trading the dollar is extremely important. Because most traders utilize the dollar in their trading, this is almost a universal beacon that traders look to. Knowing whether the dollar is going to go up or down is a fine art, however, and the current interest rate will help you to pinpoint just where currency prices are headed. This, of course, is information that you should be able to use when doing your own trading. Being aware of U.S. interest rates will help guide your trading in the right direction. Just remember that other nations will also have interest rates, thus making it a necessity to do further research. Knowing how one nation’s interest rate affects another’s will give you a clear advantage over the average trader that just looks to the U.S. rates for guidance.

Derivatives in the Market

July 20, 2011 Trades
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A derivative is a financial product that gives you the option of fulfilling a buy or sell contract by some point in the future. Also called options, this product allows traders the option of buying or selling a stock at a previously agreed upon price. This can be a very powerful trading tool if used right. Because they present traders with the “option” of buying or selling, they can help minimize risk if you have a very clear idea of where a stock is headed price-wise.

An option does not create an obligation like a futures contract does. Because they present so much freedom to traders, they have a larger contract lot cost. For example, suppose that shares of XYZ are currently at $10.00. If you think that their price will rise in the future, you might want to enter a contract with a low price so that you can buy those shares at the lowest possible price. So you enter an option to buy the shares at $10.50 with the hopes that prices will increase drastically. If the expiration date is one year from the time of purchase, if the price goes above $10.50 all the way up to $11.00, you can fulfill your option contract at $10.50, then immediately sell your shares at the higher price. Understanding Forex News can also help you better understand derivatives.

In this above scenario, your profit would be the amount of shares optioned multiplied by $0.50 minus the contract fees. Obviously the farther away the expiration date, the more the contract will cost since there is more of a chance that the price will fluctuate above the profit level.

Exiting Your Winners Too Soon?

June 1, 2011 Trades
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Few traders have mastered the art of controlling their emotions when trading. Seeing real money in front of their eyes makes a trader react in irrational ways. Traders get out of their winning positions early because they are gripped by anxiety that it may not last.

When a trade moves into positive territory, it validates the trader’s decision. A sense of joy and accomplishment fills in the trader as the market starts moving in the direction of his trade. If the trend is strong, and there is momentum in the market, this position may become even more profitable, and far sooner than what the trader anticipated. This is an enviable position to be in, but the oracle trader is now faced with a critical decision.

Does he stay in the trade and hope to earn even more? Or, does he take what the market has given him, and get out a winner? He is caught between greed and fear.

The trader has no way of knowing that the market will keep going up. He is afraid that the market may turn around any moment and head back, wiping out his profit. In order to preserve his winnings, the trader gets out. More often than not, the market continues marching on, and the trader regrets leaving so much more profit on the table.

While the trader is correct in exiting, it would make better sense to exit in a staged manner, rather than in one go. He can set a tight, moving stop loss that tracks the market movement. In this manner, he can squeeze as much profit from his position as possible, without being remorseful of exiting too soon.

Planning To Trade? Get A Plan!

May 21, 2011 Trades
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Many traders get into the markets because they are enticed by the opportunities, but only those who have a plan stick around for a longer time. The reason is not far to seek. It is a widely known fact that most businesses fail, not because they plan to fail, but because they fail to plan. Trading stocks or Forex is also a business. It is indeed foolhardy to venture into any activity, let alone one as risky as financial trading, without a solid working plan or the StraddleTrader Pro behind them.

What goes into a trading plan? A trading plan is nothing but a document which has the rules of your trading system written down. It is based on your theoretical understanding of the market, your strategies, your trade management and most importantly, your money management tactics. Developing a plan takes time. You need to study the market, study your strategy and watch it perform in a demo account, before you risk any money. Only when you are confident of your trading system, you can risk real capital in the markets.

A trading plan helps traders stay on course. They are less distracted by the many events surrounding a financial market. They keep their focus and watch their trade as it unfolds before them. They are able to pick trades that have the most likelihood of succeeding. They are able to quickly exit losing positions and also let their profits run. Trading without a plan, is like venturing into an unknown, dangerous territory without your trusty GPS.