Five Ways to Understand and Trade the Financial Markets


Whether you are a trading novice or a seasoned professional, there are many valuable tips that you can employ to make your trading sessions easier, more efficient, and profitable. The whipsaw motion of equities, indices, commodities and stocks serves as a disincentive to many newbies, but the cyclical movements, trends and patterns should not deter you from investing – they should encourage you. In-house trading experts from leading brokerages have pooled their collective talents to offer 5 unique ways to read the financial markets and make smarter trading decisions.

#1 Embrace the Volatility

This may seem disingenuous, given that volatility can rapidly erode your financial portfolio. However, without volatility there is no profitability in many financial markets. Volatility drives currency markets, so that trading pairs like the GBP/USD, EUR/GBP, USD/ZAR, and others can be profitable. It is this volatility in prices that generates profit potential. Let’s take a quick look at volatility, for a better understanding of why it is essential in currency trading: Volatility is attributed to the rapidly changing currency quotations during any particular trading session. The higher the volatility, the higher the risk, but this also makes it possible for investors to earn higher profits. If you understand the direction of currency appreciation/depreciation, you stand to make a significant profit.

#2 Adopt Contrarian Investment Practices

Many folks navigate down the traditional route when it comes to investing in the financial markets. Whether you’re a trader seeking short-term gains, or an investor seeking long-term gains, you can always benefit from diversifying your financial portfolio across multiple assets and categories. Contrarian investment practices go contrary to traditional methods. For example, Trade-24 expert Montgomery Middleton recommends that investors seek reputable trading platforms for all financial assets. ‘There are several contrarian investment practices that you can adopt today, including derivative trading with CFDs on stocks, commodities, indices and FX, and even cryptocurrency trading on Bitcoin, Litecoin, Ethereum, Bitcoin Cash and others. These are certainly worth checking out, since they offer low-cost fees, or minimal fees, maximum engagement between the trader and the financial markets, and minimal interference by third parties.

#3 Use Economic Calendars to Understand Market Movements

The value of economic calendars cannot be understated. These economic resources provide detailed information on upcoming economic announcement such as GDP results, CPI results, central bank speeches, and updates, Markit Services PMI, retail sales, Baker Hughes reports, trade balance figures, imports, exports, new home sales, M3 money supply, business investment etc. These financial indicators are extremely important when it comes to anticipating the future direction of markets. By reading economic calendars and trading them accordingly, higher profits stand to be gained.

#4 Understanding Macroeconomic Variables and Financial Instruments

The correlation between interest rates, inflation rates, money supply, quantitative easing or tightening, and fiscal policy on financial instruments varies from loose to ironclad. For example, interest rate increases are typically associated with an appreciation of that country’s currency. While this rule is not absolute, it is generally the pattern that follows. When the central bank – the Bank of England, the Bank of Japan, or the Fed – raises rates, this causes foreign buyers to sell their currency and purchase the GBP, JPY, or USD accordingly. Currently, the Fed is involved in monetary tightening with several interest rate increases expected over time. It is likely that the Fed will raise interest rates by 25-basis points on Wednesday, 13 December 2017. The USD is pricing in this probability, and is appreciating relative to other currencies. Much the same is true with the GBP, which is also likely to get a boost from the Bank of England’s move to tighten monetary policy in 2018.

#5 Demo Trading

Nobody is born a trading expert. We must understand how the trading platforms work, and the best way to do this is through demo trading accounts. A demo trading account at a reputable brokerage typically offers the full spread of financial assets under real market conditions. Traders will be given a faux bankroll with which to trade their choice of financial instruments. Once you understand the mechanics of the trading platform – MetaTrader 4, MetaTrader 5, WebTrader etc. you will be better positioned to trade for real. Many novice traders unwittingly lose money by incorrectly setting stop loss, take profit, trailing stops, and other positions. By practicing first, before you deposit and trade for real you can save yourself a bundle.

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