Profiting from short term investments

Profiting from short term investments is a question of how involved the investor wants to be in the decision making process.

There are a number of advantages to investing short term with the most important being that profits or losses can be observed almost immediately. Also short term investments don’t lock up your money for very long and if you see that an investment is not doing well you don’t need to wait too long before you can reinvest elsewhere.

Profiting from Short Term Investments:

Short-term investments typically are about investments with more prospects for big profits, but also potential for additional risk. The assets that can be invested in short term investments are options, forex, futures, commodities and stocks. Sometimes realized profits for these investments reach double digit proportions per day! Alas, if you are not careful losses can be that high also. However, there are ‘safe’ or less risky short term investments such as money market funds or treasury bonds which do not offer a big return and are for the conservative investor.

To profit from a short term investment you must decide which time frame you are comfortable with. For example investments in the currency markets might be for a length of several hours or even one day especially if you intend to day trade.

Other types of short term investments such as options, futures, or stocks may last a few days or a few weeks. Investments such as bonds or treasury notes may have a short term horizon of several months. In general the shorter the time period the more involved in the investment you need to be to profit more successfully from it.

You should decide the risk level you feel comfortable with before you decide to invest your money. If you are investing money that you can’t afford to lose don’t invest in the high risk investments such as currencies, stocks or commodities, options and futures. You might have a chance to make a killing but you are just as likely to make a big loss. You should be looking at investing in low risk assets such as CD’s, treasury notes and short term bonds.

If your investment money is spare cash and not earmarked for anything in the future then you are free to choose a higher risk investment and an asset class that can give you a higher return on your investment.

Short term investments require a lot of on-going decisions and also need more knowledge of markets as well as more than passing knowledge of fundamental and technical analysis, especially assets such as currencies, stocks and commodities. Either you learn and acquire the right knowledge or you get advice from a qualified investment advisor.

However, short term low risk investments such as money market instruments or bonds which are held until they mature don’t require a lot of study and skill as your profits can be estimated in advance and you can choose the return on investment you desire from the options you have.

To profit from short term investments you need to decide whether high risk, high return, short term investments suit you or whether you are more comfortable with short term low risk, low return safe investments.

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Day Trading Strategies for Beginners

Introduction:

A day trader is a trader that buys and sells currencies many times a day and does not leave an overnight position. This means that a day trader usually trades within one time zone and does not cross into other time zones except maybe a trader in Europe where the afternoon session coincides with the American morning session. The concept of a day trader is to generate income on a daily basis using technical and fundamental analysis to facilitate this money making process.

Day trading Strategies for Beginners:

When starting out as a day trader a beginner needs to develop a simple trading strategy that enables the trader to have the opportunity to generate profits with a viable risk/reward ratio. To develop a strategy which meets these requirements the trader needs to learn about self-discipline, price charts, volume and price movements, technical analysis and fundamental analysis. In addition the day trader needs to learn about different candlestick chart patterns, volume movements and trend lines, all of which provide tools which enable the trader successfully day trade.

So the first pillar of a day trading strategy for a new forex trader is knowledge. The second pillar of a day trading strategy is an understanding of how the markets function. Elements such as when the highest volumes are traded, what type of economic data has the strongest impact on the market, what time frames are good for certain currency pairs, and the best time of day to trade?

The third pillar of a day trading strategy is to do with deciding how much loss you are comfortable with taking on individual trades. To do this you must establish the maximum loss you are willing to bear. This is something that must be done in advance and not on the fly as you trade. Before you actually make the trade you should decide on the risk/reward ratio for the trade and your loss limit. As soon as you reach your loss limit you should exit the trade. Never fall into the trap of not keeping to your strategy and stay in the trade hoping the market will turn. It invariably does not.

The next important pillar of a day trader’s strategy is the maintenance of documentation which record the day’s trades and the results of those trades. In this way you can gauge how effective your day trading strategy is and amend it accordingly. Documenting your daily trading will also enable you to repeat your successes.

The final pillar of your day trading strategy is hedging. Hedging is the act of selling and buying the same currency pair or the act of buying one currency pair and buying another currency pair which is historically inversely correlated to the original currency pair. Hedging in this way does not produce high profits but it does produce profits and reduces the likelihood of losses.

The above simple day trading strategy will enable day trading beginners to start a successful day trading career.

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Main Secret of Short-term Trading

The secret is the less you trade, the less you earn.

 Sad but true. Think of any investment that you have ever made. Were you able to finish a job in one day? And if you were so lucky, how many times did you do it again? Undoubtedly, very few. That’s because the universal rule of speculation is the same as for growth.

We need time to increase profits.

Successful Forex traders know that a one-minute market can move forward a little, in 5 minutes it will move a bit further, and in 60 minutes still more, and who knows how far it will go in one day or in one week. Losing traders feel like trading only within short periods of time, which automatically narrows their potential profit.

By definition they intentionally limit their profits and go along with unlimited losses. No wonder that so many come up with poor results in short-term trading. They have locked themselves into a hopeless situation, thinking that it is possible to make money during the day just by catching market ups and downs. And this theory seems to be rational, because when you trade within one day and don’t ever leave positions open for a night, you simply don’t rely on news events and major changes, and therefore narrow your risks. And this is incorrect for two reasons.

First of all, your risk is under your control. The only control you have in that business is the control over stop loss points – the point where positions close. Yes, there is a probability that next morning the market will open with a gap exceeding your stop (slip over your stop) even though it is a very rare case, but even then you can limit your losses, having stop loss points and willing to close loss-making trades. Losers stick to losses but not winners.  

As soon as you set positions with stop-loss points, you can lose a fixed amount of money. Without any reference to the time your position opens, since your stop-loss point limits your risk. Your risk is the same whether you buy at the all time high point of market or at the all time low point.

Refusing to set positions overnight limits the amount of time that brings investment growth. Sometimes, although the market may open against us, we are still in the right direction, as the market is to open in favor of us in most cases.

And what is more important, when you finish trading at the end of the day, or worse at some made-up moment, let’s say, 5 – or 10-minute intervals, you radically narrow your profit potential. Remember, a big difference between winners and losers was mentioned, and that losers stuck to their losses? Well another distinction is that winners hold their winning positions, while losers go off the market way too soon. As for losers, they don’t wait for winning positions: they are so happy to make any profit that they leave the market too soon (mostly during the day).

You’ll never make big money, until you learn how to stick to winning positions. And the longer you stick to them, the bigger your potential profit can be. When farmers sow fields, they don’t dig the plants up every few minutes to see how they are growing. They let those plants grow and sprout. Traders can learn from this natural process. Trader success is not any different from successful farming. To cultivate successful trading, traders need time as well.

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