Guest post by : Green
The ability to understand and manipulate economic markets for financial gain is a skill that has been watered down over
the years. It seems these days that almost everyone thinks they are an expert in stock and shares, Forex or commodities. The big crash of 2008 and the ensuing volatility in a number of key markets have been refreshing in so much as it really separated the masters from the mice in market trading.
Those who have managed to continue to make money during these hard times are the quintessential trend spotters. However in this case they are not so much spotting an individual trend, more the changing methods of how to invest in the stock market. They have been able to identify that long stock market trends were either flat lining or worse, in decline. This gave them the edge to completely revamp investing tactics to move towards a more trading weighted approach and continue to generate profits when all around them was losing money. So how are they doing it?
Analysing the Fundamentals
It is undoubtedly naïve and elementary to say that careful analysis is the key, but without sounding too facetious the truth of the matter isn’t too far from that. Effective investors have always used fundamental analysis tools to enhance their trading efforts and in today’s digital trading age everyone has access to the same instruments. So the difference really lies not so much in the output of such tools as is does in individuals’ abilities to interpret future outcomes. Candlestick stock charts are by no means new analysis tools but their importance during crisis trading is more vital than many traders realise. They are not only the best indicator of clear views on market sentiment but they allow the most instinctive of analysers to spot future trends in small periods of activity over the course of a day of open trading. The mistake many traders and investors make is in looking at a trending pattern over too long a period. Doing so just oversimplifies a situation and makes it very difficult to see where changes will take place. More advanced traders are able not only to identify micro turns but also differentiate between those that hold significance to future patterns versus those that are just coincidental or hype related. Being able to make this distinction allows the best traders to predict when similar patterns will occur.
When You Can’t Stand the Heat
Irrespective of foresight, critical analysis and industry inside information, even the best of traders will sometimes have to admit that a given period is too volatile and unpredictable to operate in. Now whether this is a two hour slot or a three week period, there is no shame or defeat in stepping away from the fray. There is no time here to explore the psychology of trading in detail but suffice it to say that knowing when not to trade is as import if perhaps more so than knowing when to trade. The old adage that if you can’t stand the heat you should get out of the kitchen is fitting here but with some revision. A shrewd trader, especially one who is working in a recession market, will get out of the kitchen but leave a thermometer at the door, so he knows exactly when the environment returns to a position he is comfortable and confident with.
Not for Everyone
This form of low error margin analysis and trading is a skill that is gained over a great deal of time and training. It is not something that anyone can pick up in a few hours of reading. This doesn’t however mean that a novice cannot still operate profitably in a down trending market. The slow game may not yield as many or as high returns as the high risk techniques explained above but it does offer a great opportunity for low risk entry into certain markets.
The method is quite simply the bargain shop. As a recession hits, many stocks and commodities will gradually, and sometimes sharply, lose substantial value on the markets. Due these changes being simply a reflection of the community economy (global or national), certain types will always bounce back. It will take a little research to identify which ones but once that is done, it is only a matter of finding them, watching them drop in value and then buying in to wait for them to rise back again.