Archives: 2008 October

It would be hard to imagine a more interesting and chaotic time in the financial markets.

We are seeing market characteristics (reversal patterns, daily ranges, etc.) that are literally unprecedented. The volatility (as measured by Average True Range or ATR) of almost every major trading instrument is at all time highs. It doesn’t matter if you’re looking at stock indexes, bonds, gold, oil, currencies, etc. It seems that the only broad groups of instruments not trading at their highest volatilities ever are the smaller commodities that don’t have big hedge fund and institutional interest- things like coffee and orange juice.

This volatility expansion is significant for several reasons:

It is broad-reaching. As mentioned above, it is hitting practically every traded instrument.

It is persistent. The markets are no strangers to volatility spikes. We see them come and go when particularly juicy reasons for fear or greed enter the markets. But this volatility explosion has not subsided. Depending on how you measure “persistence”; the volatility “spike” has lasted four to six weeks, not just for a few days.

What used to take days to play out in the markets is now taking hours or less. With the stock market daily range still at all time highs an interesting phenomenon is taking place-time compression.

The S&P 500 Average True Range (ATR) is running 80% higher than it was during the previous volatility heights of 2000. And more amazingly, as a percentage of price, volatility (as measured by ATR) has been as high as 8.4% of price in the past week!! The highest it ever reached in 2000 was 3.0% of price, and that was only for a day or two.

This volatility has literally compressed time. If we look at the S&P hourly chart, we see AVERAGE moves that are as big as daily bars were just a few short weeks ago. These are truly historic times.

Last week we talked about the importance of keeping history in perspective as we looked back at 25 year long trading ranges. See this article at www.smarttradepro.wordpress.com

But with this time compression that is taking place, it makes sense to keep an eye on shorter time frames, even if you are a longer term trader. With that in mind, let’s look at a 60 minute chart of the S&P 500. Chart located at www.smarttradepro.wordpress.com

Everyone wants to become financially free – well at least be able to spend more time doing what they want rather than what they don’t want. Most people are searching on the Internet, keeping their eyes out for the escape route from the rat race, their vehicle to take them towards financial freedom. There are three things to think about your money making vehicle, before plunging into the deep end. Only to find you can’t swim in that pool – it’s too deep for you.

1. Is this something you are interested in, or even better, passionate about? You may have the best money making opportunity in the world – but if you do not enjoy, or worse hate doing the actual daily activities involved, it will never last. So, make sure you research what the actual daily duties will be, ensure that your values and beliefs align with the financial vehicle that you choose and you have a genuine interest in it. If that is all there, great – if not, re-evaluate. My personal example was stocks. I hated studying the market and learning the jargon, however I persevered and ended up wasting time and money when I finally admitted it wasn’t for me.

An option is simply a contract that says that within a certain time frame; you will have the choice of buying into an investment at a fixed price – the price being fixed in the contract. There are two ways in which the buyer takes a risk in options trading. First of all, there is a price to pay for the contract.

For the advantage of having a fixed price for the stock you may want later, you have to pay a price. Of course, your contract is an option, you do not have to buy that stock at the fixed price, but if you do not, you will lose the money that you put down.

The other risk that you as the buyer takes in options trading have to do with the price of the stock you have an option on. If you take out an option on stock at a certain price, and the price goes up, you have gained a lot; because you are buying it for less than you can sell it for.

There are many ways to make money in today’s society however currency trading is gaining popularity. Although it may be gaining popularity, few people know how to effectively do it. This lack of experience is a major cause of failure in the business.

For those of you who have not heard of Forex Trading but are interested in it, make sure you do your research to understand it first. Currency trading is an extremely risky business because of the volatile trading conditions. It can be done correctly only if you completely understand it.

If you are interested in this type of work but donat have the necessary experience, it might be best to begin with using an automated trading system. This is because the automated trading system minimizes losses in Forex Trading by automatically doing most of the work.

It has become well known now that the use of an automated trading system will really help you do better in the tricky currency trading market. However, it takes a good amount of time to determine the best automated trading system to use. So we are left still wondering if the automated Forex trading will actually work?