Financial Market Introduction 101SELF DEVELOPMENT/METHODOLOGY/PSYCHOLOGY
Financial Market Introduction 101
a) Market participants
Market Participants include those parties that are involved in the operations of investment
companies. Their control in the market is necessary and they should be well aware of the
changes in the market.
1. Brokers and dealers handle trade activities between the buyers and sellers of currencies by
charging a fee. They are the crucial part of the FOREX market, which acts as a medium
between buyers and sellers.
2. Investment advisers are individuals who provide investment advice to investors by
issuing reports regarding the analysis of investment securities.
3. The investor is one of the main participants of the financial market as funds are allocated
to them as a capital to gain financial returns in future.
4. A central bank is one of the monetary authority and it regulates the state's currency,
interest rates and money supply. Performance of the commercial banking system is also
overviewed by the Central bank of respective countries.
b) The Trading Market
Trading market is a place where trading of currency and securities are done. The market includes
brokers and investment experts who provide active services as traders on the basis of their
education and knowledge regarding the market. They take investment decisions on the basis of
different trading methodologies and data from past years to determine the most profitable
investment.
c) The Best Time to Trade
Best time during the year
Previous yearly records show that October and September are considered as the best months to
invest in the FOREX. The main reason is due to the price bumps, which usually arises during the
month of November and December, due to the seasonal changes.
Best time during the Month
The best time of the month to invest in the FOREX is during the first five and last five days of
the month. The fact was illustrated in research conducted by Professor Ogden’s, which
determines different types of investment return that are paid in the last first few days of the
month. This "regularity of payments" can enable the investors to generate profit on their
investments.
1. Municipal bonds interest payments are made up to 90%
2. 70% of corporate bonds principal payments
3. Preferred stock dividends are paid up to 65%
4. 45% of all common stock dividends.
d) Market Cycles
Market cycles are considered as the key to determining the maximum returns. The market cycle
can be divided into 4 phases:
Accumulation Phase
• The accumulation phase arises after the market decline and experienced traders start to buy
after figuring that the worst position of the market is ended.
• At this time period, currency price valuations are pretty enough that they can play an
essential role in profit generation. However, in this stage, prices are flattered and every seller
in the market knows that the buyer will get a healthy discount.
Mark-up Phase
• A Mark-up stage the market stability moves forward towards the higher market moves.
During this time media stories usually determine that the worst period of trading is over,
however, increase in unemployment can arise during this period.
• At the maturity of this phase, investors use bandwagon because of their fear regarding the
decrease in market prices. A bandwagon is a group including technicians who analyses the
market prices to recognise the changes in market direction and sentiment.
The Distribution Phase
• Within this time period, sellers dominate the market. The bullish market sentiments can
turn the market cycle towards the mixed sentiment. Prices in this phase stay locked,
which can last for some weeks and months.
• Even the timing models do not flash any signals to buy the currency. This phase can be
affected due to the bad economic news or adverse geopolitical event.
Mark-Down Phase
• This stage can be most painful for the investors, those who still hold their previous
FOREX reserve can get huge losses, as they would have to sell them even at the lower
prices at which they have bought the currency.
• However, this phase determines the buying signals to the early innovators, which can
enable them to generate returns in future once the prices got higher. This stage also
demonstrates that it is not the good period to sell the FOREX.
e) Days of the Week
1. Throughout the whole week, Monday is considered as most the best day to buy FOREX,
as the prices usually show a decline. A study conducted on "A Survey of the Monday
Effect Literature" reveals that decline in the prices can be the reason of bad news that was
released during the weekend.
2. Conversely, if Monday is considered as the best day to buy FOREX, Friday is determined
as the most feasible day to sell it. As it is better to sell the reserve before the weekend due
to changes of price decreases which can affect the profitability of investment, in case of
selling it at lower prices on Monday.
3. Heading towards Tuesday trading can flourish a little. The reason behind this fact is that
opinions are formed by the traders and they have started taking their positions in the
market. Therefore, this can make a good day for trading in the market.
4. Wednesday shows the same kind of trend in trading followed by Tuesday or usually
depicts bigger price moves and is considered as the second-best day of the week for
trading.
5. Thursday, it quickens. Thursday is considered as the days when huge profits can be made
by the investors. Investing in the right currency can enable the investor to generate huge
profits.
f) Hours of the Day
Trading in the morning time is not a good idea as market prices and volumes can change
roughly. It is assumed by experts that these are considered as volatile hours and several new
releases can affect the investment outcomes adversely.
However, trading in the middle of the day can be favourable for the investor, as prices mainly
remain stable during this time period. Several time frame analysis is utilised by the investor to
select the most appropriate time for trading.
g) Swing Approach
Swing-Traders analyses the swing chart within the day so that they can take advantage of
favourable price changes in the marketplace, and this affords them the benefit of not having to
watch markets continuously while they are trading. Once they find an opportunity in terms of
increase in FOREX prices, they place the currency on sale and then constantly keep a check on
the progress of the pricing.
The approach has different optimal time frames, which include:
• Daily, and Weekly Charts
• 4 Hour, and 1 Hour charts......
Please let me know if you would like to know more
Happy trading :)
"In investing, what is comfortable is rarely profitable" Robert Arnott
