TRADING PRINCIPLES



Millions of institutional and individual traders daily deal on the world exchanges with trading of stocks, commodities, currencies and other assets at financial markets. The initial mission of the particular exchanges is to allow participants buying or selling of traded assets for actual market price. A lot of exchanges is set for purpose of hedging assets´ price at the spot or futures market. The motives and needs of the participants can differ. Some of them wish to buy or sell their assets; others from various reasons just wish to hedge their prices of selected asset. Scalpers, companies or financial institutions are totally overwhelming participants at all exchanges. Particularly because of the financial speculations with the usage of fundamental factors the various assets prices are still moving and developing. We are namely interested in stocks, commodities and cross-rates.
  
Currently the Online Trading of the financial instruments is developing very intensively. Directly from your PC, online through Internet, applicants, scalpers can make their market orders to the particular exchanges and immediately participate in this exciting business. The Forex and CFDs trading becomes still more and more popular, thanks to them traders can very quickly, easily and effectively enter the trading speculations on selected assets at the eletronic exchange CFDs and Forex and realize their trading speculations using the principles of Leverage and other sophisticated tools for the financial risk and trading management.
   

How is it working?

As the car needs engine to move (if it is not going down from the hill), your trading needs as well the mechanism to make profits (or losses but you should avoid it...).Trading itself is done by entering the trading positions, thanks to it you control for less money defined selected contract size. How the profits or losses are made? We have said, the markets are still moving and prices changing. The principle is the same as in each kind of trading. It means you want to buy cheap and sell expensive, and make your profit. But not every time it will succeed, market or respectively price can turn against you. There are only two possibilities. You can hope, that the price will turn back to the needed direction (what can happen especially if you have open your position in the actual price trend line direction of selected asset), or to prevent the losses and close the position in the right time, it means bought contract sell immediately for the current market price or defined price, which you will set by the market order, that will activate, if the price achieves set value. The aim of your trading is to expertly presume the price movement (there are only two possibilities, prices can only increase or decline), to make higher profits than losses, that is the matter of the money management and your knowledge about, how is the market functioning.
   
This trading gives you one fundamental advantage. You can equivalently profit on the stocks, indices, commodities and currencies prices, increase or decline! That’s why it doesn’t matter in what situation are different markets, if the prices are increasing or declining. Only in this trading is possible to firstly sell the contracts and than buy. This is the trading invention, which is possible to make in this way only at these markets! You select your strategy, if you participate in the trading in the way of buys or sells, according to the actual price development of monitored commodities.

Prices of all assets are (stocks, commodities or cross-rates) constantly fluctuating. You can see this fact on the price charts. This fluctuation (constant creation of new price levels, quotations) is visible from short-term, mid-term and long-term charts. On the first view it seems that these charts are a little bit chaotic and unnoticed. By further study you find out, that the price developments of particular commodities are subjects to defined obvious patterns. Actual price development, which depends on the ask and bid of purchasers and sellers depends on many fundamental and technical factors too. Fundamental factors are real reports, news and other influences, which can have the impact on the actual ask and bid. They are providing the current price of commodities, which can be influenced by the mix of various factors, negative or positive. Prices, which can be monitored on the exchanges, news and your PC screens usually have all fundamental factors included! 

Technical factors are barriers, psychology of the crowd, courage of the scalpers, moods and other indicators, which can influence prices. The example, can be stocks. However the economy, inflation, rise of GDP, unemployment and other fundamental influences can be steady in the log-term, stock prices can fluctuate in the same term of tens or even hundreds percents. It is of course clear, that the values of given companies would never change of the same or similar percentage! Scalpers move with the prices, they usually manipulate with the prices in the frame of given technical levels, and they usually are not so courageous to cross-over the levels. You can see on the charts and price developments, that prices fluctuate in the trends, it means prices are developing gradually up and down and create tops and bottoms, short-term trends are created in the long-term trends, corrections and other interesting patterns which scalpers like. Though the stocks, indices, commodities and currencies are different in the characteristics, they have one thing common. The prices move everywhere in both directions, oftentimes technically in very presumable way and charts all of them oftentime s create very similar patterns. We say, that prices are trending, stagnate, get at barriers. These barriers are partly psychological (round prices, round numbers), partly are created by the both parties will, it means purchasers and sellers, to accept given price borders.
          
The engine for your trading is to be well aware of the price movements and trends of the commodities that you selected, buy and sell, it means close Long and Short positions, define trends, barriers, watch the market development, identify the fight time for the entering and from leaving the markets. Every engine needs its fuel and oil. It is usage of the Margin and Leverage there, what is the specialty of trading with financial instruments.
 
Trends. If the prices move in particular direction for some time, we can call it trend. Trend can have whatever from these directions:

  • Up ↑
  • Down ↓
  • Sideways →
     
    During the trend prices can fluctuate up and down around the trend, but you can still see the total trend direction. Prices around trend move in both directions (vertical price movements). Sometimes the trend is visible clearly on the charts of selected assets, but sometimes it is not so easily visible, particularly if we speak about short-term trends which past several days. You can see trends on selected charts every day. Oftentimes you can have an idea, that the price of the asset will rise or decline from the charts overview. You do not have to be an expert, because we are speaking generally, you are able to say, if the price is going up or down, sideways and in what time period – days, weeks, months.

     Next limitation from the chart view is, what type of trend are you looking at, if there is any. There exist three types of trends:
    a.) Short-term (days)
    b.) Mid-term (weeks)
    c.) Long-term (months)

    The importance of each trend is subjective, but the longer is the trend, the more important it is. Everything depends on the trader interpretation and her or his own strategy. Prices do not go along the trend forever and can change their direction anytime. If it happens, the trend is broken ad the new trend in different direction can start. But it can also be because of the correction, what is not the trend change, but only temporary movement in the adverse direction and it is taken as the time, where some traders take profits or from other reason. After the correction, prices go back and follow again the primary trend. The short-term trends can change too, while the mid-term and long-term stay the same. The short-term trend can follow the same direction as the others; it is usually good opportunity for trade!

    Many traders like to confirm the trend before they make the decision. It means that they wait for more prices few days or weeks before they do something. Amazing money has been made in both directions – by following the trend or going against the trend.  The secret is the right timing – when do what – although overwhelming majority of traders prefers to follow the trend. It is usually safer. But there does not exist easy rule about following or not the trends, simply it is better not to fight with the trend......, according to the rule go with the crowd, trend is your friend. 

    Many traders use for their decision making process principles of Fundamental and Technical analysis or whole range of other sources and information. It depends on individual assessment and knowledge of the Online trader. Online Tradign principles CFDs and Forex using internet are easy. It is necessary to understand particular financial markets, work with disposable risk capital, use the Principles of profitable and appropriately safe Money management, choose the right assets, time and strategies for your Online trading. You can learn all fundamental things for free using the Demo versions for trading and subsequent testing of the markets on the Live accounts. If you decide actively participate in this business, we wish you a lot of success.  


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