BITCOIN VOLATILITY

Investing In Financial Market 101

Financial Market

A ‘financial market’ is a market in which people trade financial securities and derivatives such as futures and options at low transaction costs. Securities include stocks and bonds, and precious metals.

The term “market” is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange. This may be a physical location (like the NYSE, BSE, LSE, JSE) or an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange.

Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, similar to stock exchanges.

(Extract from Wikipedia)

Buyer’s Market

A buyer’s market occurs when the supply (available securities for sale) exceeds demand (the number of buyers seeking to purchase them). If you’re buying a new security, a buyer’s market is the ideal time to make your move. You might be able to buy it for a lower cost than you would in a seller’s market.

Dark Pool

In finance, a dark pool (also black pool) is a private forum for trading securities, derivatives, and other financial instruments. Liquidity on these markets is called dark pool liquidity. The bulk of dark pool trades represent large trades by financial institutions that are offered away from public exchanges like the New York Stock Exchange and the NASDAQ, so that such trades remain confidential and outside the purview of the general investing public. Dark pools are heavily used in high-frequency trading which has also led to a conflict of interest for those operating dark pools due to payment for order flow and priority access. These systems and strategies typically seek liquidity among open and closed trading venues, such as other alternative trading systems. Dark pools are of various types and can execute trades in multiple ways, such as through negotiation or automatically (e.g., midpoint crosses, staggered crosses, VWAP, etc.), throughout the day or at scheduled times.

Market Liquidity

In investment, market liquidity is a market’s feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset’s price. Liquidity is about how big the trade-off is between the speed of the sale and the price it can be sold for. In a liquid market, the trade-off is mild: selling quickly will not reduce the price much. In a relatively illiquid market, selling it quickly will require cutting its price by some amount. Liquidity can be measured either based on trade volume relative to shares outstanding or based on the bid-ask spread or transactions costs of trading.

Market Maker

A market maker is a “market participant” or member firm of an exchange that also buys and sells securities at prices it displays in an exchange’s trading system for its own account which are called principal trades and for customer accounts which are called agency trades. Using these systems, a market maker can enter and adjust quotes to buy or sell, enter, and execute orders, and clear those orders.

Volatility is the amount of price change a security experiences over a given period of time. If price stays relatively stable, the security has low volatility. A highly volatile security is one that hits new highs and lows, moves erratically, and experiences rapid increases and dramatic falls.

Retail Investor

A retail investor is an individual investor, a non-professional investor who buys and sells securities, mutual funds or exchange traded funds (ETFs) through traditional or online brokerage firms or savings accounts. Retail investors typically trade in much smaller amounts than institutional investors such as mutual funds, pensions, or university endowments.

Security Market

The security market is a zero-sum game. Every dollar that some investor wins in a security market investment, some other investor lost — or will lose. There are many hands (many listed companies), many opportunities for individual wins and losses, but the bottom line is the bottom line: every dollar of profit that any investor earns on the sale of security was put into the market by another investor hoping to win. Maybe that investor won also, but sooner or later the sum adds up to zero.

Notes:- Strictly speaking, the security brokerage fees make the sum non-zero (negative). However, the fees are quite small compared to the average transaction, and can be neglected.

Seller’s Market

A seller’s market occurs when demand exceeds supply, or there are more buyers seeking to purchase securities than there are available on the market. This often leads to multiple buyers interested in a single security, resulting in bidding wars. A seller’s market is a fantastic time to sell your security as you could secure a sale price that’s higher than your listing price, or at least more than your bottom line (the lowest price you’d be willing to accept for your security).

What Retail Investor Can Do

Short-term trading Volatility in market is crucial. Day traders work with changes that occur second-to-second, minute-to-minute. If there is no price change, there is no profit.

Mid-term trading Swing traders work with a slightly longer time frame, usually days or weeks, but market volatility is still the cornerstone of their strategy. As price seesaws back and forth, short-term traders can use chart patterns and other technical indicators to help time the highs and lows. Using indicators such as Bollinger Bands, RSI, volume, and established support and resistance levels, swing traders can pick out potential reversal points as price oscillates. This means they can go long on the stock, or buy calls, as price nears a low and then ride the upswing to sell at or near the high.

Long-term Investing Because people tend to experience the pain of loss more acutely than the joy of gain, a volatile stock that moves up as often as it does down may still seem like an unnecessarily risky proposition. Many more conservative traders favor a long-term strategy called buy-and-hold, wherein stock is purchased and then held for an extended period, often many years, to reap the rewards of the company’s incremental growth. Numerous lesser payoffs in a short period of time may well end up being more lucrative than one large cash-out after several years of waiting.

Portfolio Investing All investing is inherently risky. All investors should follow the same maxim that large institutional investors adhere to, which is diversification. Even if you believe you have a winner on your hands, it’s important to hedge your bets and place your money in multiple stocks or asset classes with different profiles. That may limit your profits but it will also help to mitigate the risk if your calculations turn out to be dangerously wrong. No one, after all, can truly predict the arcane movements of the any security market.

 

Warren Buffet’s letter: 3 tips for stock investors 

  • Treat stocks like businesses, not tickers
  • Don’t invest with ‘borrowed’ money
  • Avoid high fee investments

Buying a company stock is like an intention to own a small piece of that business. Treat market trends (fluctuations) as a friend. Invest your money based on value,   a “margin of safety” and the probability of the company will do well in the long term.

 

Do not borrow your way to disaster. You could be subjected to margin call and  huge losses (including profits from winning trades) if the market is against you. The additional stress to mind and body are simply not worth it.

Invest only what you can afford to lose (Invest within your means).

 

Reubeno_Wise Trading Plan

Trading Plan Protocol

  • Determine your investment objective before you initiate any trade
  • Decide how much losses you’re prepared to take per trade, per Stock/ETF and your capital account (Position Sizing)

 

First loss is always the Best Loss!

  • Determine your profit target (Return Of Investment) per trade & overall Investment portfolio account
  • What To Buy (Keep to star Stock/ETF trading portfolio of 5 at any one time)

 

80/20 Rule of Trading!

  • When To Buy
  • When To Sell

The Trading Plan Protocol should be completed before you start your trading!

Have faith in your trading plan and do not panic during temporary corrections.

Get your emotions out of the way when you’re doing the trades!

Most people can’t stomach loss of any kind. They feel the discomfort when they are wrong in a trade. They could not accept “eating humble pie”. They rationalize why it has happened that way. They’re freezed with fear and take no action. The loss continues to run. A big, big mistake when you’re on the wrong side of a trade.

High IQ does not equal to winning trades in the market!

Some Worthwhile Pointers
  1. A mega bull run is not a bed of roses. Acting on impulse will bring you into a bucket of financial trouble.
  2. If you are unsure, stay out.
  3. Game-plan wins – stick to your trading plan protocol.
  4. Timing is important. Know when to enter a trade (in the market) and when to get it out.
  5. Don’t fall in love with your long stocks. It does not pay! Be objective. If you’ve entered a trade that is on the wrong side of a major trend, activate the stop loss in that trade. Do not trade in any stock because of free gifts.

 

Taking charge of your losing trade, without exception, the winning trades will take care of your profitable Return Of Investments!

Note:- The Trading Plan should be completed before you start your trading!