All markets experience cycles of good times and bad times, whether you are talking about the stockmarket, currency market, commodity market or the local fruit and vegetable market.
There will be optimistic times when prices are rising, and people are prepared to pay top dollar for everything, whether its shares or bananas, even though they may not be in the best shape. In these times, people have money, and are often a little complacent after several years of good times. They are quick to pull out the wallet or purse and hand over their hard earned cash.
They don’t mind if the prices are a little bit more than they should be, or if the banana is a little bit bruised.
Then, there will be times of pessimism, where people are extremely careful with their money. The highest quality shares or the best crop of bananas can still sell for much less than their true value, because all of a sudden people are focusing on the negatives. The bananas look smaller, or a different colour, or not as fresh. The company earnings didn’t grow as much as the company forecasted.
The financial markets experience their own cycles of optimism and pessimism, but thankfully, they won’t all go through these cycles at the same time.
Most people can tell you that the sharemarkets have had a bad year in 2008, losing around half their value from their 2007 highs. But fewer people can tell you that the US Dollar has had a bumper year, gaining 25% from its April lows.
So while share investors had a year of pain, most currency traders would tell you that they have had a pretty good year.
The aim of the game in investing and trading is to make money – that’s the start and finish of it. We’re not here for an intellectual exercise, or to impress anybody. At least I’m not!
Your focus should be on getting the best returns on your investments. If the sharemarket is falling, you need to either learn how to make money in a bear market by short selling or using leveraged products such as CFDs, Options or Futures, or you need to learn how to trade in other markets.
Eventually, you will find a balance of markets to trade, and when the sharemarket isn’t trending strongly, you can look to trade other markets.
Trading in commodities, or currencies, or any other market involves the same principles as trading in shares – we look to buy low and sell high! And the best thing is, the same technical analysis techniques apply to each market. So once you have studied Gann Analysis, for example, you can apply it to commodities just as easily as you could apply it to BHP or Commonwealth Bank shares.
Ask yourself which markets you are trading at the moment, and whether they are producing satisfactory results for you,
If not, perhaps its time to start looking at other alternatives...