The Only Way How to Make Money so the Money will Make You
Market Direction, Up or Down?
We have all heard the cat cries "you can make money no matter which direction the market goes" and "make money when the market falls, as well as when it rises". But its pretty rare that these ideas are accompanied with a coherent explanation of how this works, and in which financial markets this can work.
This article will focus on the Foreign Exchange market and endeavour to explain to you logically, how an investment strategy can make money regardless of whether the market rises or the market falls.
Broadly speaking, there are 2 variations of trading strategy which can make money in this fashion. A directional trading strategy, and a non-directional trading strategy. The direction trading strategy simply attempts to take advantage of the ups and downs of a market or instrument. It tries to profit on trends. A non-directional strategy endeavours to profit despite the market movements. It will recognise they exist, but they are not critical or instrumental to the strategy.
I will not go too far into non-directional strategies, by definition these do not follow trends and therefore do not rely on the market rising or falling to profit. We have already recommended an excellent one, which you can investigate by going to the "Investment Tools" page at the following link: Non-Directional FX Trading Strategy. The basic concept here though, is to have a positive and negative protfolio. Then you continually buy and sell tiny, tiny increments at certain trigger points, making small profits and topping up your portfolio at price effective moments. This strategy is particularly effective as it is set up to take advantage of interest differentials as well as trading profits. So you actually get paid interest on the money you are trading, as well as earning your trading profits.
An interesting point with FX Trading which many people do not understand is that you trade currency pairs. For example, a currency you are trading may look like this "USD:GBP". This currency pair is the United States Dollar traded against the British Pound. To trade in this currency pair, you sell one currency to buy the other. So you are actually trading in 2 products, both the US dollar, and the british pound.
This means that if the currency pair changes price, the price of one currency has increased while the price of the other currency has decreased. If it then reverses and the price moves the other way, it means the first currency has fallen while the second rose. So with directional trading, it does not matter if you profit or lose, you have done so when the price of 1 of the currency you are trading is moving up and the other is moving down. If you have a robust and profitable trading strategy, you will be making profits when the market is rising and falling, at the same time.
This may seem like a bit of a play on words, but it is not. The point about currency trading is that is almost a barter system. You are trading the price of one product against the price of another. Both products have their own price, and the currency pair you are trading is just a comparison. To prove this, an uptrend in the currency pair USD:GBP would actually be a downtrend if the currency pair was expressed as GBP:USD.
And this is how a robust directional Foreign Exchange trading strategy will make money, no matter which way the market moves. The strategy will recognise that an upward moving market and a downward moving market are by and large the same thing. As such, it will have rules to ensure the currency sold to purchase the other are reversed when a trigger is hit, indicating the currency pair price direction has changed.
In our investigations to date, we have not found a directional trading strategy which we believe manages risk to an extent that makes it usable for "normal people". As such, we continue to solely recommend our non-directional foreign exchange strategy to the exclusion of others, as we believe anyone can successfully profit from the strategy while managing risk in what can be quite a volatile market.
__________________________________________________________
TheOnlyWay.com.au - Learn the only way to live the dream. Make some more money and let that money make you.
Webmasters, you are welcome to reproduce this free article, as long as you include the footnote above
