Finance Weekly Updates

Leveraged Investments |Day-Trading | Current Economic Crisis

By Staff Editor | June 20, 2019

Is Leverage Dead?
The liberal use of leverage was a major factor in the current economic crisis.
However, use of leverage can sometimes be justified for short-term, technical traders,
provided it is paired with appropriate position size and a responsible, automated stop-losses policy.

Leverage, a euphemism for borrowing money to invest in risky ventures, was the turbo-charge behind outsize profits in the boom years. And it was the fuel that made the fires flare that much higher when investment banks crashed and burned.

Have we seen the last of heavily leveraged investment?
For the short term, it would seem so. Even if some investors are still brazen enough to play the leverage game, it appears that for the time being banks and other sources of capital are unwilling to be so free with their money.

There will not be money available to borrow for risky ventures in the same quantities as in the past.But in the longer term, we can expect to see leverage making a comeback. One particular area where leverage is very useful is in day-trading based on technical analysis. Technical analysis is notoriously unreliable as a determinant of long-term price movements. Yet without leverage, it is not realistic to use technical analysis for intra-day investment positions, because the fluctuations are far too small to generate returns that justify the investment of time and energy inherent in active trading.

By heavy use of leverage, investors can amplify the quantitative impact of small intraday technical fluctuations, which are actually the most reliable technical trading opportunities. The use of leverage per se should not be viewed as an inherently risky approach. The critical question is what percent of an investor’s available capital would be lost on a given position in a worst-case scenario. When heavy leverage is used, the investor should check to be sure that he could not lose more than 1 percent on the same position, or on parallel, concurrent positions, which are expected to act in concert.

Setting an automated stop loss and refusing to readjust it is critical to enforcing discipline in this regard; without it, an investor is risking all of his principal in every position.

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Technical Analysis, Technical Traders, Automated Trading

By Staff Editor | June 17, 2019

Basics of Technical Analysis
Technical analysis is the evaluation of patterns in the historical price of a stock, currency pair,
commodity or other financial instrument in order to determine likely future moves.
This type of approach is distinguished from fundamental analysis, that focuses on studying the forces currently at play and likely to influence the value of the asset.

A fundamental analyst would examine the balance of payments and profitability of a corporation,
along with industry factors that appear likely to impact upon the sector in which the corporation is active.
In the case of a currency, a fundamental analyst would consider a far wider range of considerations impacting upon the viability of the state’s government and economic systems.

A technical analyst disregards all of these factors and studies the asset price alone.
A historical chart is generally the easiest format in which to make sense of price data.

While there are a number of elaborate theories about Fibonacci numbers, stochastic indicators,
and other mathematically complex approaches, some of the simpler technical analysis tools are much more intuitive and seem to reflect the basic elements of group psychology that are active in a trading environment made up of a large number of individuals.

For instance, technical traders consider certain price points to be support/resistance levels.
A price that has in the past been difficult to exceed, or to fall below, can function as a moment of reflection for the masses of traders.

So if a stock has risen repeatedly but failed to exceed $47, it is likely that when it touches that price, it will pause. Should it break through even a little, it will continue on rising until it encounters another resistance point. Support levels serve the same function for a falling price.

With the advent of automated trading, it became possible for investors to give an automatically triggered order that takes effect when a price exceeds a given level. This allows sellers to acquire an asset the moment it exceeds a resistance level, when it is strongly expected to continue its upward trajectory.
This is known as trading breakouts.

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World financial turmoil affect crude oil prices

By Staff Editor | June 14, 2019

Oil prices are now above $91 a barrel, after hitting the eight months low because of significant global economic concern, this concern limits to growth and undermines the global demand for crude oil Space with a world financial crisis still going on animist suspect that oil prices will stay low. In the last three months we have seen that the investors expectations about oil demand have turned completely around as financial crisis and turmoil has sparked serious concerned and foreseen a recession that could have developed in the US and spill into Europe. Green energy enthusiasts are concerned that the lower the prices will go the less investment there will be to rid the US from dependency on oil. 

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What’s Next for the EUR/USD?

By Staff Editor | June 11, 2019

What’s Next for the EUR/USD?
For the past three years, Americans have watched in shock and horror as their currency fell increasingly far behind the Euro, an upstart currency that seemed destined to supplant the greenback as the prime world currency. Indeed, some Europeans had even been clamouring for a reexamination of the status of the US dollar as a global reference currency for the international finance community, as established under the Bretton Woods agreements signed by the G8 after the Second World War.

But now it appears as though the trend is reversing itself. A number of factors related to the current financial crisis appear to strengthen this reversal.

US investors, shaken by the subprime crisis and unable to borrow as liberally as in the past,
are pulling their money out of investments in Europe and developing countries and bringing them home, converting them back to dollars.

The US, as a federal government, is also expected to be able to address the crisis more coherently than the fragmented EU, which shares a currency but not a government or a policy-making apparatus. Add to this the global fear of risk, and investors from all over the world are running to US Treasury Bills as a source of shelter in bad times. In doing so, they also convert their local currencies to dollars.

The US economy recovered far faster than Europe from economic downturns in the previous half century, and many assume that will be the case this time around as well. This means that what little investment capital now exists is headed for the states, an additional source of upward pressure on the value of the dollar against the Euro.

It may seem unfair that a crisis which originated in the USA should strengthen the dollar against other world currencies, but for the foreseeable future, that does appear to be the outlook.
Currency traders and individuals with holdings in multiple currencies should factor in this projection when determining their positions for the coming years.

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Warren Buffet |US Stocks, US Equities | Investment Banks

By Staff Editor | June 8, 2019

Watching Warren
Omaha-based investment guru Warren Buffet recently made a rare public proclamation.
In a New York Times editorial, he encouraged others to follow his suit and buy up US equities,
in the belief that the current panic has depressed their values far beyond fundamentally justifiable levels.

He revealed that he himself now has nearly 100% of his personal fortune invested in US stocks.
He admonished his readers to remember to be ‘fearful when others are greedy, and greedy when others are fearful’.

This seems like sound counsel, and fairly intuitive to committed contrarian investors.
But what Buffet didn’t emphasize in his editorial is the specific identity of the stocks he has recently picked.
Notably, he recently invested in two major banking powerhouses, Goldman Sachs and Wells Fargo. On reflection this investment is easy to understand.

Even as the public is disturbed and distracted by news of the falls of such titans as Bear Stearns and Lehman Brothers,that news has a silver lining. The field of investment banking, even as it narrows, will not disappear.
The fall of irresponsible brokerage houses means more opportunity and profits for their more prudent competitors who have weathered the crisis.

To put it differently, America will always have to bank somewhere, and it now appears that the somewhere will be with Wells Fargo and Goldman Sachs.

If shares of these banks are now depressed, it is only a result of irrational panic and fear.
This creates a rare opportunity to buy up shares at an artificially discounted price.
In short, for those who can get a grip and suppress the instinct to flee for cover,
now is an excellent time to follow Buffet’s example and load up on shares those investment banks
that appear poised to swallow up the market share left on the table when others failed.

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