Getting a Feel for the Market
The thought of your first real money trade can be both frightening and exciting. In order to ensure a successful and enjoyable experience, it is best to make sure you are ready. This readiness comes from having a firm grip on where the market is, where the market is going, and how you can ride its movement to capture gains. An honest assessment of your financial market awareness can go a long way in telling yourself if you are ready to place that first trade, and serves as a yardstick to measure your confidence and assurance of the profit of that trade.
Your market awareness should be at the point that you have a few favorite sectors that you monitor on a daily basis. They might be your favorite vacation spot's currency paired with your home country's currency. It might be the price of oil or other commodity that you use on a daily basis. It might be an index of the market itself, either a measure of the S&P 500, the Dow 30, or the NASDAQ.
A really good way to develop a base point of reference for a market's index or individual security is by using your demo account. You could place one trade in your demo account for each of the indexes, sectors, and securities you trade and use the notes section of your trading platform to mark them as baseline market levels.
Because markets and prices are always moving, you can begin to look at the price levels of a sector at any point of your development. This would be your starting point, or your baseline that you made all comparisons in reference to. When in the processes of establishing a baseline for the market, it is best to give yourself time to see a change in the underlying price of the sector. If this is not done, you will fall into the thought that that market is always and has always been at that level.
Watch Changing Price Levels
Much like the fashion world, what seems in vogue during one season, often turns out to be unfashionable and out of style by the next season or fashion cycle. It is best to keep in mind this analogy when evaluating the price levels of a commodity, future, FX pair, index, or ETF. If you watch a sector long enough you will see it change in price, fall out of favor, or otherwise shift in sentiment.
Securities prices are always changing, and when you hold off from establishing a position until you witness this change, you will have a sense of history and knowledge of that sector. It really helps you decide to establish a position in a security when you know that last month, season, or year that same security was 10 percent higher, 10 percent lower, or worse. Long-term observations of the market will firmly root in you a value system of what sectors were worth and how prices can change over time, whether quickly or slowly.
Markets move in patterns as shown in technical analysis, and trading setups can be repeating in pattern. If you do not allow enough time to develop a feel for the market, you will be trading blind, with only your charts and fundamental analysis to guide you. While these are very good guides, a value knowledge of where the target stock, ETF, future, or commodity has been will give you a greater sense of the potential of where they can go, having the potential to both increase and decrease in value.