The current financial system was created after the bretton Woods agreement of 1944 was broken. We are currently using fiat money. In the article we will advise you on what your stock market beginnings may look like. We will start by presenting how the modern financial system works.
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In 1944, it was decided that the good of international trade poverty was based on the combination of the world's major currencies by the value of the US dollar.
To make the price of the dollar as reliable as possible, it was pegged to the price of gold – $ 35 per ounce. Under the established system, anyone holding a U.S. currency could exchange it for physical gold.
Abandonment of the contract.
After some time, the Bretton Woods countries ceased to trust the American government because it did not comply with the provisions of the agreement. According to the public, President Nixon's government protected the value of the USD from speculators. Reality has shown that the new monetary system has ceased to work by printing money. It was so large that the amount of dollars in circulation exceeded the value of gold of American reserves. The printed funds were used m.in to finance the Vietnam War.
For the financial markets, the termination of the Bretton Woods agreement is important because it gave rise to currencies whose prices are independent of each other. This made possible the emergence of the modern Forex market.
The emergence of digital currency.
A dozen or so years ago, blockchain technology appeared along with advanced cryptographic algorithms. It gave rise to a decentralized currency based on blockchain. Each block in such a chain stores information about the transactions carried out. This is how Bitcoin was created, a cryptocurrency currently worth tens of thousands of US dollars.
Some investors see it as an opportunity to free themselves from the centralized financial system, and others a curiosity and a financial bubble, which could lead to the catastrophe ofthe entire financial system . Without looking at the opinions about cryptocurrencies, it can still be said that they will change the reality in which we live.
A large part of altcoins created after the success of Bitcoin is rather illifiable and have low demand. Many of them will be forgotten over the years. However, this does not apply to all alternative tokens. Cryptocurrency market insiders believe that Ethereum, Litecoin,and maybe even Ripplewill remain in the market. Much depends on the future of Bitcoin. However, no one knows what will happen to him. The growing interest in this currency indicates that its history is just beginning.
Universal digital currency.
Will it turn out to be Bitcoin? Maybe yes, maybe not, but there is no denying that he paved the way for a new type of money. In 2019, central bank boards discussed the idea of introducing a global cryptocurrency. The Chinese government has already piloted its own digital money, called the digital Yuan.
Liquidating cash and subordinating technology to the entire financial system is a highly controversial idea. A digital currency could be used to completely control citizens. Is the death of cash money inevitable? Perhaps the world functioning thanks to digital currencies is not a foundationless vision.
What should a novice trader invest in?
Trial and error can be used to understand market principles. Still, at the beginning you will have to decide which instruments to invest in and choose your broker. The average stock trader assumes the similarity of all markets. There is no denying that they all operate according to similar principles, but each of them operates in a separate environment, where its price is associated with the related markets.
One of the toughest markets in the world is Forex,especially for swing trading and long-term trading. The whole difficulty lies in the complex correlations between currency instruments resulting, for example, from the economic situation of individual countries.
The advantages of Forex include its considerable liquidity, although this is not good news for all investors. So much money passes through this market that the average range of movement of the price of popular instruments is quite low, which does not allow for too favorable opening and closing of positions on the same day.
The opposite side are cryptocurrencies with low liquidity and an above-average changing price. The compromise between Forex, cryptocurrencies are shares of listed companies. It is a relatively calm market, simpler to understand and remaining in terms of liquidity further than Forex.
How to choose a broker?
The broker charges a commission for concluding the transaction. Their amount is very important for daily trading and scalping techniques. Too high trading fees can significantly reduce the profitability of the strategy and even make it start to make losses.
So is it possible to choose one of the brokers with the lowest fees on the market? Not really. The chosen broker should offer high-quality customer service, have the regulations of the relevant institutions and be as trouble-free as possible. Without meeting these conditions, low commissions and spreads can get you into trouble. A good alternative to a brokerage account is a brokerage account. Banks offer them. Despite its certain simplicity, it has limitations and can only prove useful in the hands of a small long-term investor. Alternatively, it may be those who are sporadically involved in trading.
Choosing a trading platform.
At the beginning of your path with trading, it is worth testing several trading platforms in order to get to know the investment environment. Choose the one in which you work most conveniently. If you want to trade CFDs,choose a platform for order execution and analytical software. Notable platforms have rather similar functionality, hence focus on their selection in terms of interface transparency and convenience of use.
Or maybe the ranking of brokers will clarify the matter for you?
Before starting the stock market game, familiarize yourself with the lists of brokerage companies. Websites offering them often associate various customers who exchange their experiences and assessments. The comments published there may prove to be very valuable.
Tools for novice traders.
Starting short-term trading will have to involve familiarizing yourself with basic tools such as moving averages or Bollinger bands. Their usefulness can sometimes be small, although every trader should know how to use them.
Moving averages occur in the form of different variants distinguishing from each other by methods of calculating the price. Trading will often show you variations such as the exponential mean or the Hull average.
A moving average is a dynamic chart line representing the average price of an instrument being included over a certain number of recent candlesticks. The average set at 200 will be calculated based on the closing prices of the last two hundred candles and divided by their quantity.
Support and resistance lines.
Support and resistance levels are areas of the chart where overcoming them by the price involves a lot of effort. A support line is defined as a place where the strength of market demand controls the exchange rate without allowing further declines. Resistance is the exact opposite. Passive supply keeps the price from continuing to rise.
Alternatives to technical analysis.
Despite the emassonable name of technical analysis, part of the investor community treats it as a kind of fortune telling. He also believes that it is not based on facts.
Either way, getting to know this field will allow you to empathize with the situation of most financial market participants. When analyzing the instrument and taking into account the laws that govern it, it is also worth using the analysis of the order flow, the theory of auction markets or the Wyckoff methodology.
The total basics of technical analysis are about outlining the direction in which the price can go. They can be outlined by drawing on the chart of external and internal trends. This is a method used by almost every trader on the stock market. How is it possible that most of them still lose money? Trend lines can be useful because they can show you what most of its participants think about the market.
If you want to determine the price trend much more accurately, a much better solution will be to use the Volume Weighted Average Price tool and standard deviation ribbons.
What are the disadvantages of setting trend lines?
If you use the trend line in the stock market, you probably do not take into account that the financial market is far from ideal. Certainly not a very good idea will be an analysis "from the ruler". Understand that you are dealing with a mechanism that cannot be determined by simple geometric figures. The trendline method is extremely sensitive to selectivity and taking data out of context.
What can the Gaussian curve tell you?
The Gaussian normal distribution represents the probability of a given event occurring in a randomly generated data set. Such a method turns out to be effective in representing, for example, the characteristics of society. Its application has also found its use in the financial markets and even for binary options.
When it comes to stocks of listed companies, futures contracts or CFDs, the probability of occurrence of some events can be determined approximately by rounding the percentages in standard deviations. In opposition to the VWAP trend line, a dynamic representation of the Gaussian distribution will help you, by zooming in, to see what the trend is and how far from the average the current price is.
VWAP is not a technical indicator.
Using VWAP on the stock exchange will involve the fact that you will have to understand how technical indicators differ from measurement tools. The weighted average should not be used as a dynamic line that can send entry or exit signals from the market. For some people, this is a fundamental issue of the mechanical system. However, this is a very risky approach to the subject. Pay attention to the fact that the current price on the chart will be above or below the average at a given time. There is no suggestion here as to a return to it.
In order to use the VWAP correctly, it must be assumed that it is treated as a certain market perspective or a reliable source of information. However, in order to treat them as an argument for shorting a trade, they must coincide with the data you have collected by analyzing the instrument in depth.
Use a demo account.
Your own system of using this kind of tools must be based on tests on a simulator. It will be good to use for a few months trading on a demo account. Be sure to familiarize yourself with the demo account and backtesting. After all, there are also exchange platforms that allow you to combine both of these techniques. Tests on historical data will allow you to try out your strategy. Only for thorough tests you can enter the live account and check how the strategy will look on real data.