Indicators In Forex Trading

Monday, January 25, 2010

Forex traders often look at indicators such as Bollinger Bands, Pivot Points, MACD, Moving Averages which help them to determine where to enter or exit trades. Using technical indicators is fine, however many traders overemphasize their importance or just plain misunderstand them.

Many Forex traders think that they can simply download an indicator and then mechanically apply it into their trading and do so profitably. This is just a plain illusion. Successful traders realize that there is a lot more to using indicators than just asking them to generate buy/sell signals or pin-point exact entry points. Technical indicators for them represent just one part of their trading strategy.

Let us take a look at some of the reasons why you should not put all your faith into those sometimes confusing little indicators.

Take Moving Averages for example. They are "supposed" to show the direction of the trend. The most common and often used are the simple 200day MA, 100day MA, 50day MA, 35day MA and the 21day MA but they are only valid on daily graphs. Some Forex day traders say that a good signal is when the 50day MA is crossed by the 13day MA and that when this occurs you should trade in the direction of the cross.

The problem with this (apart from the fact that it only works on daily graphs) is that these types of ¡°crosses¡± do not occur often enough for traders to exploit them. This can often lead to a situation where traders are seeing what they thought was a cross now reverse and uncross. Even worse, it can lead to a situation where day traders are "chasing" and trying to anticipate a cross. If you are doing this, you are distancing yourself from the market which you are trying to trade. Not only are you trying to guess what the price is going to do next but you are guessing what the indicator, based on the prices, is going to do next.

Other problems with technical indicators involve issues with the quotes and prices given to you by your broker. Forex brokers are market makers and as such different brokers will give you different quotes and prices at a specific point in time. Naturally, a different price could lead to a situation where different traders, trading the same market have the same indicators giving them different responses. Thats how arbitrary technical indicators can be.

Finally, a lot of these technical indicators were developed by people trading the stock market. With the growth of computers and software packages that incorporate these indicators, technical analysis has become very popular and spread to other markets such as the Forex market. What currency traders should be aware of however, is that as these indicators were developed in a time where real time information did not exist. As such, the limitations of technical analysis becomes even more exaggerated in Forex trading ¨C not only is technical analysis an interpretation of historical events but it becomes even more so in the Forex market, a market moved by real time events.

How to Choose A FOREX Broker ?

Most investors who trade Forex stocks use a broker. A broker is an individual or a company, who buys and sells stocks according to the investor's wishes. Brokers earn money by collecting commissions or fees for their services.

You should check that a broker is registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud or abusive trade practices. A Forex broker also needs to be associated with a financial institution, such as a bank in order to provide funds for margin trading. Picking the right Forex broker for you will take some work on your part. There are brokers who charge a flat fee and some that charge commission. It may be a good idea to talk with friends and business associates about their brokers. You may get some good leads, and you're certain to hear who to stay away from. There is nothing like word of mouth advertising.

If you are thinking of investing online, you could choose several online brokers and contact their help desks. Seeing how quickly they respond to your questions could be key in how they will respond to their customers’ needs. If you don't get a speedy reply and a satisfactory answer to your question you certainly wouldn't want to trust them with your business. Just be aware that as in other types of businesses, pre sales service might be better than after sales service.

Before you choose an online broker get a copy of their online demo account. What features are included? Is the software reliable? Does it offer automatic trading? Are there extra software features that cost more?

Before setting up an account with a Forex broker you will need to do further investigation. How quickly will these brokers execute your buy/sell orders? What is their policy on slippage? What are the transaction fees? What is the spread, fixed or variable? What are the margin requirements and how are they calculated? Does the margin change with currency traded? Is it the same for mini accounts and standard accounts?

Don't forget to ask about minimum account balances and interest payments on account balances. Make sure that your funds will be insured.


For instance, many of the world's wealthiest people gained their fortunes by becoming an owner of a sucessful company, be it one they've built themselves or a company that someone else has already built and maintained sucess with. Take for instance someone like Warren Buffett owner of Berkshire Hathaway. Warren Buffett has become one of the richest men in the world by buying successful companies and keeping them under the management of Berkshire Hathaway for the long term. If you had invested just 10,000 dollars in Warren Buffet's company when he was first starting out you'd be a millionaire many times over by now.

Owning your own business is a great way to increase your wealth, along with business ownership many other wealth magnates have increased their money through the investing in real estate and the stock market. Investing the way other big players invest is a smart move as long as you understand the risk involved. If you have an understanding already about how to invest then you should be taking the necessary steps to invest wisely and diversify your portfolio.

If you have long-term financial goals, like retiring at an early age then your investment portfolio needs to grow quickly. Things like putting all of your money in the bank would likely not help you achieve your long term goals as the interest which banks pay would likely not outweigh the effects of inflation on your money.

Investing is not for everyone and may not even be necessary for some individuals. If you are the type that doesn't mind working your whole life and are happy maintaining the standard of life you're currently living then perhaps you need not jump into the investment game. You could also look for safer investments such as government backed bonds or money market funds.

In the end if you would like to start investing then you should go to your local Barnes and Noble store and pick up some sort of beginner's guide to investing.

Be a Successful Trader

The share market today is as volatile as we have seen it, as stock prices continue to fluctuate the only way to preserve your money is to sit on the sidelines and the chaos goes on in the financials and other sectors. With the wild swings in the market as it continues at times to make no sense. We have seen days of down 500 points, followed by days of up 450 points, actual trading sessions moving as much as 1000 points. How do we make sense of these crazy markets and more importantly how do we make money.

Do not worry there is a systems out there that will teach you manage your trades. With this type of knowledge you can go from a learner trader to an Expert Trader
Forex Broker in no time.

Becoming a successful stock market trader requires learning and having a certain level of knowledge, confidence and the ability to control your fear and greed. Stock Market or Forex Trading is best explained as supply and demand, if a lot of people want the stock it goes up, if they don't want it then it falls. There are endless amounts of research available today from online reports, newspapers, education lessons the list is quiet long so how do you decide when and where to start. The first step you need to take is to decide that you want to become a trader. Then you need to right out your goals and your reasons why.

What you now need to do is to learn and understand that in theory things can seem simple however once you are trading in these at times crazy trading markets things can seem confusing. This is why it all comes back to having the right level of education and knowledge and where possible a great mentor or Broker. Using these steps almost anyone can become a trading success.

To learn more on the stock market or forex market feel free to visit the CFD FX REPORT as they have some excellent education lessons available, and they can also help you find the best online brokers in the market.

Forex Report - How to Be A Millionaire Trader in FOREX trading

We all want to make money from trading, and we all want to make millions from the stock market of the Forex market. However it is a well know fact that over 90% of traders will in fact go broke and not become successful. So if we are to look at who does become successful there is a group of people that tend to become more successful than others.

There is a group of individuals who tend to make the better traders and their non mathematicians or College educated, they have a skill that anyone can actually learn and their very successful. The group of individuals I am referring to are...

Professional card players who are great at playing cards and poker and the exact same skills you need in these games are the ones you need in Forex before we explain why lets dispel one of the greatest myths about Forex Trading:

One reason for this is if you watch all great card players, they will all have one common trait, which is patience. They also realize that they cannot win every hand, and as traders we cannot win every trade. If we understand this we are increasing our chances of success as a trader.

We also must realize there is more trading days to come, as there is more cards to be dealt. So if we miss a trade, don't trade for trades sake.

Remember DO NOT Trade for TRADES SAKE

Forex Trading is Complicated

To enjoy Forex trading achiever does not take you have a college education or have a complex Forex trading strategy or knowledge of maths and the reason is simple - Forex trading is simple and if you get a system to Complicated it will break in the ever changing brutal world of Forex Trading. Also as humans we like to complicate things and we believe that if they are complicated, then we are smarter therefore it makes us feel better. Quiet often though simple things will make us a lot of money. This can be also looked at with trading strategies, keep them simple.

Mathematics doesn't aid, because markets don't move to certainties, you are only trading with odds and probabilities and that's why card players are so great at Forex trading.

Here are the reasons card players make such great Forex traders.

1. They are Patient

They wait for the right hand and only play when the odds are in their favour. Contrast this with the bulk of Forex traders who are always in the market or trying losing strategies like scalping. In Forex Trading you don't get rewarded for trading often, you get rewarded for being right.

2. The Ability to Fold

A fabulous card player will pass hands by when the betting odds are non in his favour and he is also happy to fold when in a hand, if he doesn't think he will win. He keeps his losses tight and he doesn't mind dealing them, as he knows his time will follow.

Most Forex traders on the opposite hand simply can't do this and run losses or get disappointed, as their emotions get involved.

3. Courage at the right Time

The fabulous card player knows when a great hand comes up, he needs to maximize his potential and will milk as much money from it as he can. They are prepared to bet huge amounts and hold on with discipline and win.

Contrast this with the average Forex trader who banks his profit early or bets 2% and thinks he is going to make a lot of money. In Forex trading, you need to hold and profit from long term trends and have enough riding on them to make a great profit.

4. discipline discipline discipline!

You have heard about how serious it is in Forex Trading and it is to take loss after loss as the market hurts your ego and makes you look stupid is hard. Most traders cant do - Professional card players know it's the key to success and are mentally prepared to do this and know they will hit a home run.

Keep it Simple.

Forex Trading is simple and always has been and the huge difference between winners and losers is the correct to keep losses small and bet big amounts when the time is right.

Stock Market Movements

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I've been thinking about starting a stock market prediction business. Clearly, there is a huge market for timely and accurate information of this type, and just as clearly, predicting the future is much easier than dealing with the realities of whatever is actually happening at the moment. If investors could know what's going to happen next, they could develop a plan to deal with it in the present. Maybe Wall Street could help me get this new business up and running!

What's that? Wall Street institutions already spend billions predicting future price movements of the stock market, individual issues & indices, commodities, and hemlines. Really? Is that right also? Economists have been analyzing and charting world economies for decades, showing clearly the repetitive cyclical changes and their upward bias. Funny then, or strange would be more accurate, that the advice generated by the oracles of Wall Street seems to assume that the current environment, good or bad, will be everlasting. Isn't it this kind of thinking and advising that prolongs the downturns and "bubbles" the advances---in all markets?

If it were true that our favorite pinstriped product pushers can actually predict the future, why would investors do what they do in response to the predictions? Why would financial professionals of every shape and size holler: "sell" at lower prices, and "buy at any price" when market valuations surge upward? Shouldn't lower prices be the call to the mall? Most Wall Street soothsaying has a short-term focus that dwells upon today's market conditions; most Wall Street glossies emphasize the long-term nature of investment programs, and encourage investors to apply patience to the program they decide to use for goal achievement. Why is the advice so out of sinc?

The reason for the emphasis confusion is simple: it's easier to play to the emotion of the moment than it is to look beyond--- even though we all know that a directional change will be along eventually. Regardless of the direction, Wall Street advice will always fuel the operative emotion: greed or fear! Wall Street's retail representatives never go against the grain of the consensus opinion--- particularly the one projected to them by their superiors. You cannot obtain independent thinking from a Wall Street salesperson; it doesn't fill up the "Beemer".

Here's some global advice that you will not hear on the street of dreams: Sell into rallies. Buy on bad news. Buy slowly; sell quickly. Always sell too soon. Always buy too soon. And by the way, who do you think is buying and selling the securities you have been told to dump or to hoard?

No self respecting guru would ever refute the basic truths that the market indices, individual issue prices, the economy, and interest rates will continue to move in both directions, unpredictably, forever. Hmmm, this is where you need to focus your attention if you want to get through the investment process with your sanity. You need to expect and plan for directional changes and learn to use them to your advantage. Tranquilizers may be necessary to get you through the first few cycles, but if you have minimized your risk properly, you can actually thrive on the long-term predictability of the markets.

The risk of loss cannot be eliminated. A simple change in a security's market value is not a loss of principal just as certainly as a change in the market value of your home is not evidence of termite damage. Markets are complicated; emotions about one's assets are even more so. Cyclical changes in all markets are just as predictable conceptually as knowing approximately where you are within a cycle is knowable actually. The key is to understand what your securities are expected to do within the cyclical framework. Now there's a knowledge business with no Wall Street practitioners!

Predicting individual stock prices is a totally different ball game that requires a more powerful crystal ball and an array of semi legal and illegal relationships that are unavailable to most investors. There are just too many variables. Prediction is impossible, but probability assessment has enormous potential. Investing in individual issues has to be done differently, with rules, guidelines, and judgment. It has to be done unemotionally and rationally, monitored regularly, and analyzed with performance evaluation tools that are portfolio specific.

Elements of a Trading Plan

Here are some important elements of a trading plan.

1. Why am I trading? What are my goals?

The answers to these questions might seem obvious, but they usually are not. Take some time to ask them of yourself, and seriously consider the answers. You may be surprised by what you learn. And whatever the answers, you will have a clearer picture going forward of what this enterprise means to you, and that will help you survive any rough patches.

2. What markets am I going to trade and why?

It is often best to specialize, especially for beginning stock market traders. Many pros make a great living trading the same stock day every single day for years. Choose a market that is appropriate for your experience level and trading style. Consider other factors such as available margin, volatility and liquidity.

3. What is the concept or philosophy behind your trading methodology?

Your trading system must have a concept behind it. Whether you are a value investor like Warren Buffet or a trend trader like George Soros, you should understand why you are doing what you are doing, how your beliefs about the markets define what you will do as a trader.

4. What will be your specific method?

In other words, specifically how will you execute your trading ideas? Will you buy breakouts or pullbacks? Buy oversold or sell overbought? Or will you use specific technical setups such as moving-average crossovers or another indicator-based strategy? Under exactly what conditions will you enter? When will you know to exit?

5. How much money will you risk on any single trade? On trading in general?

This is critical. Of course, start small. But just as importantly, have a plan in place for how much you will risk, emotions don't cloud your judgment when the time comes. The key is to find an allocation that doesn't cause any stress but still makes the trade worthwhile financially. One of the biggest problems with newer traders is that they are trading way too big in relation to their account size. Like when you are forex trading. Trading forex at 100-1 leverage is like introducing your mistress to your wife. Yes, you can do it, but that doesn't make it a good idea. Normally they don't get along too well.

6. What will my trading rules be?

This is also critical. Your trading rules include entry and exit rules, rules governing maximum daily, weekly or monthly losses, maximum risk on any given trade, the maximum number of trades per week, etc., etc. These rules enforce discipline and keep you out of trouble. What stock price will enter at, what stock price will I will exit. Be discplined.

7. How will I record and evaluate my trading performance?

Allow me to repeat myself: This is critical. In fact, this might be the most important element of trading for new traders in the stock market. A new stock market trader who evaluates his trades, winners and losers, in an effort to learn what works and what does not, will make quantum leaps forward in terms of ability and profitability. If you have a working trading plan and evaluate every single one of your trades after you have closed it you have already beaten 95% of the competition.

8. What are my rules for managing profits?

What's the problem with profits? Well, believe it or not there is one, and it's a serious one. It's called euphoria, and it clouds the judgment perhaps more than any other emotion related to trading. Start piling up the profits for the first time and it won't be long before you are convinced you are king of the world. About 30 seconds later you'll be broke, following a series of unwise and exceedingly risky trades. So have a plan for protecting closed profits when you have reached your goals for the week or the month. Don't give them all back.

9. How will I reward myself for following my trading plan?

Don't leave this out. Following your trading plan will bring rewards in the form of profits, but you should also consciously reward yourself for doing so because it is such an important part of successful trading. So if you finish the week or the month (or even the day) without having broken any of your trading rules, find a way to reward yourself. You deserve it. You are in rare company.

Successful Stock Market Trading

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Successful stock market trading begins with a winning trading plan. It's as simple as that. If you develop a well-conceived trading plan to guide your actions in the stock market you will already have the advantage over most of your market competition. Put simply, it gives you the edge you need to win over the long haul when trading the stock market or forex market.

A stock market trading plan will not guarantee your success in the markets, but a good plan will enable you to work methodically toward your stock market trading goals while reviewing on a regular basis what is working and what is not. It will act as a roadmap for your trading journey. It will enable you to respond positively and constructively no matter what happens with your individual trades. And, most importantly, it will help you control the only thing a trader can control: his or her own actions.

Finally, stock market trading is a business. It can be a fascinating and sometimes thrilling business, but in the end it is a business. A trading plan helps you treat it as a business.

UNDERSTANDING PRICE TRENDS

Thursday, January 21, 2010

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In the stock markets, prices are fixed by the interaction between buyers and sellers. The price of a share at any given moment of time depends upon the relative pressures exerted by the buyers and sellers of that particular share on one another. The balance or point of equilibrium reached between these two opposing pressures is the price at which actual transactions take place. Price, thus, represents the point of agreement reached between buyers and sellers.

Price movements are caused by variations in the strength of buying and selling pressures. If the buying pressure increases, the equilibrium is upset and the share price moves up to a higher level where a new balance is struck between buyers and sellers. The price of a share at any given point thus represents only a temporary equilibrium between buying and selling pressures.

PERFORMANCE OF INVESTMENT EXLPERTS

All investment experts have one thing in common: they are all veritable storehouses of information and knowledge on the economy and the corporate world. However, not all of them have the required analytical abilities, foresight or wisdom to use this information to make the right investment decision at the right time. As a result, it would be difficult to find an investment expert who does not make at least a few major blunders every year. Even great thinker and visionaries have been known to lose their reputations in the stock markets. John Maynard Keynes, the towering economic genius whose ideas gave birth to the IMF , the World Bank and the concept of deficit financing, failed to anticipate or understand the greatest stock market crash in history. He mistook the collapse of the U.S. stock market in 1992 for a “bull point for world prosperity”. However, despite this spectacular and widely-publicised blunder, he had an enviable and consistently successful record as a stock market investor. He not only made himself a fortune of several million dollars, but also deployed the fund of his college in the stock market and multiplied them ten times over. If Keynes could make a blunder, then no investment analyst can possibly hope to be infallible.

A LOSER’S GAME

Investing in the stock markets is not a winner’s game, but a loser’s game. There is a big conceptual difference between these two types of games. In a winner’s game, the game is won by the winning actions of the winner. In a loser’s game, the game is lost by the losing actions of the loser. In the latter, the game is won by the player who makes the fewest mistakes, whereas in the former, it is won by the player who makes the maximum number of right decisions. In a loser’s game, the final outcome is determined by the number of wrong decisions, and not by the number of right decisions, that each player makes. Losers’ games have another important characteristic. The winner does not win, but the loser defeats himself by making mistake after mistake.


How and why is stock market investing a loser’s game? In the stock markets, your chances of success depend upon the errors of others. All buying and selling opportunities arise out of the over-reactions of the majority of the other players who constitute the market. If they do not consistently and systematically make errors of judgement, you would not get an opportunities become available only when other players make mistakes- the bigger and more common the mistakes, the greater the opportunity to make big profits.

Tips For Day Trading

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Day trading the stock market involves the rapid buying and selling of stocks on a day-to-day basis. This technique is used to secure quick profits from the constant changes in stock values, minute to minute, second to second. It is rare that a day trader will remain in a trade over the course of a night into the next day. These trades are entered and exited in a matter of minutes.

The main question that most people ask when it comes to day trading is simple: Is it necessary to sit at a computer watching the markets ALL day long in order to be a successful day trader?

The answer is no. It's not necessary to sit at a computer all day long. There are a number of factors to consider, but generally the rule of day trading is to trade when everyone else is trading. In other words, trade in the morning.

As with all financial investments, day trading is risky in fact, it's one of the riskiest forms of trading out there. The stock prices rise or fall according to the behavior of the market, which is entirely unpredictable. Day traders buy and sell shares rapidly in the hopes of gaining profits within the minutes and seconds they own those particular stocks. Simple to do in theory, harder to do in practice.

If you are constrained by a small amount of capital, you may not be able to buy large amounts of a stock, but buying only a small amount can add to the risk of a loss. And, obviously, it is impossible to predict with certainty which stocks will result in profits and which in losses. Even the best of traders must learn to accept both outcomes.

It's also important to know that in day trading, it is the number of shares rather than the value of shares that should be the focus. If you day trade, you WILL face losses, but even for the more expensive stocks, the loss should be marginal, because prices do not usually fluctuate to an extreme degree over the course of just one day.

The day trading industry deals in a large variety of stocks and shares. Here are just a few:

Growth-Buying Shares: shares made from profit, which continue to grow in value. Eventually, these shares will begin to decline in price, and an experienced trader can usually predict the future of this type of share.

Small Caps: shares of companies which are on the rise and show no signs of stopping. Although these shares are generally cheap, they are a very risky investment for day traders. You'll be safer to go with large caps and/or mid-caps, which are much more secure and stable thanks to a premium.

Unloved Stocks: company stock that has not performed well in the past. Traders buy these shares in the hopes of generating profits if and when the stock rises in value. As with small caps, unloved stocks can be a risky choice for day traders.

These examples are NOT your only options when it comes to day trading stocks. The best way to determine which type of stock is right for you is to invest some time for careful research, a knowledge of market patterns, a solid strategy, and a disciplined trading plan.
You need to learn to trade ONLY when the market gives the right signals, and ONLY when the volume of activity in the market supports a successful trading opportunity.

MARKET GRAPHS

Sunday, November 15, 2009

All stock market investors dread political instability, war, civil strife, political unrest, insurgency or any other political development that might have a effect on the business environment. These real and imaginary fears give rise to confusion because most of the investors have not developed standardized responses for dealing with political uncertainties. When confronted with a grave crisis of a political nature, most investors tend to panic and either sell too soon, or hold back from exploiting the great buying opportunity created by such a crisis.

However the point to note is that against this dismal record of political and economical problems, and despite strong opposition from entrenched vested interests. India succeeded in pushing through a bold economic reforms program that set the economy back on the path of a strong recovery. Also despite this disturbed and unnerving political scenario of the last ten years, the average Indian investor succeeded in multiplying his capital by 50 times.

MARKET INDICES

The purpose of a stock market index is to provide a means for measuring the overall movement of share prices in the stock market. The index helps provide market operators with a quick fix on market behavior and the likely trend in share prices. Ideally speaking, the best and most accurate way of measuring the overall price movements of the market would be to use an average based on the individual price movements of each and every share listed on the stock market. This may sound fine in theory but in practice it is physically cumbersome and time- consuming way to measure stock market behaviour. A stock market index provides a better and more practical alternative. The stock market index is an average based on the price movements of a select list of securities that are believed to represent the market as a whole. The usefulness and the value of a stock market index lies in how closely and accurately it reflects the overall and broad movement of share prices in the market

SHARE PRICES AND FACTS

Friday, November 13, 2009

Share prices are determined by investor perceptions of value. There is no such thing as the intrinsic value of a share. There is also no objective yardstick for measuring the value, or price, of a particular share. All perceptions of value are subjective in nature. They reflect what investors, in their collective judgment, perceive the value of a particular share to be at a particular time. And, what is more, there is not stability about either the individual investor's perception or the market's collective perception of value. Both are subject to frequent, and often unpredictable, changes. This is the main reason behind the high volatility observed in daily share price quotations. By and large, an investor's perception of value is determined by his expectation of how a share will perform in the future. This expectation is, turn, strongly influenced by numerous factors, some of them factual and others purely psychological, like prevailing market sentiment, current market behavior, economic and corporate news, views of widely followed analysts, dividends, bonus and rights issues, the international exchange rate of the rupee, threat of war, monsoons, rate of inflation, interest rates, fears of political instability.

In the short run there is often little connection between the success of a company's operations and the performance of its share on the stock markets. In the long run, however, there is a strong, an almost hundred percent, correlation between the performance of the company and the movement of the market price of its share. In the long run, share prices must move to reflect the strengths and weaknesses of their underlying companies. This short-term divergence between the company's operational success and the market performance of its share provides an opportunity to make money. However, this opportunity can only be exploited by investors who know that this diverseness is short-lived and will narrow down over a period of time. The key to making money on the stock market is to look for successful companies whose current share prices, because of negative or lagging investor perceptions, do not reflect the fact they are successful.

BULL MARKET TOPS

In the stock markets, the surest way of making the biggest gains is to buy when a bear market touches rock bottom, and to sell when a bull market scales a major peak. The only snag in this strategy is the fact that its successful application depends upon the timely identification of bear market bottoms and bull market tops. This is easier said than done because such tops and bottoms are always easier to spot through hindsight (often described as an exact science)than ahead of time. Time and again, it has been observed that the advance identification of such tops and bottoms often eludes even the most knowledgeable and seasoned of investors. However, this does not mean that spotting such major turning points in the bull-bear cycle is an impossible task. It may not always be possible to catch the exact tops and bottoms in every bull bear cycle, but there are some time -tested signals that can give sufficient advance indication that such tops and bottoms are close at hand. This knowledge is usually all that is required to ensure investment success.

Under normal circumstances there is no rational reason why any stock market index should appreciate by 100% in any particular year, over the peak of the precious year. Even under the most optimistic of economic conditions, an across-the-board jump in share prices of this magnitude would not be justified by corporate fundamentals. The reasons for such a steep appreciation in share prices must then logically be ascribed to uncontrolled euphoria and the emotional excesses of and over-enthused market to sell, even if your selling decision happens to be premature and dose not exactly coincide with the highest bull market peak.

A bull market invariably scales a major top only when hundreds of thousands of small investors, motivated by dreams of instant wealth, make a frenzied bid to grab whatever shares they can before it is too late. At such times, excitement runs high, emotions replace reason, greed replaces caution and market sentiment is feverishly bullish. Since an individual investor has limited capital at his disposal, he tends to get attracted towards shares that appear to be cheap and affordable. As a result. he usually ends up purchasing shares which quote at around, or below, their par values. These low-priced shares give him the feeling that he is acting prudently and with caution. He also persuades himself into believing that these below-par purchases are genuine bargains which will give him the twin benefits of limiting potential losses and unlimited potential gain. This is the main reason why at a major bull market top it often becomes difficult to find shares which quote at below-par prices.

As a rule-of-thumb, the selling signals flash red when the number of shares quoting at below-par prices falls to around 0.5% of the actively traded shares on any stock exchange. At such times, it pays to sell _and to sell heavily_without giving a second thought to whether one has made the right decision or not. When the market is close to a major top, the shares of closed-end mutual funds tends to quote at high premiums to their net asset values .

WHY FOREIGN INSTITUTIONAL INVESTORS WANT TO INVEST IN INDIA ?

Affluent countries have an abundance of surplus capital, a natural consequence of prosperity. As countries get more and more prosperous, their markets get saturated and the demand for capital diminishes. As a result, supply of capital exceeds demand and capital therefore tends to fetch very low returns.

In under-developed and developing countries there is a dearth of capital. As a result, the supply of available capital falls far short of the demand and capital thus fetches a very high return. developing countries have a huge potential for growth and a large pent-up demand for goods and services. When inter-country barriers and restrictions on the movement of capital are removed, or eased, then capital tends to flow from the affluent to developing countries so that it can earn higher returns. These capital flows can be in the form of loans, direct physical investments or portfolio investments.

Under normal circumstances, a major chunk of surplus capital of USA, Western Europe and Japan would have flowed to China and Russia. But these countries doesn't have have developed stock markets and therefore cannot absorb large foreign portfolio investments. These regions will no doubt, attract heavy capital inflows in the form of loans and direct physical investments, but the major chunk of foreign funds earmarked for overseas portfolio investments will eventually find its way to the Indian stock market. The Indian stock market offers really viable and practical option for portfolio investments to foreign fund managers. the major stock market boom in India will,in all likelihoo, be fuelled by foreign institutional investors.

TEN TIPS FOR A INVESTOR

1. Do not visit your stock broker every day. The more frequently you go to your broker's office, and listen to the rumors that circulate there, the greater the chances of your being influenced by the crowd opinion of the moment.

2. When you go through the stock market quotations in your daily news paper or through internet, do not focus your interest exclusively on the shares that interests you, the shares that you own, or the shares that you want to buy. Try to also read and remember the quotations of other shares. It will help you to acquire a wider and more balanced perspective.

3. Avoid talking freely and loudly about your investments in social gatherings. In fact, try to steer the conversation to subjects other than the stock market. This is particularly important during periods of extreme optimism and extreme pessimism. People who are habitually prone to be vocal about their investments are normally the first to get drawn into vertex of crowd emotions.

4. Do not take large loans for the purchase of shares. The very fact that you have taken such loans means that your thinking is already being strongly influenced by greed. There is also another disadvantage. In a falling market, heavy loans and the need to pay interest on them periodically, will make you particularly vulnerable to fear and panic. People who are not burdened by heavy loans are seldom pushed by greed and fear into taking foolish decisions.

5. Do not speculate, that is don't buy on margins or try to make money through short-term fluctuations in share prices. Speculators or invariably motivated by greed. They are also normally the first to panic whenever share prices begin to fall.

6. Adopt a long-term investment strategy. A long-term vision and perspective or seldom influenced by current market sentiments.

7. Diversify your portfolio. A concentrated portfolio will make you more vulnerable to fear and anxiety.

8. Invest only what you can afford to loose. Don't depend upon stock market games for running your kitchen, providing the school fees of your kids, meeting medical expenses or paying your apartment rent. In any case, even if you happen to be extremely rich, it would not be prudent to invest more than 50% of your assets in the stock market.

9. Investing your working capital of your business in the stock market is a risky job. That is a sure sign of uncontrolled greed.

10. Do not invest in shares offered through private placements from the promoter's quotes of new and upstart companies.