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How to select a financial market for you


Choosing the best market(s) for you to trade or invest in may take some time. Eventually, you will settle on your favorites and will develop an understanding of the unique characteristics of these markets.

 This will give you an edge in effectively implementing your trading and investing system to generate greater profits. If you are new to the mar- kets, this chapter is designed to give you an overview and head start on what direction to go in.

Selecting a market to trade is a combination of several factors such as:

. Market cycle

. Volatility

. Liquidity

. Trading or investment account value

. Market price

. Time frame you want to trade

. Your skill level

. How much time you have to monitor the markets

Here are six items to consider prior to choosing a market:

1.Dollar size of your trading account:

Some markets may be too expen- sive for you even to consider trading. You may not be able to afford the market, or you cannot trade it and still maintain effective risk con- trol. Sometimes by choosing a lower time frame, you can still maintain effective risk control.

2.Amount of time you have to monitor the markets:

Different trading styles require different time obligations. If you day trade, then you need to be available to watch and monitor your trading all day during mar- ket hours. However, if you are position trading, then you only need to monitor the markets in the evening. Position trading is great for people who work during the day.

3.The time frame you want to use:

If you are a day trader, you will choose an intraday time frame to trade; if you are a position trader, you will choose a daily time frame; and if you are an investor or long-term trader, you will choose weekly and monthly time frames. Choosing the best time frame is a combination of your trading account size, your risk control approach, and your personal preferences.

4.Your overall knowledge of the markets:

As you gain experience and knowledge about the financial markets, you will expand your trading and investing possibilities. For example, most novice students start out with the stock market, but as they learn about other markets, such as options and futures, they may branch out to new areas.

5.Your trading and investing skill level:

Don’t confuse this with your overall market knowledge. This topic deals specifically with your trad- ing and investing ability. Some markets require a higher level of skill due to their higher level of volatility or movement. You need to work with markets with which your skill level is compatible.

6.Your personal preference:

Simply stated, what markets do you like best? Some students who are farmers may focus their trading on the commodities markets, such as the grain markets, while others on Wall Street may want to focus their trading and investing on the stock market.

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