In any form of financial trading there are two terms which you will first need to fully understand before proceeding to the next stage.
The fundamentals of any trading system are the same whether it be stocks and shares, bonds, forex, spread betting or of course the betting exchanges.
1. Liquidity - Cash
2. Volatility - News
Lets start with liquidity or "cash".
1. Cash is what physically creates/ moves markets.
2. Cash is what physically drives prices up or down, (bullish or bearish).
3. Cash determines how far a trend goes and when it will end.
The more cash coming into a system (buying positions) the longer a trend will last, so making it easier to trade successfully (in theory).
Markets of all types are self perpetuating, as we have seen over the last few years in the UK, bubbles are created, just like for example, in the UK residential housing market.
While buyers will meet sellers with available cash, prices go up and up and up, all other factors are irrelevant. Anyone could see that the housing market was overbought except the mug punters who believed the dross churned out in the form of hour after hour of prime time property porn TV.
Punters were falling over themselves to buy rabbit hutches in city centres that were genuinely worth about a fifth of the price they were actually paying.
The result was inevitable. Crunch!! Credit dries up, Cash dries up, the bubble bursts, sellers will not match buyers and not only do prices fall, but the volume of transactions collapses as well.
So here we are with factor 2.
Volatility. What are the factors that create the initial switch event?
Well they are quite basic - NEWS.
The news can come from anywhere, any angle, any source, there are hosts of sources of news that affect markets.
The economics of accounts and balance sheets, the movements of fiscal indices such as interest and inflation. Movements of exchange rates between currencies.
Oil prices, food prices, availability of credit and cash are recent movers of markets.
Even the climate and global terrorism play their part in disturbing regional markets.
For the housing market in the UK, the warning signs began early in 2007 with information that sub prime lenders in the USA were dangerously over exposed.
Even then, property prices in the UK continued their upward run for another 6 months such is the power of media propaganda and the nature of human greed and entrenchment.
Basically if you are playing the stock market, the property market or any other market and are trying to keep tabs on the number of things that might affect your trades, you have to attempt to follow all these sources of news 24 hours a day, piecing them together, attempting to predict their effect on the market along the way.
And, to be frank this is nothing short of gambling. Its also extremely stressful.
Part of the problem with stock market day trading is the competition.
Huge corporations, pension funds, investment banks and Wall Street itself are working on huge commissions to profit from these markets.
Their technology is second to none, high tech automated robots compete for easy money.
Insider trading is rife and unless you are "in the know" you will always be fighting to beat these markets as an independent.
To make matters worse the incoming news can occur night and day, and you can awake to an important piece of news that sent your stock into freefall at opening.
In part 2 of this article we examine how and why Betfair has become the platform of choice for traders and other punters, and the software, systems and strategies that are making them consistent profits.
Author : Mike Davies
http://www.isnare.com/?aid=325775&ca=Recreation
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