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Money supply is basically the total amount of currency circulating in an economy at a specific time. It involves issued paper money, coins, and other liquid instruments such as funds on checking and savings accounts in the bank.
The value of Money supply is an important macroeconomic indicator because it may impact the economy through price level of goods and services, inflation, and the business cycle. The government or the central bank releases the information annually.
Analyst from both public and private sector carefully monitors it because of its possible effect on the economy. It is controlled through policies, born from careful analysis of economists, regarding interest rates and increase or decrease of the volume of money currently circulating the economy.
The increase of supply most probably lowers the interest rates thus attracting investments, generating jobs in the process, that would most probably land on the hands of the consumers. The more money in the hands of a consumer, the greater the urge to spend. Businesses would then react to this by increasing the rate of production which would walk hand-in-hand with the increase in the demand of labor.
The types of money and its value on the Money supply are categorized in “M”s:
M0 – is the total cash resource circulating the country.
M1 – All the tangible money, such as coins and currency, and the most liquid resources such as demand deposit and traveler’s cheques. M0 + checkable deposits.
M2 – The combination of the previous type and all time-related deposits; savings deposits, and non-institutional money-market funds. M1 + time deposits ( less than $100,000) and other highly liquid savings.
M3 – The broadest measurement of the money. It includes M2 plus time deposits exceeding $100,000, institutional money-market funds, short-terms repurchase agreements, and other larger liquid assets. M2 + large time deposits and deposits above $100,000.
M4 – the sum of all the preceding types.
The degree of importance of these indicators vary from country to country. There are countries like the United States that pay more attention to M2 while M3 outweighs the other types in most European countries. The Great Britain gives more significance to M4.
“A weak currency is the sign of a weak economy, and a weak economy leads to a weak nation.”
– Ross Perot
The main protagonist in the fundamental play of economics. The Gross Domestic Product report or more popularly known as GDP, assumes the lead role in a country’s economy. It is the measurement of the status of the state as a whole and is usually released at 8:30 am EST during the final day of each quarter and reflects the preceding quarter. It is an aggregated monetary value of all the goods and services, excluding international activities, provided by the entire economy during a quarter.
The GDP growth rate is the main indicator on how well the state performed during the period. It reflects the manufactured goods within its territory on a specified period but it doesn’t include the cost to produce those goods.
An average of 2.5-3% growth per year is healthy and sustainable. But difficulty arises when the GDP is above that rate, it is highly unsustainable and may lead to a high inflation. Before an ‘overheated’ economy occurs, governments usually takes preliminary measures to slow down the growth.
On the other hand, a growth below that rate would usually lead to an increase in unemployment and decrease in spending.
Each initial GDP report is revised twice. The “advance” report is followed by the “preliminary” report with a month later and then followed by a final report a month after that. It is reported in two forms: Current dollar and Constant dollar.
From the name itself, it could be figured out that the Current dollar GDP is calculated using the current dollar and provides comparison between time periods. It is the most recent calculation of the GDP in terms of the current year’s dollar and it doesn’t account for changes in the rate of inflation from one period to another.
The Constant dollar GDP converts the current information into some standard era dollar. In the process, it factors out the effects of inflation and allows an easy comparison between periods.
GDP is sometimes confused with GNP or Gross National Product. The GDP only includes the goods and services produced within the territory while GNP includes those goods and services produced by companies operating outside the country’s boundary.
“Effort only fully releases its reward after a person refuses to quit.” -Napoleon Hill
After devising a strategy from a trader’s granary of knowledge and experience. One final step is only needed for a trader to attain financial stability, Automatic Trading System.
It is a program code intended to apply the devised strategy in a manner that it would run the trade automatically. It is often used with Indicators and Expert Advisors to assist in performing the intended task. To create such system, skills in both trading and programming is required. A trader must first convert his strategy into a set of rules that the computer would understand. After doing so, the computer would run it through your trading software which would then seek trades that would fit to the rules.
Formulating the algorithm and its automation could really be a challenge and thus should be carefully tested to make necessary corrections. But once finished, the reward greatly compensates the author. It would provide a continuous source of money for a long time unless the market demands such changes. Like any other system, it also has 2 sides. The good and the bad one.
1. A trader doesn’t need to monitor all the time. It gives the trader the chance to concentrate and exert more effort in improving the strategy and money management rules.
2. The human factors are dispensed. The emotions and human error that lead us to abdicable results would be taken out of the formula.
3. Executions of orders are maximized since it would only need a signal to perform the task.
4. It provides more potential profit because it could run continuously.
5. The strategy would be strictly followed. Unlike humans, it wouldn’t hesitate its course.
6. The already gained profit is more secured
1. The loss may go out of hand if the algorithm is not properly coded and tested.
2. Certain rules are impossible to code thus making it difficult to create the automated system.
3. It is not flexible. Unlike an experience trader that may react once a perceived potential to profit is seen, this kind of system would strictly follow its course, thus losing the potential profit that could be gained.
If you’re wondering if all the troubles is worth it – I would definitely say yes. There maybe times wherein we may wear from trading but with this kind of system it would save us from the supposedly deficit in our profit. Plus the benefit of acquiring the leisure of time to spend in more important matters really gives a favorable vantage.
Elliot Wave theory was developed and popularized by Ralph Nelson Elliot in the beginning of the 20th century. Yet, traders stay vague about this theory. Some are absolutely sure about its efficiency; the others do not think so. Nonetheless, nowadays this method is very popular, while Elliot Waves are the key instruments for many traders. Moreover, Elliot theory is considered to be the basis of technical analysis on Forex.
According to Elliot, crowd behavior is cyclic and has an ordered system. The term «crowd behavior» is applicable to Forex society, for this reason trading is affected by some patterns as well as prices are affected by traders’ reactions to outside influences. Elliot discovered the following emotional chain which is true for both traders and prices: expansion – enthusiasm – euphoria – recession – depression.
Thus, the price movements can be represented on the chart within 5 waves, three of which are impulsive moving with the trend, while two of them are corrective moving against it. As a rule they are marked as 1, 2, 3, 4, and 5 on the chart. When the price action is down, it is possible to observe a pullback which is labeled on the chart as A, B, and C waves.
In order to maximize the profit, it is better to follow these rules:
- the longer the impulsive waves are, the longer the corrective ones are
- it is very important to distinguish the corrective waves from the impulsive ones before opening a position.
Wave identification is one of the most important and at the same time very complicated stages of wave analysis. If you have succeeded in identifying these waves, you have already gained half of the success. The one thing left to do is to take a potentially profitable wave and close the trade on time.
Good luck with trading!
Added by Andrey Misyuk,
InstaForex Clients’ relationship manager
“Markets are designed to allow individuals to look after their private needs and to pursue profit. It’s really a great invention and I wouldn’t under-estimate the value of that, but they’re not designed to take care of social needs.” -George Soros
Forex Trading is really a profitable job and it is undoubtedly capable to continuously sustain the every need of an individual. A work without a boss to stress you and only self-will to drive you. Free knowledge is abundant on the world wide web and a hands-on education using the Demo account is supplied for free by your self-researched chosen broker.
A little capital will suffice for an aspiring trader to fire up an engine and start trading. Cent accounts are at the disposal for an individual to experience the real thing. And once confident and capable enough, a trader may jump into the currency market to try their luck by opening a Live account.
After omitting mistakes and learning from it in the process, we all hope to win trades consistently.
Once the hardships are conquered and our trading goals are achieved, with the help of our self-devised strategy, profit would start to flow.
But once we reached all of this, we might ask ourselves “Am I happy?” some might say yes but unfortunately some might say no. Those who replied the latter would start to reminisce the process that the they had gone through. Some of the question that might pop-up would be “Are there sacrifices made on the process?”. Unfortunately relationships are the usual casualty of this scenario, some are damaged and some are even broken beyond repair.
Most of the time, because of our indomitable will to succeed in trading, we lose sight on the things that are most important. So my advise to those who wants to venture in this career, “Work to live and not live to work”. Good day and happy trading.