When a stock is seen to rise strongly one year, the reasonable thing is usually to assume that it will continue to do so the next, isn't it? If the entire market rises well in one year, is it safe to assume it will continue to do the same? How tempting it is to think so now, the way we've seen everything rally around the last several months. But you can't just take your money to the market because you believe in inertia - that things have to inexorably move in the direction they are heading in. What these kinds of ideas would make for is a really sorry stock market strategy.

I hate to pull out the big words, but the Dow Jones industrial average, that's been around for more than a century, does act in this intuitive way. About three-quarters of the time the Dow Jones has been around, it has reported a rise in the country's stocks. But it only rose two consecutive years about 60% of the time. The rest of the time, it fell after a rousing year. It certainly looks like the theory makes sense about half the time that stocks rise year on year. The only stock market strategies that are safe then, involve buying something good, and holding onto it until all the rises and falls, average out.

Have you heard of the terms growth stocks and value stocks? These are somewhat important in finding yourself a good set of stock market strategies. Basically, stocks that are priced very closely to the value of their company are considered to be growth stocks, and stocks that are very cheap considering the price of the company, are considered value stocks. All the investment columnists will tell you that growth stocks if they can grow one year, are likely to do so again next year. I do wonder where they get their information; lots of studies published show that there is nothing at all in the last 50 years that shows that growth stocks have performed well two consecutive years. If it were such a simple relationship, why are we all struggling still to find the magic formula? All you need to do to make a bundle, is to find out if your shares did well last year, and this year you would hang onto it, to wait for the prices to rise one more time.

Well at least, reasonably well put-together markets like our own always determine their basic level based on a future performance expectation, not anything to do with the past. But there is a somewhat comforting predictability to one part of the stock market - the small cap stocks. These small companies are not all that efficiently treated on the floor; traders advise people to hold on to their stocks, and not trade them on the slightest hint at the market. It takes them a while to react to them. And so, if they rise one year, they continue to do the same the following. If you're looking for some great stock market strategies for this year, consider buying up shares in small companies that performed well last year. That's a good way to head as far as I can see.

Tags: stock market strategies, stock market

Currency trading pips are an important part of forex trading that any trader must understand. They are the measure of price movements, and therefore of profit and loss. Brokers usually translate pips into dollars and cents for you, or into the currency that your account is held in, if it is not US dollars. However, when comparing two trades with different position sizes it is the profit or loss in pips that tells you more than the profit in dollars.

PIP stands for percentage in point. It is used as a measure of change in price. Spread is also measured in pips. The pip is the smallest part of the measured price of a quoted currency.

In practice, most currencies are quoted to four decimal places, e.g. 1.2315. In this case one pip is 0.0001 units of the quote currency. So if that price changes to 1.2316, the price has increased by one pip.

The Japanese yen is the only one of the major currencies that is low enough in value to be normally quoted to two decimal places. So when the yen is the quote currency, one pip is 0.01 yen.

Some brokers are now beginning to quote the other major currencies to five decimal places. Logically this should mean that one pip would be 0.00001 currency units, but the potential there for confusion is huge, if a pip would be worth ten times as much with some brokers than with others. So it seems likely that the pip will stay at 0.0001 units for most currencies.

Most traders record their profit and loss in currency trading pips as well as in money. This enables easy comparison of one trade with another so that you can evaluate a system. It also means that traders can discuss their results in a forex forum without revealing the size of their account or their profits in dollars and cents.

If a trader tells you that they made 100 pips profit, you do not learn anything about their financial situation. If they are trading a pair like EUR/USD where the dollar is the quote currency, 100 pips profit would be $1,000 on a standard lot of $100,000 but only $10 on a $1,000 micro lot. To know the size of one pip in dollars in this situation, multiply 0.0001 by the lot size.

To calculate profit or loss from pips where the dollar is the quote currency, you just need to know that one pip is $0.0001 x lot size. If you have another currency as the quote currency, the pip is of course in that currency, and you can multiply by the exchange rate to know the pip value in dollars.

All of this may seem confusing at first glance but anybody who starts trading will very soon understand what a pip means in practice. Currency trading pips are a useful tool for measuring and recording price movements in forex trading.

Tags: currency trading pips, currency trading