When you talk about investment strategies and the theories on which those strategies are based, then you will run of breath but won’t run out of the sheer number of investing theories there are. There is a plethora of investing theories traders use in order to find what makes the market go and what each move made in the market signifies. Take Wall Street for example, there are investors in Wall Street who think they can use varying theoretical lines to combat and win against the market and there are those who favour efficient theories and do not believe the market can never be defeated. This divide is something real and it is staggering. There are so many theories that can be used to understand the factors which influence these markets and how an investor behaves in this market. Mentioned below are some conventional and unconventional investing theories you should at least know about or understand:

50% Principle

According to the 50% theory, a trend which is being observed by traders will experience a price correction before ending. This correction can range from one-half to two-thirds of the alteration in price. What this means is if a stock is increasing and has gained around 20%, before it can continue rising, it will fall by 10%. This example can be considered a bit over the top because usually this theory is applied on trends which are short-term and followed by traders with extreme technical analysis of the situation. This correction is looked upon by traders as occurring naturally and is sometimes caused by traders and investors who are in the habit of cashing out their profits before being sucked into the trend’s reversal after the trade. If the correction increases by 50% of the alteration in stock price, the trend itself is identified as a failure and that the reversal was caused by impulsive factors.

Efficient Market Hypothesis

There are a handful of investors who are likeminded or neutral at best when you talk about the efficient market hypothesis or (EMH). There is no grey area in between. Investors either shun the theory completely or oppose it. Investors who believe in the EMH use more broader and reflexive strategies for investing as opposed to those who emphasize on making investments using old school techniques, namely potential and growth, an analysis on undervalued assets, so on and so forth. According to the EMH, the price of shares in the market embodies all the available information about that particular stock. So, this means the stock is valued accordingly unless there is a change in the stock due to any other reason. And because of the fact that an investor cannot predict the future, he would proceed to buy a large number of stocks so that he can make a hefty profit from the rise in its price at the moment. This is what investors using EMH theory do. Others point to using more aggressive strategies to beat the market like Warren Buffet does.

Greater Fool Theory

The greater fool theory emphasizes you can make money from investing as long as there is an idiot in the market willing to purchase the stock at a higher price. What this really means is you can continue to make money from stock which a ‘greater fool’ is willing to buy off your hands. However, what happens is these ‘market fools’ begin to deplete as the market overheats. Traders adhering to this theory ignore all other factors and valuations involved in an investment, which is a huge risk.

Rational Expectations Theory

The rational expectations theory explains that the investors in an economy will use their strategies and tactics in a way which corresponds and matches with what can be rationally explained in the coming days. To put it in simpler terms, these investors like to invest and spend according to what they logically believe will affect them in the future. This helps investors to conform to a more self-fulfilling prophecy that determines how their actions will affect them in the future. It is imperative to understand that the rational expectations theory is considered an important economic factor. However, the utility of the theory, in the eyes of most investors, is still somewhat doubtful. For instance, a particular investor may think the price of a specific stock is increasing. He buys it, which allows the stocks to grow. Now look at it this way, this same transaction can be used in another example, an investor decides to buy undervalued stock, he keeps on buying it until other traders take notice of the stock and this ends up increasing the value of the stock. This helps identify one major flaw in the RET and that is you can use it to change the way you invest but it will never help you identify anything.

All in all, although it is important that you try and understand these theories, it is also important to know there isn’t any ‘one’ financial theory that can help you understand the world of finance.

Market Place

MKTPlace is a leading digital and social media platform for traders and investors. MKTPlace offers premiere resources for trading and investing education, digital resources for personal finance, news about IoT, AI, Blockchain, Business, market analysis and education resources and guides.

Understanding the Association of Risk When Investing in Bitcoin

Bitcoin has become an exciting new cryptocurrency. Well, it’s not new anymore, but it does provide users lower international trading costs. Are there risks when investing in bitcoin? Yes. Bitcoin is also a cross-border cryptocurrency unit which many traders believe could have exponential advantages for the purpose of international business to be more specific, business conducted online. However, for many people, Bitcoin has proved to be an alternative to the everyday banking system and the printing of money by the central bank like it’s going out of fashion.

From the perspective of an investor, Bitcoin’s price has increased over the years, which means that if you owned Bitcoins, you could have beaten other investments nine time out of ten. Various investment analysts comment that if Bitcoin allows itself to come out of the fringe geek circles, which has considerably pushed its value upwards over the years, and is made accessible to the general public more easily, there is a lot of potential for it in terms of price increase.

But it is important to remember that investing in Bitcoin is not for the fainthearted. This is mainly because there are a lot of risks associated with Bitcoin investments and trades. For example, the value of Bitcoin can fall abruptly after an increase. And the volatility levels in the Bitcoin market in 2013 should be enough for you to realize that. However, those volatility levels have died down.

Fortunately, you can do a number of things to hedge against risk when investing in Bitcoin and mentioned below are some of them:

Invest in Alternative Digital Currencies

There is no doubt that Bitcoin has given birth to a strong ‘proof of concept’ when it comes to powerful cryptocurrencies. However, you have to understand it is not the only cryptocurrency out there and definitely not the last. There are various cryptocurrencies you can invest in, a majority of which are now dubbed as ‘alt coins’, and that is solely to differentiate them from Bitcoins.

Many of these alternative coins in the market are simply hopping around, moving from one speedy bandwagon to another, and have little to offer to users in terms of value. However, there are some which have genuinely progressed to compete against Bitcoin in terms of reliability, speed, security, efficiency and costs. If you are an avid digital currency investor, you must consider investing in other digital currencies as well to be diverse.

If Bitcoin prices increase, there is also a strong chance the price of other currencies will increase, although by a lesser margin, because Bitcoin will always take point in creating a new market in which all cryptocurrencies can thrive. And so far, alt currencies have also proven to be fairly lucrative in relation to the Bitcoin.

However, there is also another fundamental aspect you should understand. If, because of any legal or security issue, the price of Bitcoin falls, and you see that the problem can be solved by another digital currency, or if other currencies have features that can gain an even bigger market share, you could well see an exponential increase in the prices of these ‘alt currencies’.

Buy Apple Shares

If you think about, and you won’t have to think hard, Apple is the number one long-term threat to this innovative technology. Believe it or not, the threat from regulators and hackers is minimal compared to the smartphone giant, especially from one that is reputed to be a ‘great innovator’.

Although if you look at it, Apple has never invented anything even if everybody thinks it is an innovative company, what it does is or rather its modus operandi is to search for new technologies invented by different companies and produce the ultimate spinoff version of the same invention to capitalize on the market by launching it just before the original invention is about to hit the market, a product which becomes instantly successful. Apple did the same with MP3 players, tablet computers and high-tech smartphones. However, they are also considering to the same with cryptocurrency.

So, if you think this from a logical and a more financially inclined perspective, it may be a good idea to invest in Apple shares and hedge against the risks posed by investing in Bitcoin. Investing in Apple is safe regardless of what happens to Bitcoin and if they succeed in promoting and creating iMoney, consider yourself lucky.

To conclude, it is important that you consider the aforementioned options if you want to make sure you don’t suffer any hefty losses by investing in Bitcoin.

Market Place

MKTPlace is a leading digital and social media platform for traders and investors. MKTPlace offers premiere resources for trading and investing education, digital resources for personal finance, news about IoT, AI, Blockchain, Business, market analysis and education resources and guides.