Opportunities come in many forms. Some say that opportunity knocks only once. Others say it just lingers. Whichever is true is not a big deal. It is how one gets the opportunity. Most people would agree that an income opportunity is the best opportunity they could have. This is the reason why everybody looks for it. Still, some could hardly find it. To really get the opportunity does not necessarily entail much energy. One good analogy is the lion. Lions get their prey after ten attempts. By the time they eat their victims, they will have used all their energy. So, their meal is just enough to replace their lost energy and that energy is also just enough for another day to get another prey. On the contrary, crocodiles just float on the water and wait for their prey and they never let it pass. After their meal, they will be full and won’t get hungry even for a long time without having to look for another immediate prey. The latter analogy is the best example of how we should get an opportunity. And in terms of income opportunity, this example is equivalent to a passive income opportunity.
Passive income opportunity can be recognized through careful analysis of the economic condition that affects the risk-reward ratio of a particular investment instrument. If you are investing in stock market, the right opportunity is when the value of a company that you are willing to buy is at the bottom. In this case, it is cheap and the potential for stock valuation is high. So, this is another passive income opportunity. In stock market, we earn from the dividends of a company and at the same time from its valuation. Taking advantage of the price fluctuation offers a lot of passive income opportunities. Ideally, we buy shares when they are cheap and we sell them when they are expensive. This is also true with almost all trading instruments. A passive income opportunity is evident when a clear and strong trend has been forming. To get the right entry, we must understand why such fluctuations occur so that we can follow where the market is heading. It is important to know the price action of a given instrument to measure the potential and the limit of a passive income opportunity and this is determined by the changing dynamics of the market driven by many different factors that we must also get into deeply.
Traders use two methods to analyze a passive income opportunity and these are called fundamental and technical analysis. Fundamental analysis is a method of studying the current economic factors that affect the behavior of the market. When the economic condition is good, it promises growth for a certain investment. Therefore, traders are willing to buy attractive instruments. And by doing so, they influence the rest of the market players to push the price up. But when the economic condition is worse, it drives fears and this is known as risk aversion. The former is known as risk appetite.
We can measure the strength and weakness of the economy using economic indicators released periodically. One of the most popular economic indicators is the GDP. When the GDP number is higher than the forecast, the economy is healthy and is suitable for investment. Another influential indicator is the unemployment rate. When the unemployment rate is higher, consumers are reluctant to spend. Businesses suffer. And so, it becomes a bad time for investment. This is just an example that each data is important for traders in order to make sound decision. Good economic indicators introduce a passive income opportunity for investors and traders as well.
Economic news of the sort can influence market sentiments. But sometimes, rumors make the traders react more than the news does. So, most traders buy on rumors and sell on news. This is also another area for a passive income opportunity. How does it work? If, for instance, a company was said to introduce a very competitive product, investors would buy that company much earlier. Consequently, the value of the company would also get higher. And if the news was not true, early buyers would sell and take their profit. Hence, information gives us a passive income opportunity.
Another method that traders use to identify a passive income opportunity is the use of technical analysis. Technical analysis provides traders with historical data expressed in chart. Chart can show identifying patterns that help traders follow the direction of the market. It also gives a signal if the price of a trading instrument has reached a certain level where a reversal occurs every time it is there. A passive income opportunity in technical analysis begins when the chart shows a clear trend right after a reversal. Experts in this field have numerous tools to reveal a passive income opportunity. Here, price moves within a trading range. But when the range is broken, it implies a much stronger trend. This is known as “break out”. A break out opportunity is a big passive income opportunity. Buying on break out has proven to be profitable.
Whatever method we use whether fundamental or technical, there is always a passive income opportunity.
There are still other ways to find a passive income opportunity such as the issues of new trading instruments. These include IPO, government bond selling and any fresh issue of investment instrument. The bottom line here is that since it is a fresh issue, the price is at its cheapest and there is no direction than to go up.
Initial public offering (IPO) is a fresh issue of shares for a company’s expansion. Companies do not have to borrow money from banks to expand their operation. Instead, they will look for investors to put up their funds in order to fund the expansion operation. This fresh issue has not yet been traded in the stock market. When a company conducts its IPO, the fresh issue of shares is bought by investment banks. Investment banks will pay the company afterward. Then, the fresh issue which the investment bank has bought will be sold in the trading floor of the stock exchange. This kind of sale in the trading floor is known as IPO. Why many traders desire to buy an IPO is because most companies that issue IPO are in expansion mode. Obviously, a company expands when it has been growing, and the potential growth in the near term is high. In addition, an IPO of a growing company is offered at the bottom price. Therefore, the price direction is set to a bullish trend. After the initial public offering, these shares will be traded. And when these shares are transferred from one trader to another, these shares will become secondary stocks. IPO is one good example of passive income opportunity. In the stock market, rumors about an IPO stimulate risk appetite. During economic slowdown, IPO is hardly heard unless the industry it belongs to is resilient. So, a passive income opportunity begins when the economy has continuously been growing especially if the main recipient is the company that issues the IPO.
Company mergers and acquisition also creates a passive income opportunity because it is always attractive to invest in the giant.
We have seen many options to find passive income opportunity. If you are still not decided to try one on your own, there is also a passive income opportunity from people who specialize in trading such instruments. You may seek the advice of fund managers. Some high-net-worth individuals invest in the proven talent of those traders. If you choose to do so, you may research some information about them the way they do about passive income opportunity. It is also wise to invest in people who are already taking advantage of a passive income opportunity.
Michael F. Anyayahan is a freelance forex trader and writer. To learn more, visit: http://www.forexuniverse.yolasite.com
No comments:
Post a Comment