Interest Rate Investing

Interest Rate Investing
By: www.CandleStickForums.com

Interest rate investing does not just
refer to finding the bank that offers
the best rate on certificates of
deposit.

Interest rate investing has to do
with anticipating and profiting
from changes in stock
prices, commodity prices, stock
options prices, bond
prices, and futures contracts based
upon changes in the prevailing
interest rate.

When interest rates go up
substantially it may be more
profitable to invest
in bonds or dividend stocks than
in growth stocks whose rapid
growth rates have been slowed
because companies are paying high
interest rates on borrowed money.

Our focus on interest rate investing
does not have so much to do with
after interest rates have gone up as
with anticipating and profiting
from rate increases.

Both fundamental and technical
analysis have their part to play in
profitable interest rate investing.

Candlestick analysis will help
both traders and those interested
in long term investing to profitably
read market reaction as interest
rates rise or fall.

An investor dedicated to buy and
hold investing will probably say
that he will wait until interest rates
go up and then buy bonds or
dividend stocks. The question we
should ask this individual is just
how long will he wait as interest
rates rise until he buys.

What if rates start to fall? The
point of this is that interest rates
are fluid and are intertwined with
the economy, monetary
policy, and Forex.

The savvy individual can certainly buy
bonds, for example, at high interest
rates. However, it will be smart to use
a tool like Candlestick pattern
formations to analyze how the various
aspects of markets and rates are
affecting prices in order to buy at the
top of the interest rate curve.

There is more profit to be made
from interest rate investing than
just waiting for the top of the next
interest rate cycle.

The long term investor may be very
happy with the purchase of 30 year
US treasuries at a high rate of
interest. He will be even happier as
interest rates fall in later months
and years as he will still be
receiving a high rate of interest.

However, he will have his money
tied up for a generation in this
investment. The moment a bond is
issued it is worth its face value.

The moment that interest rates
change the bond is worth either
more or less than its face value if
someone wishes to buy or sell the
bond.

As interest rates fall an investor
holding a high yielding corporate bond
or US Treasury note will be able to sell
that security and make a profit. With
that profit in hand he will be able to
reinvest the money using Candlestick
chart analysis for picking stocks or
other promising investments.

People typically invest in dividend
stocks because of their quarterly
return on investment. When interest
rates go up dividend stocks often go
down in price. Providing that their
dividend stays the same they remain
competitive with bonds and treasuries
as an investment.

Buying stocks that
pay dividends when interest rates
are high will commonly let the
investor profit from a high
dividend rate but also profit
from selling stock when interest
rates fall again.

Of course another variation on
interest rate investing is selling
short on interest rate sensitive
stocks when one expects interest
rates to rise. The key is to stay
profitably tuned into the markets
with Candlestick signals.

Interest Rate Investing

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