Deflation is largely considered to be a destructive force. Our economy, and Wall Street in particular, is based upon the concept that growth is the only option. Since the end of the Great Depression, each of the major indices in the United States has increased dramatically. The average rate of growth has been about 3 percent, give or take. People investing money for retirement, either by putting money into a company 401(k) or in some other manner, rely upon this fact every single day. The market might not move upward every month or even every year, but given a big enough picture, prices keep moving up. In this sense, deflation would be catastrophic.
However, a manner of deflation that is currently ongoing is actually a pretty good thing. It is called technological deflation, and it is reshaping entire markets. This is a hard concept to explain, but what it boils down to is the fact that technology is making things cheaper and easier to access than ever before. Technology makes comparison shopping much easier–you can shop for the cheapest groceries right from your living room while you check the prices at each of your local grocery stores on how much a pound of ground beef costs. You can buy an iPhone and combine many different products. Even though an iPhone might be expensive, it is still cheaper than going out and purchasing a new cell phone, an MP3 player, a GPS system, and a handheld gaming console individually. Big companies that couldn’t have been fathomed 25 years ago, like Amazon and Google, are crushing their competition just because they are able to do things cheaper, quicker, and better than a smaller company could. This is technological deflation, and certain companies are cashing in on the concept.
This is definitely not the end all, be all when it comes to a long term strategy. It is something to keep in mind, though, and it’s a concept that can help you put together a long term trading outlook. Binary options brokers allow you to place trades a year out in the future, and when companies like Amazon and Apple have such impressive products and balance sheets, it’s hard to imagine that they will not be even more impressive 12 months from now.
This is not something that will influence your short term trades. It is a long term concept. However, long term growth has to start somewhere. Executing trades against an overall trend is difficult, depending on the type of trading that you are doing. It becomes especially dangerous when you go against the trend with binary options. However, when long term thinking alone fuels your short term trading, you are not taking into account the fact that things change over time. Yes, technological deflation is fueling these companies right now, but in the future, this is likely to change. Who knows when it will change, or how. That’s something that no one knows, yet needs to be accommodated for in your trades. Your short term strategy and your long term strategies should be on the same page, but they need to be adjusted as you go, and at times, you might even find that they are going against each other. With predictions like these, it’s important to take them with the proverbial grain of salt. There’s probably some truth to them, but how long this truth will be salient remains to be seen. For now, this is the driving force behind some companies’ success. Not every company, though. It’s also not something that is likely to last forever. When you formulate your trades, remember these concepts.