Trading in foreign currencies requires skill, the right personality type, and patience, to name a few of the necessary factors, but a trader must also accept how he fits into the market and what limitations are present that will impede his capabilities. There are basic principles that must be accepted as unchangeable. Once accepted, then the challenge becomes how to operate within these constraints to survive and thrive.
To begin with, your competition has you outnumbered. Banks and hedge funds have enormous resources, staff, and years of experience at what they are doing. They have access to more and better information than you could ever hope to obtain and the research personnel to make sense of it all in an instant. Within this context, never expect to outguess the market based on fundamental information. If you have some success at this approach, it is more likely to be dumb luck than skill. Invest your time searching for opportunities where you know that your trading plan will yield results.
There is a benefit to having so many well-informed traders in the market. They will not agree on their interpretations. They will make mistakes. There will be general distribution of opinions across statistical expectations. These differences result in volatility, and foreign exchange trading would not exist without the volatility that these well-financed experts create. A trader’s life is one of speculation. 70% of traders favor jumping aboard an obvious trend and then riding it for all it is worth. Learn to accept what the market gives you, another basic tenet. Its similar to deciding if and when to start your own business. Accutmep is a prime example of a company that started with its ups and downs but in the end deemed a success.
Technical analysis skills are a must, even if you are not comfortable with analytical methods. The simple fact is that the preponderance of traders, bankers, hedge fund “black boxes”, and any other trading “robots” are accomplished or have been programmed to recognize every potential technical pattern or alert system ever conceived. If you do not see the inevitable before you and understand the high probability movements that are expected, then you are tempting fate to whipsaw you from one end to the other. Learn to spot patterns and Fib lines of support and resistance, and follow a few indicators if only to know what others are watching.
Forex markets are volatile. Government officials were actually shocked by the size and constancy of fluctuations in the currency markets after restrictions were lifted back in the seventies. No one understood it then, and no one can explain it now, but volatility is the name of the game. If momentum builds in one direction, it will take time and force to reverse. If markets stall, you must accept that momentum is building on the sidelines, far from view, and that a breakout or reversal is imminent. There is no sense in standing by the dam waiting for the breakwater to appear. Go downstream and wait. When the rush materializes, grab on and ride. It is not necessary to pick perfect entry and exit points to be a winner.
Lastly, accept that having losing trades is “normal”. Yes, you will have a winning streak here and there, but losing streaks are common, even over months at a time. Prudent money management techniques that limit position sizes to 2% to 3% will keep you in the game. Your “stops” will also get you out of losers early, the mark of an effective trader. Be patient and disciplined in your approach.
Forex trading is high risk and difficult, but accepting the constraints within the market and acting accordingly can provide a path to success if you stick with it.