Monday, July 12, 2010
WHY IS IT HARD FOR SOME PEOPLE TO MAKE MONEY IN FOREX TRADING
The answer to this question is not necessarily forex trading alone. Any highly leveraged trading vehicle is going to exacerbate any problems, but the problems are with trading technique. If you're tired, give it up. Just because it seems ideal for your situation or because it seems a great way to make money does not mean you personally are cut out to be a trader. You have to love trading to be a good trader, and you have to love to learn like in any profession. Just because you had the tools and access to an operating room, doesn't mean you would perform brain surgery or engineering. You might as well ask "Why is engineering hard?"
Most technical traders spend their whole lives looking for the holy grail of indicators; there are literally thousands of combinations. There is no best indicator or holy grail. Just find the ones that work for you and a time frame that fits your trading style. And yes, when two or three indicators confirm each other (not conform), there are better odds of success.
But most people never address the psychological side of trading, never address what makes them trade emotionally. Many people never develop a written trading plan, or test the plan or test the plan according to the plan exactly, or trade the plan exactly. Most people never accurately define risk. It comes back to the psychological aspects of trading. Why can't you trade according to a written plan? There's more to it than just hitting the button when a couple of indicators confirm. People fail technical analysis, not the other way around. But people being people, they need an excuse for their failure, and it's much easier to blame an object or method than deep introspection and honesty with oneself.
You'll know what I mean when price comes crashing down against the trend to your previous support or fibonacci retracement and you fail to hit the button according to plan, simply because price movement is in the wrong direction to your emotions. The market is structured in such a way to compel you to act contrary to your own best interest! That is the reason why most continue to buy at highs and sell at lows. But lazy people would rather blame technical analysis and quit before they learn good trading techniques, like buying on dips instead of chasing price or where two indicators confirm.
IF you believe that success/failure is due to luck or external forces like the PPT, TPTB, GS or Ben Bernanke, you will continue to repeat your errors, and your trading career will be short lived and end in disaster. Take the responsibility upon yourself. Own it! This is difficult for many to do. Many people actually believe the future can be known and/or predicted. These are many of the irrational thinkers that blame technical analysis for their failures.
IF you need to be right and have a need to seek to control the market, you are an inefficient decision maker. It won't matter much what method you use because it will be inefficient. But you will do better by keeping it simple so you can control it and not think too much or make complex decisions.
Like fast food, people just want it simple, in one little package, real fast, like right now. Just give me the secret to success and riches; don't make me work or think or decide or learn or, heaven forbid, know myself and be honest with myself and responsible, etc.
It certainly takes bravery to remain skeptical, it takes inordinate courage to introspect, to confront oneself, to accept ones limitations. Scientists are seeing more and more evidence that we are specifically designed by mother nature to fool ourselves.
How else could there be so many fools and idiots, that are actually pretty intelligent?
Blaming technical analysis that is used successfully by so many, that is prevalent throughout the industry, that allows so much more than you've taken the time to comprehend, is like blaming your pencil.
Most technical traders spend their whole lives looking for the holy grail of indicators; there are literally thousands of combinations. There is no best indicator or holy grail. Just find the ones that work for you and a time frame that fits your trading style. And yes, when two or three indicators confirm each other (not conform), there are better odds of success.
But most people never address the psychological side of trading, never address what makes them trade emotionally. Many people never develop a written trading plan, or test the plan or test the plan according to the plan exactly, or trade the plan exactly. Most people never accurately define risk. It comes back to the psychological aspects of trading. Why can't you trade according to a written plan? There's more to it than just hitting the button when a couple of indicators confirm. People fail technical analysis, not the other way around. But people being people, they need an excuse for their failure, and it's much easier to blame an object or method than deep introspection and honesty with oneself.
You'll know what I mean when price comes crashing down against the trend to your previous support or fibonacci retracement and you fail to hit the button according to plan, simply because price movement is in the wrong direction to your emotions. The market is structured in such a way to compel you to act contrary to your own best interest! That is the reason why most continue to buy at highs and sell at lows. But lazy people would rather blame technical analysis and quit before they learn good trading techniques, like buying on dips instead of chasing price or where two indicators confirm.
IF you believe that success/failure is due to luck or external forces like the PPT, TPTB, GS or Ben Bernanke, you will continue to repeat your errors, and your trading career will be short lived and end in disaster. Take the responsibility upon yourself. Own it! This is difficult for many to do. Many people actually believe the future can be known and/or predicted. These are many of the irrational thinkers that blame technical analysis for their failures.
IF you need to be right and have a need to seek to control the market, you are an inefficient decision maker. It won't matter much what method you use because it will be inefficient. But you will do better by keeping it simple so you can control it and not think too much or make complex decisions.
Like fast food, people just want it simple, in one little package, real fast, like right now. Just give me the secret to success and riches; don't make me work or think or decide or learn or, heaven forbid, know myself and be honest with myself and responsible, etc.
It certainly takes bravery to remain skeptical, it takes inordinate courage to introspect, to confront oneself, to accept ones limitations. Scientists are seeing more and more evidence that we are specifically designed by mother nature to fool ourselves.
How else could there be so many fools and idiots, that are actually pretty intelligent?
Blaming technical analysis that is used successfully by so many, that is prevalent throughout the industry, that allows so much more than you've taken the time to comprehend, is like blaming your pencil.
WHAT A GOOD TRADER NEEDS TO KNOW BEFORE THE DAY IN THE FOREX MARKET
QUESTION: HOW DO YOU THINK TRADERS ACCESS THE MARKET AS THEY START THE TRADING DAY?
The best approach is first to have a mind-set that realizes that there is a lot of volatility in forex and therefore it is important to get a top-down viewpoint of what is happening. So one of the first things to do is to use multiple time frames.
When you are looking at a currency pair, look at three time frames at once. I suggest a 4 hour, 15 minute, and 5 minute time frame. The example below shows this for the EURUSD.
(click chart to enlarge)
Now follow that and the 15 minute chart offers a lot more granularity. Of course we have swings down, but the prevailing sentiment from the 4 hour was up and this means that the trader should only look for buy situations.
QUESTION: WHAT IS THE ROLE OF THE 5 MINUTE CHART ?
The 5 minute chart acts like the local traffic guard. If you want to go long, then you need confirmation on the 5 minute chart.
QUESTION: THE ONLY TIME FRAMES ONE SHOULD USE?
The concept is 3 time frames. One can use a 2 hour, a 15 minute, and a 3 minute chart. The essential feature is to never only look at one time frame.
QUESTION: WHY AND WHEN DO YOU GO COUNTER-TREND?
Counter-trend moves can make you money, but a starting trader should not go against the trend. It’s a numbers game and the trend is your friend because it can provide you with more winning trades if you go with it.
Having said that, if the 4 hour breaks down support- or, I will be flexible - the 2 hour breaks support, you can look to the 15 and 5 to confirm it. The 2 hour chart below shows support at 1.255. So if the EURUSD broke through this- even though the 4 hour chart is still not broken looking for a sell is legitimate.
QUESTION: A GOOD THING TO LOOK AT
Definitely look at the Dollar Index (DXY). It provides a quick look at global sentiment. So make sure you’re trading WITH the sentiment
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