In the world of investing, foreign currency can often times be viewed as the Wild West. In general, people from the ‘financial planning’ world who often use, and promote long term investment instruments that use trends and dollar cost averaging, generally have a scornful view of the FOREX market.
While this can be understandable, usually it is as a result of a general misunderstanding of how the FOREX market works and why it is different. Approaching it with the same strategy as say the S&P 500 is akin to showing up to a horse race with a greyhound dog.
The ‘ah hah’ moment for most comes when they realize and understand that the FOREX market is unregulated, and as a result, is a completely manipulated market. Manipulation scares most because it creates a level of perceived unpredictability, until they realize that manipulation occurs systematically. It occurs systematically because the people who manipulate the market are those with enough buying power to temporarily affect price direction, which causes fear amongst the general public, which then causes them to close their temporarily losing position. The ‘Market Maker’ can take the other side of that same position and now go and win with it.
Anybody who has ever dabbled in FOREX trading likely has 1st hand experience with market manipulation. They are sitting in a winning position for hours, maybe even days… Slowly their profits are increasing, and then suddenly (usually in conjunction with an economic news event,) the market races against their position and takes them from profit to loss, sometimes even hitting their stop loss.
Above is an hourly chart from the EUR/USD that illustrates several examples of market manipulation. You can see that there is a clear trend to the short side. The circled candles are manipulation ‘snaps’ that occurred inside of an hour, probably in minutes, that took out hours upon hours of previous areas that retail traders were likely entering trades short.
What is important to know about market manipulation and how to successfully trade it, is exactly what we teach to our student traders at www.forex365institute.com.
Once you learn the step by step formula that the ‘Market Makers’ use repeatedly week in and week out to make money, you can now wait for manipulation to take place, and take your positions with confidence along side of the big banks because you will know how and why they are doing what they are doing to make money.
‘It’s not what you don’t know that will get you, it’s what you think you know for sure, that just isn’t so.’
Until Next time, Happy Pipping!
By Payton Parnegg
Here is what happened in this morning’s market.
What to expect as a new Trader
In this blog I want to explore the topic of actually trading. Imagining the glamour of what it means to do is definitely the easy part; the freedom and money. Strategies aside; what are you actually doing while sitting there watching the charts?
When you sit down to start your trading session, it usually involves quite a bit of mental preparation along with some self-talk. A positive ritual to get into the right frame of mind is essential for profitable trading. For me personally, I usually review my own personal reasons for trading (which is just a simple list of why I need to the best job I can). This is then followed by a purposely quick look (around 30 seconds) at what price has been doing over the last 48 hours. If I am unable to form a coherent understanding of what this means for future price action then I step away for 30 minutes or so and then reevaluate. Wash, rinse, repeat.
Next comes the real analysis of price. This usually includes a lot of measuring and in depth looks at past movement in relationship to current price. By far the most important piece of this is being truly subjective and not convincing yourself of some outlandish trading plan. You have got to devise a trading plan that has got a reasonable entry, stop, and limit, and you have to stick with that. It can be very easy to convince yourself that you’re at a turn, but 9 out of 10 times this simply is not the case. If you’re able to fight off the urge to immediately jump into a trade, then the real test of a trader comes into play… Waiting.
Waiting is what you are going to spend the majority of your time doing as a trader. Nobody told me it could be so boring when I started. Your income is directly tied to your ability to wait so that your timing is good as a result. For those that have not traded before this may not seem like much, but waiting while being intently focused on a moving target can be pretty tricky business. Your mind will constantly be fabricating a less than optimal reason to just jump into the market. At some point of the endless waiting there comes a moment, that given the understanding and screen time, you are presented with an actual entry.
Depending on a few different variables (news, volume, overall movement, etc.), this entry opportunity can last anywhere from 10 seconds to around 20 minutes. It’s typically on the lower side though. This is a fork in the road. Sometimes despite all that patience, you still can’t make yourself get in only to be upset with yourself for the rest of the session. In the event that you do take the trade, you’ll most likely find that for the next while you are going to be hyper sensitive to any movement in the market. This is called “anchoring”, and something you really want to avoid while trading.
After the initial tension of clicking into a trade is over, it is surprisingly followed by a numbness to the price action (especially if you are drastically positive in the trade). Yet again this is a thought process that you will want to avoid. When a trade is working out well, a trader’s risk tolerance is prone to also go up. This is usually how a seemingly competent trader may see a massive profit only to ride through and turn right into a meager profit. That money is not yours until the position is closed and it is sitting in your account.
Now that you have closed your position out for better or worse, you are faced with another challenge; avoiding overtrading. Overtrading is one of the top account killers in Forex. If you have ever had an experience in a casino that ended in a personal resolution to never go back, you might have experienced something similar to overtrading. As much as many (myself included) wish it wasn’t the case, there is usually only 1 good opportunity per session with about 2 far less optimal variations on that same trade. Taking more than 1-2 well thought out trades in a session is a surefire way to dramatically increase the risk you take on. Needless to say it usually doesn’t end well for anyone but the Broker and Bank.
While this all may seem very daunting for someone that has never traded before, rest assured, pulling off a great trading session is one of the most rewarding feelings that you can experience. The wins (and losses) are yours and yours alone. Getting to the other side of learning to trade is an eye opening experience that forces you to look at yourself and become the best that you can be.
Thanks for reading and be sure to subscribe for more emotional and technical analysis of Forex Trading.
Have you ever gotten a chance to look at the ‘lot ladder?’ I’ll bet that you have, and I’ll bet that if you are at ALL a driven person, or motivated by profit, then you probably got very excited.
Now did you ever get a chance to look at the ‘Traders Cog?’ Again, I’ll bet that if you are a motivated, driven person, you probably glanced at it and either subconsciously or consciously dismissed it a little bit. I get it, you are better than average, you have probably excelled at other endeavors in your life and usually don’t get held up by the same things ‘others’ do.
So, here’s the thing. That sequence of events may be one of the things, if not THE thing that is holding you back from where you want to go. What most student traders seem to do is to see the lot ladder, get started as a student, get really REALLY excited about all of the potential change that they are going to experience in their life, and then WHAM. Reality hits. Trading seems to be one of those things that requires a completely new skill set. It requires a technical & emotional skill set, and also happens to be something that doesn’t really care that much about how good you’ve been at anything in the past.
What happens now, is that over time, the enthusiasm wanes. Suddenly you are months and months into your trading career and you are less and less optimistic. Doubt enters the mind. The imagination starts to entertain other more ‘viable’ income options. And here in lies the GREAT MISTAKE. All the while, whether you can tell or not, your skills are improving. Amidst the doubt, you actually probably know how to trade for profit, and even if your account doesn’t say so right now, you are dangerously close to your personal breakthrough.
How do I know all this? Because it happened to me, and as special as I tend to think I am, I’m not that different from you. HOWEVER, I am making it to the other side, and I can now tell you this.
HERE is when you should start getting VERY excited about your FOREX trading.
You should start getting VERY excited about your trading when you have made it through the bottom of the ‘Traders COG.’ Because NOW, you can start your march up the ‘lot ladder,’ AND by waiting until then to start getting VERY excited, you will save yourself a lot of frustration that will NOT accelerate your learning curve.
Remember, anything that compounds in nature will accelerate over time. So while everyone else is being impatient, frustrated, disappointed, and maybe even looking for yet another shiny new thing, be the person that understands that years 3 & 4 can and will dramatically outpace years 1 & 2, AND a trader that earns 30-40 pips per week with control, scales their pips accordingly, and endures enough time, will earn remarkable returns.
Until next time, happy ‘pip’ing!
By Payton Parnegg