What are the Pitfalls in the Forex Market

The forex market seems so easy and appealing to trade, and yet many traders end up losing money or even becoming totally disoriented on market direction.

Why the Forex Market Seems So Easy to Beat

The forex market seems very easy or at least quite possible to predict, that’s how most new traders tend to view it, and this is because they look at past price action. They tend to relate past price action with correlated indicators and this creates the illusion that trading forex is quite easy. But as they begin to trade the real thing confusion rules, and it’s no long before total confusion and lack of orientation makes them lose. Trading on the live forex rates is very difficult even for seasoned traders. It is that psychological factor, as well as the fear of having to deal with a losing trade. When confidence gives in to fear, traders start to believe that it’s all some kind of conspiracy where the market will move contrary to whatever trade they open, so as to make them lose money overall. So what happens to the pre-trading period enthusiasm and drive for fast success? It seems to have disappeared as the harsh reality of the financial markets makes these new traders realize that every easy trading idea, every simple way to trade the markets, has already been tried out by someone else and failed. Or that at least the market is so efficient and saturated that no more simple ideas can fit in.

All new losing traders can reassess their trading, and many of them can really turn their trading around. It’s a matter of changing some habits.

So What Can the New Losing Traders Do?

All new traders starting up in the foex market, need at least several years of trading experience, and actually some trading losses, before they are able to make solid profitable trades. It is a fact that the global forex converter mechanism is so unforgiving, so harsh on new traders, that they stand to lose everything they have. Even older traders who are rather naïve about the markets can still fail down the line, even though they might have had a couple of profitable years. So the lesson here is simple, and it is that one tends to learn a lot from their mistakes and their losing trades, but they hardly learn anything from their profitable ones, because they attribute those to irrelevant factors. So for example if the new trader makes a trade on EURUSD and loses $150 in a day, they will dedicate time and effort to figure out what they did wrong, what indicators let them down and so on. But if they were to win $150 in the same trade, using the same indicators, they would tend to believe that these indicators are really good and dependable. So you cannot become a profitable trader unless you start to think for yourself, and start to question everything, even the actions of the most profitable traders. You have to question so much more, and forget all about confidence. In fact the best way to be confident, is to question everything and consider it as not encouraging any confidence in you. The forex market starts to make much more logic sense when one keeps on guessing, rather than have firm, inflexible beliefs.

How Traders Can Benefit from Joining a Forex Forum

A forex forum allows traders to interact, argue about their opinions and beliefs on various matters, and it ultimately allows them to see how others think.

How Joining a Forex Forum Benefits Traders

A forex forum provides all traders, both new and seasoned alike, with a new challenge all the time. Every day some forum member will ask some challenging question which all will find interesting. Traders are able to learn forex trading through this interaction with others. They also learn the pitfalls and traps that other traders encountered in their lives and how to be prepared for them. Ultimately they learn how to trade forex in a better prepared way, and the very first thing they learn is to have moderate expectations, and that the market can defeat all kinds of indicators. Forex traders also learn a lot about market direction, as different traders talk their positions while others take a more realistic, more impartial look and look deeper on the charts. There one can see all this difference of opinion, which is what ultimately makes the markets work. Without difference of opinion there is no market, so new traders see these arguments and are better prepared to handle an unfavourable market move later on.

All traders learn new things every day as a result of actively participating in forum discussions. Where new and seasoned traders often meet to discuss various topics, in great depth and in impartial ways, away from the marketing hype of various forex product vendors.

Forum Discussion Activity Creates Really Intelligent Traders

Every busy forex forum creates, more or less, street wise traders, as they all learn from each other’s mistakes and experiences. Everyone wants to learn what is forex, how to get involved in forex trading, and which strategy works best for other traders. Active forum readers tend to become very street wise people, they learn about things, and skills, that are essential for every day trading, as well as day to day life. Being street smart means that they are less likely to be sold on fancy promises and overhyped products. In trading, they know that vendors of various products often use terms such as proprietary or sophisticated, to describe their software or market indicator. The street smart trader has a rough, but still pretty good grasp on probability, they know that some things cannot be possibly true because the claims are not realistic. A software that sells for $97.99 for example bears the hallmarks of overhyped marketing right in the price format. Why would anyone sell profitable trading software less than several $1000s?. In other cases, many new traders are taken in by promotional offers and low commission costs, all presented by brokers in deceptive ways. Once again, the savvy forum readers know that what really matter sin trading is the filling price, not the commission, and not the bonuses. They know this from some forum member who happens to be a large size trader, and who has seen these overlooked details in magnified action.

What is Forex Trading and Investing and Why All Traders Need to Know

What is forex trading and currency investing, and how market speculators and hedgers engage in both methods to profit from the global financial markets.

What is Forex Trading and How Traders See it

Forex trading is a broad and inclusive term which includes many different methods and forex strategies for trading the underlying currency pairs that each strategy, or each specific trader focused on. The variety of these techniques and methods is very large, as the global forex converter mechanism offers non stop trading from late Sunday through to late Friday hours. And this includes many different pairs of currencies. So ultimately it offers traders a lot of choice and flexibility, so as to enable them to make money. Most traders by definition of the word trade, are short term investors. We can think of trading as short term investing, and all investing and trading can either be for speculative, directional objectives on market price, or for hedging purposes where the objective is to limit the risk on another, opposite investment. The question of what is forex trading used for in today’s world, goes far beyond simple investing and trading. It is used largely as a way to make profits in the speculative way, but also just as largely in a hedging way, by where businesses, of large and medium size, reduce the risk that the open market imposes on them. Hedging is about limiting risk, and ultimately increasing profitability in those businesses.

The global foreign exchange market bridges distant continents and countries together, making the trade world smaller and more efficient. Ultimately, it’s all for the better.

What is Investing and Long Term Hedging All about?

Traders and investors often engage in long term strategies, such as the Carry trade, where the objective is to profit from price movement as well as interest rate differentials on various currencies. One has to exercise extreme caution and use a forex calculator when planning such investments. The smallest miscalculation can sabotage the entire strategy, resulting in very poor profitability, or even a loss. You may ask what is forex trading used for, in these longer term strategies where mostly macro economic factors such as interest rates play the most part. But the two are strongly related. In order for one to plan long term currency investments right, such as the Carry trade type of investments, they have to also be a knowledgeable forex trader. By being both a trader and an investor, one is able to hedge short term adversity and volatility, while maintaining long term objectives. The big money is usually made in the long run. Some investment banks do make money trading the forex market on a day to day basis, but their techniques are more about chasing price momentum than having a real speculative trading plan. By contrast, the longer term strategies, are much more complicated and require meticulous planning, but once in place, the trader or investor only need to check the market few times a week and not spend the whole day at a computer screen.

How Traders Profit Trading a Given Foreign Exchange Currency

Many traders trade a foreign exchange currency, few make big profits, and even fewer understand the market’s inner workings and how profits are really made.

Foreign Exchange Currency – The Basic Idea

Trading in general is all about finding inefficiencies in the market and swapping one thing for another, making a little profit each time. Currency trading, most of the time, is about making small speculative trades and not about investing. Not unless one invests a lot of money, but most traders trade on the principle of market inefficiency. Simply put, an inefficient market is one where total information is not evenly shared by market participants. And even when it is, there are different objectives which make one participant to want to sell now, and another to buy at the same time. This is evident in all kinds of trading, even where people exchange physical goods. Pricing is never perfectly accurate, and one item is traded fast at a loss, while another item is wanted for all kinds of reasons, and at a price much higher than the rest of the market, on average offers. This is why we have real examples of people who started swapping things such as a cell phone, and a year later ended up getting a supercar. All this out of the original trade-in of a simple cell phone, and many hours of trading. So markets are not perfectly efficient and the difference of opinion makes them work. Creating opportunity in the process. Trading forex is not different, at least in the basic principle, and that’s why it is possible to make good money over time. Foreign exchange currency traders, especially speculators, make their money by making wise, well timed predictions about a given country’s currency. Their logic doesn’t necessarily fit any economics model.

foreign exchange currency world
Forex traders are constantly looking for global market inefficiencies, and who will need what currency in the future, and who will sell it at best price to them today.

How Traders Work in the Forex market

Forex traders work in a zillion different ways, each having a different and so unique approach to trading. They are kind of like the savvy product swappers we mentioned, who trade with the intention to exchange what they have for something more valuable. Remember that while one currency is offered for sale, part of the market wants to buy that currency at any price, for some later use in the future (i.e. an importing company), and this said company is willing to take a small loss now in order to avoid a much bigger loss tomorrow. Investing in foreign currency is as much about skill, as it is about unique intelligence, that each trader develops for themselves and there’s no formal education to teach this kind of intelligence. Each trader has a really unique task. Foreign exchange currency traders are always on the lookout for obscure opportunity, if it is too obvious, chances are that it is not a good opportunity.

What is the Point of Forex Training

Forex training can provide important directions to help new traders focus better on what they want to achieve, and select trading methods best suited to them.

What Forex Training Can and Cannot Offer

Forex training can offer great guidance to new traders so they learn few basic things to help them gain more orientation and specific knowledge as to what they want to get out of trading, By seeing the tasks and benefits involved in various trading and market analysis methods, they are able to choose what they like most. After all, we are all different, and everyone of us prefers different things. Trading forex is quite a challenge, especially when utilizing forex news and various volatility tools. News in particular is tough because it often defies common sense and it seems to work in counter intuitive ways. But it is profitable to trade because it offers so much volatility, excitement and makes trading so much more interesting. Traders always learn new things and tips from older traders, which is good. Above all, it is the encouragement and confidence that all new traders get from the old guys. There’s nothing like an old wise trader telling you that it is possible to beat the market, and showing you all the proof in the world that it really is so.

What new traders learn in a training course usually includes basic indicators, momentum trading techniques and a lot of trendline analysis methods. These start from basic generic methods and may extend to some proprietary level, as developed by the teacher of the traing course. The fact is some of these methods do work, more often than not, and there is always a teacher who has found a new way for using classic indicators, so training does have something to offer!

 What Training Cannot Offer

Forex training cannot offer overnight success, even with the best instructors and mentors one cannot achieve overnight trading success. This is because of the nature of financial trading and the markets themselves, risk will always tend to make things go wrong, and the best thing traders can do is prepared for uncertainty. The global forex converter mechanism is impossible to put in words and come up with a model to simulate, predict and trade the currency rates based on that model. Therefore the training courses cannot teach anything absolutely solid, like they successfully do in fields of applied science for example. Here the foundations are not solid, and the very things that new traders are taught, may work well for 6 months, and still fail to work at all over the following 6 months. So learning how to handle trading goes far above and beyond any training course material. So, over-hyped training courses are likely to under-deliver, whereas simple training courses are likely to be useful. Because in a simple course, the learners are constantly reminded that nothing is guaranteed, nothing is served on silver platter. And only personal effort and drive is the way to successful, and profitable financial trading in the forex market.

What Matters in the daily Life of a Wise Forex Trader

The good forex trader knows that chance favours the well prepared, so they spend a good deal of time reading world events and market news before trading.

How the Wise Forex Trader Prioritizes Tasks and Remains Focused

The wise forex trader is simply a trader who has found ways to make money in the financial markets, through a delicate balancing act of information processing. They use simple and flexible methods for assessing what news is relevant and what is not so relevant. A process which is difficult and not easy to master, and one which is more of an art rather than a science. Traders think in logical ways, but their minds tend to think in all kinds of different ways. So ultimately one person’s logical analysis might be totally contrary to another’s. Trading forex is all about information processing, and breaking down the events and price movements of the day. Prioritizing what is relevant to that day or week is very important, perhaps critically important. If one analyses too much information, and to huge depth, things will get overwhelmingly complicated. If one analyses too little information, again there will be failure and lack of directional clues. These wise traders use judgement, to figure out what they perceive as the fair forex converter mechanism’s market rates. Wise trading is all about prioritizing and weighing information. So while a story is good for today, it may be totally irrelevant tomorrow or simply dwarfed by another bigger story.

The USDJPY exchange rate, a rate which concerns many countries so far apart, at different time zones. And yet the wise trader knows that the same piece of information, bad or good, may be perceived differently by the market, depending what time of the day it is, and how the specific countries involved directly (USA and Japan), view the overnight trading of their currencies.

Some People Can Never Become Wise Traders

While most people tend to think in an optimistic way, the reality is that the delicate balancing act between over-analysing and under-analysing all this information, is something few can handle. Because it’s an art and not so much a logic process. The wise forex trader is willing to make mistakes, but they want to be able to understand how the rest of the market thinks each time it makes a move. So this is so important, because even though the bottom line is to make money, few pay attention to the process and skills required. The global forex currency converter mechanism is too complex for computers to handle, perhaps more complex than a chess game. And even though scientists can program a computer to play chess extremely efficiently, they cannot do the same for a forex trading computer. In fact it has been argued that the nature of the markets is so complex that no computer can beat them. Human traders, when well balanced and working without pressure, are able to process and prioritize many information sources and reach the few relevant pieces of information that matter most.