A Holistic View of Forex (Part 2)

Hello Everyone, this is Nathan Tucci.

A few days ago, I wrote this first article in this series, which you can see here,  about how sometimes Forex traders, including myself, have a distorted view of what is really going on with the worlds’ economies because of our trading. For instance, when a currency drops a 100 pips on us, it is really only changing in actual price by a penny or so.

I mentioned that I believe having a realistic view of this can help our trading, and I wanted to expand on that a bit. This will be a very short article with just a few points on how I believe this approach can be helpful to our trading.

The first reason I think it can help, is just the purely educative reason. A better understanding of the Markets you take part in can only increase your ability to profit from those markets. If we can understand the Foreign Exchange Markets more fully, we may be able to increase our forecasting abilities, or at least, not be so surprised when something “crazy” happens in the market.

Having a fuller understanding is great, but the main reason I think having a realistic view of the market is important, is to help our discipline. See, if we can understand that it only takes a tiny fluctuation to move the market a few hundred pips, then we should not be moving our stops a few pips up trying not to get stopped–we cannot escape the market by moving away from it a few pips. Sure, we might get lucky and it may reverse before it stops us out, but over the long-term, having a healthy respect for the Market and not trying to escape it will serve us well.

 

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  • DCovita

    I agree nathan 100%, in the long run you WILL get burnt.  i”ve gone a few of months with very positive results then gone away from my trading  plan and started moving my stops only to get into a deeper hole, now I’m into a “manageing a loosing trade” rather then getting in and out of short winning trades. Manageing that loosing trade can take a while to get out of, so it also keeps you from getting into good trades on that pair. This has happened a couple of times to me so i know by experience that it is bad practice to move my stops from my original plan….just my 2 cents:)  

  • Robert

    Nathan, 

    You discussed the need for discipline. Did you move your stops on your Cad/Jpy short to stay in the trade mentioned in the previous video? It sounded like you had a sizable loosing position at one stage. 
    I have begun using realist stops based on support and resistance levels for the time frame I am looking at. Sometimes these (stops) can be hundreds of pips.
    Another reason for using large stops is that the forex markets will usually always retrace if one waits long enough.

    Robert