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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