A Holistic View in Forex Trading

 

You know, we always talk about the market like it is this wild beast that will tear you up and down relentlessly. Believe me, I get the analogy.. I have been chewed up many times myself. But, in the broad view of the Forex market, it has actually been rather mild over the years.

Sure, any pair at any time can spike 100 pips in the blink of an eye when you aren’t ready for it, but I am talking about a holistic, larger point of view. After all, a 100 pip spike may cost you a thousand dollars, but the price of the currency has hardly changed at all… a 100 pip move is a change of about one penny in the actual value of the currency.

Now, don’t get me wrong, I understand that the fluctuation of the market, even by a few pennies, is significant; but if we take an outside, objective view, the movement of a few hundred pips is no big deal.

Certainly, some currencies have moved enough to make very large changes in the world’s financial scope, but these kind of changes are made from years of consistent trending—not a few week rally.

A larger view of the currency markets shows us that, for the most part, different economies currencies are floating back and forth, constantly being held in check by the bounce or fall of a few pennies on the dollar.

I believe that a larger view of these markets and what they are really portraying can help us in our trading. I know that many Forex traders have a distorted view of the worlds’ economies because of what they see on their charts.

Let me give you an example:

Over the last several weeks, I have been stuck in some CAD/JPY shorts as the Canadian Dollar has been sky rocketing ESPECIALLY against the Yen. Now, to me, this run of Canadian strength has been brutal, and I cannot believe how weak the Yen has been.. It is driving me crazy.

 

HOWEVER, Imagine this:

A Canadian gentleman named Adam leaves for a trip to Japan on February 3rd (the same day I entered my Cad/Jpy short). Adam exchanges a thousand of his Canadian dollars for some Japanese Yen.

It turns out that Adam’s Japanese hosts are very kind and he ends up not having to spend a single Yen while he is there. He stays for about a month and arrives back to Canada on March 1st.

When Adam gets back to Canada, he exchanges his Yen back for Canadian dollars, expecting to get his thousand dollars back, and only receives 930 dollars.

Adam is a little annoyed that he just lost seventy dollars for no reason, of course, but seventy bucks really isn’t that big of a deal.

Meanwhile, I am basically making the same deal he did—trading Canadian dollars for Japanese Yen—yet I am losing thousands of dollars.

This happens because the leverage in Forex gives us a distorted view of the market. I made a little video to exaggerate my point.

 

 

Obviously, I am being completely unreasonable in the video, but I wanted to make the point that sometimes we do tend to have an unrealistic view of the market.

As a Forex trader, you should understand that any time a currency could move a hundred pips against you and it really means nothing. It is a simply penny fluctuation in the pair for one reason or another.

Keeping this holistic mindset while we trade can help our success… I will be writing an article soon, about exactly HOW I think it can help us be more successful, so stay tuned for that.

P.S. I got out of my CAD/JPY shorts with profit today 🙂

 

Thanks for reading!

Nathan

 

 

 

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  • Anonymous

    haha Mark, you are not missing anything. You are very correct; there is no logic there. It sounds good to the ear, but you must be willing to put up the risk to make gains.

  • Anonymous

    Hi Tim, well I guess I apologize that you “Are not buying it” … I can’t do much more than be honest and upfront about how I trade. The fact is that I got caught in a bad Cad.Jpy short and added as it went against me, and then closed the positions for a net profit when it bounced back down–those are the facts of the situation. I trade like this all the time, and I know for a fact that it is profitable. To answer your question “Have I found a strategy that maximizes profit and minimizes losses?”; no, I have not. I have found a strategy that IS profitable but requires risk. I do not have one that minimizes risk and maximizes profit, otherwise, I would be extremely rich. Please share your strategy with me that maximizes your profit and minimizes your losses. That would, of course, be the perfect strategy and would lead me to only assume that you are a Billionaire from trading this strategy, so I would love to get my hands on it….. I am not a Billionaire; I trade the market as best I can, using different strategies in different accounts in order to spread my risk and diversify, and earn profits over the long term. You have said that you “Know what does not work” yet you were referring to a Martingale strategy which is the strategy that many massive institutions use to generate the largest gains of anyone, so I have to differ from your opinion that you know what doesn’t work. Thanks again for the comments, and I apologize that you are in such disagreement with me. But please, share your strategy with me, I really would like to have a strategy that maximizes profit and minimizes losses.

  • Timcameron61

    There is so much wrong in all your posts it’s hard to pick…..I would like to focus on one thing I have picked out, you have a “High Risk” account that you trade exceptionally small orders with……WHY??? have you not come up with a trading strategy that maximizes profit while minimizing losses and draw downs????? if you have, why is that account not good enough to have all your focus in? to be honest, the things you write are those of someone that has been to a few internet seminars and googled a few things than that of a seasoned trader…as we get deeper into this discussion you keep coming up with other things you do to wiggle off the hook of bad trades. if someone read your first post, and trusted what you said, they would be broke in nothing flat. I have never said my way is the only way, but I do know what does not work in the long term. Then you admit you’re trading .01 cent pips on a 10k account in your own words to be “high risk” account is ridiculous in it’s premise…high risk should always have high reward, which obviously you do not have…..Last, you have 7 positions on the Cad/JPY and were into heavy drawdown….then, when it goes your way, the way you originally believed it needed to go, you get into an SMALL overall profit picture you take it all off the table? Sorry man, not buying it, that is how losers trade the markets, unable to admit they are wrong on a bad trade and unable to reap the benifits by maximizing profits when they are correct 

  • Anonymous

    Hi Tim, let me try to clarify my statements for you. I said “No Big Deal” about the first position because it is so small compared to account size. For instance, trading a .01 lot on a ten thousand dollar account. Also, please note that in my modified martingale system I do not actually double the trade, that is why it is modified. And another thing I should clarify is that when I say it is brutal, I mean it is brutal in the sense that I have held the position for so long–that it what drives me crazy (Over a month is insanely long for me to hold a position). Yes, it was also creating a sizable draw-down in open equity, but I am used to that because of the strategy that I trade. . . . I have to comment on what you said about any system with more risk than reward is designed to go broke, that is simply not true. As a matter of fact, you couldn’t be farther off here, because institutions are quite often the ones that are Martingaling because they are the only ones that have the liquidity to do true Martingaling. Besides that, many successful scalpers risk more than they target and make a very good living doing it. I tend to agree with you that a great component to have in a strategy is small risk compared to larger rewards, but to say that that is the only way to be profitable over the long term is quite false. Many, many, many people are successful in trading in different ways. On the same note, many more people are unsuccessful trading using both good and bad risk to reward ratios. That is only a single element in a trading system–you can win and lose doing both, just like any other element of trading. People win trading with the trend and people lose trading with the trend; while people win trading counter-trend and people lose trading counter-trend. To point out one element of trading and say that you cannot win doing it that way is a very dismissive and narrow scope of the market, and I don’t think it is fair to all of the people who are trading successfully in the very way you claim to be impossible… Lastly, I would like to answer your last question about my experience. I do not claim to be a veteran trader who has been in these markets for a long time, however, I have been indoctrinated enough in these markets to know that many people win and many more lose. The ones that win, win in different ways with different rules, risks, strategies, systems, indicators, fundamentals, and technical skills; and the ones that lose, lose in the same way. One or two of those variables to not create a profitable trader or a non-profitable trader. It is a combination of those things and how you use them to your advantage. A trader can win 90% of his trades and be a huge loser; while another trader can win 10% of his trades and be extremely profitable. This is the way the market works, and you have to accept that the way you do it is not the only way to do it. Thanks you for reading and leaving your feedback, I do appreciate it. Hope to hear back from you once more on your thoughts.

    Nathan

  • Timcameron61

    “no big deal”??? then why in your article do you use the words Brutal and driving you crazy??? So, all of your positions are extremely small……really? so what is extremely small to you? 1%? 1/2%? If I went long on the EURO/USD at 1.3475 should I be doubling down now? any staragy that has more risk than reward to the trades is destined to go broke, you NEVER see institutions trading that way, unless there is a news report a rouge trader lost a billion dollars in unauthorized trades…….Good luck to ya man, how long have you been trading?

  • Donlabin

    To Nathanthanks for your explanation ~

  • Anonymous

    Hey, a lot of comments about me adding to positions.. Well, a few things: First, I am not a scalper, so I wasn’t going for a few pip target and then let the pair go way against me.
    Second, in the strategy, my first position is EXTREMELY small, so when it goes against me it is no big deal.

    Third, it IS risky, I do not trade all of my accounts with that risky of a strategy so that if I was unable to manage a position running away from me, I wouldn’t be stuck in all of my accounts.

    I was using a partial Martingale system in this particular trade, and it is a strategy that I like a lot. It requires you to risk way more than you make, but if you have enough cushion in your account + use small size, you can survive very bad swings against you.

    I wrote an article about this before:
    http://winnersedgetrading.com/martingale/ 

    Thanks for the comments.

  • Anonymous

    Hey, a lot of comments about me adding to positions.. Well, a few things: First, I am not a scalper, so I wasn’t going for a few pip target and then let the pair go way against me.
    Second, in the strategy, my first position is EXTREMELY small, so when it goes against me it is no big deal.

    Third, it IS risky, I do not trade all of my accounts with that risky of a strategy so that if I was unable to manage a position running away from me, I wouldn’t be stuck in all of my accounts.

    I was using a partial Martingale system in this particular trade, and it is a strategy that I like a lot. It requires you to risk way more than you make, but if you have enough cushion in your account + use small size, you can survive very bad swings against you.

    I wrote an article about this before:
    http://winnersedgetrading.com/martingale/ 

    Thanks for the comments.

  • Anonymous

    Hey, a lot of comments about me adding to positions.. Well, a few things: First, I am not a scalper, so I wasn’t going for a few pip target and then let the pair go way against me.

    Second, in the strategy, my first position is EXTREMELY small, so when it goes against me it is no big deal.

    Third, it IS risky, I do not trade all of my accounts with that risky of a strategy so that if I was unable to manage a position running away from me, I wouldn’t be stuck in all of my accounts.

    I was using a partial Martingale system in this particular trade, and it is a strategy that I like a lot. It requires you to risk way more than you make, but if you have enough cushion in your account + use small size, you can survive very bad swings against you.

    I wrote an article about this before:
    http://winnersedgetrading.com/martingale/ 

    Thanks for the comments.

  • Timcameron61

    100 pip move against a scalper equals a Margin Call, a 100 pip move against me, is a fly on a elephants back because I am a swing and position trader. sounds like in the above example you were trading without stops, then to find out you had 7 different positions open to try to recoup the original trades and positions that were all negative…..what % of your account was at risk, and could you please show us step by step how you knew the pair would reverse and not eat you alive. what was your original risk to reward on the first position and what was it when you had 7 positions open?

  • Timcameron61

    expalin how to do that using money management…7 positions as the market drives against you? what % of your account was at risk? Chasing bad trades is the fastest way to get Margin calls. I would love to see exact entry points for each position and your exact reasoning for opening each position, I want to learn exactly how you do it…….

  • Donlabin

     So you raised your bet to losing positions ?

  • Anonymous

    Hi Daniel, You make a fair point, although your math is a bit off. If 80 yen is equal to 1 dollar, than the dollar is worth 8,000% more than Yen, not 80%… With that said, we do not buy or sell as a motive to change the Value of our currency or any other, but to make money off the movement in the market.

  • Anonymous

    Wow, Donlabin, you are quite skeptical… It is not impossible, my friend. I Short something and get out at a HIGHER price later on with profit ALL THE TIME! I added positions on to the trade as it went against me so that a smaller bounce to the downside will get me out with profit. I added about 7 positions in total.

  • Donlabin

    You short CAD/JPY on 2/2, and it’s impossible to get out with profit today. Show me the image ~

  • Daniel

    Why Dose No One Get it???????

    USD_JPY when we SHORT this pair we BUY YEN and make this pair Stronger…. When my Father was in the Navy in 1953 the Japan’s had to give us 255 Yen to Buy 1 USA Dollar of goods… My Father loved to go there with his $100.00 He got $255,000.00 Yen he could buy 255% more then He could at home…

    Last time I looked it Only takes 80 yen to 1 dollar  the yen is STRONGER because they KEEP 175 yen in there pocket…

    If we keep shorting this pair we may be able to get one for one!!!  If you think things are high now when the US Dollar is still worth 80% more then the YEN Just Keep Shorting USD_JPY  “( Buying Yen and Weakening Dollar)”

    Those Cheap Japan’s Import’s Ant Gonna Be Cheap Any Moore…..