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!
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