2Bull Forex Blog

There will lots of people who will tell you the markets are the same today as they were 20 or 50 years ago and their wrong. Despite the advances we have made in computer trading and getting better information quicker, the forex markets are harder to trade than ever before - here’s why.

The advance of technology has leveled the playing field where we all get the same news at the click of a mouse in any corner of the globe and this causes volatility and lots of it.

Picking trend direction is easy getting in and staying with the trend is a lot harder, as stops get hit as markets swing wildly.

Volatility has increased and a common problem is for traders all to get in at the same time the buying power quickly evaporates it retraces stops the highly leveraged traders out and then goes back the way he though but he’s not in.

Has this happened to you? It’s happened to me and countless other traders so how do you cope with it?

The first thing to do is cut trading frequency and focus only on the big breakouts considered valid by the market and place your stops further back and this means de leveraging. Sure you can get 400:1 leverage but that is way too high for most traders.

Cut back position size and give the market room to breathe.

While many people think online trading has made trading easier it’s actually made it harder. Furthermore there is a belief that complexity and cleverness will help you beat the market but that’s not true either - the more complex you make your system the more the chances are it will break.

Simple forex trading systems work best and always have so keep it simple.

There is a tendency to think advances in our society help us win in forex trading to but the fact you have the same information as everyone else doesn’t help you, it hinders you, unless you can work out a trading edge over the vast majority of losers.

The key is to learn to deal with volatility and do what other traders don’t to cope with it - we have touched upon it in this post and will put into practice in the next posts in this series.

This post is for novice traders and we are going to look at 3 facts which are all you need to know to decide whether day trading is right for you.

Fact 1
All Short Term Volatility is Random

There is no order to short term volatility and prices can and do go anywhere in short time periods - Why?

Quite simply there are huge numbers of traders all with different levels of skills, systems and motivations for trading and you can tell what this mass diverse group of people will do in short periods of time - it’s laughable that traders think you can measure human psychology of millions in just a few hours but they do and they lose for believing it.

Fact 2
Random Volatility = No Odds on Your Side

Forget the far out investment crowd who believe there scientific order and you can predict forex prices you can’t ( if you could there would be no market as we would all know the answer in advance!), so those systems who tell you can make a regular income guaranteed are totally wrong. Forex trading is an odds game and to win you must be able to get the odds on your side. If volatility is random, you can’t get the odds on your side and will lose - period.

Fact 3
Day Trading Breaks a Fundamental Rule of Trading

This is of course run your profits to cover your inevitable losses.

In forex day trading stops are close and losses are small and because you can get the odds on your side, you have a lot of them. Of course sometimes the forex day trader ends up with a profit when he’s lucky - what does the trader do? Run it? Not a chance he cuts it!

It’s pretty obvious that you would have to have luck constantly on your side to win and of course luck doesn’t last forever. Eventually you have small losses and lots of them and the occasional small profit which leads to a decline and final wipe out of equity.

What about all the track records that claim to make money you may ask?

Well they all have the disclaimer / warning repeated below or a similar one and they mean nothing, as there just saying the track record has been made up and simulated on paper in hypothetical trading, read it carefully:

“CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown”.

You will NEVER see a day trading system sold online with a long term audited track record of gains - Why? If you have read this article you will already know the answer it doesn’t work.

If you want to win you need to trade the odds and that means trading longer term.

So instead of day trading make longer term trading part of your forex education and you could enjoy currency trading success.