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Essential Elements of a Successful Trader
by Jimmy Young
EURUSDTrader
Courage Under Stressful Conditions When the Outcome is Uncertain
All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery �You gotta be in it to win it�. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.
You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.
However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue � you�re overconfident and not focused enough on the risk you're taking.
Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.
Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who�s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.
The difficulty doesn�t end with �pulling the trigger�. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.
For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a 'hold on until it comes back' strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.
The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like �what if news comes out and you wind up with a loss�. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).
So your fear is just a baseless annoyance. Don�t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld �Live in the now man�. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.
Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards � this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains � so why close it?
If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you�re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.
Patience to Gain Knowledge through Study and Focus
Many new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months; some are initially successful and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.
To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.
Jimme Young at http://www.eurusdtrader.com/
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Forex fx currency symbols are always three letters, where the first two letters identify the name of the currency and the third letter identifies the name of the country's currency.
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FAIR VALUE
The concept of fair value in any currency is largely that of CBers and economists and not much about trading. Almost always currencies overshoot from the fair value areas some 20-30% in their medium-term trend and what makes all hard currencies range in reasonable areas overtime since we had this floating regime in 1971 must the ability of relevant CBs to control the currency ranges and their real economy's weakness or strength to support those ranges. ECB folks were not joking when they said Eur/usd was some 25% undervalued from the fair value when Eur/Usd was below parity levels two years ago. Same goes for BOJ when they were saying Yen was some 10-20% overvalued when it was trading around 100 some three years ago too. That is how these folks view the markets and try to guide the market. Of course, when US Treasury folks say "Dollar is still strong" when it is falling, they are begging the market to sell more dollars
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I happen to believe if a child can learn to trade with some simple signals he will do better than most traders, most of the time, making a good living. But then again, movin market is more than just following the signals. Good trades to you.
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Forex Related News
Asian Morning Update 5th March 2008Tue, 04 Mar 2008 18:17:23 -0500
Dollar resists the negative news...
European releases overnight:
Q4 Forecast Actual
Euro-zone GDP (QoQ) +0.4% +0.4%
Euro-zone GDP (YoY) +2.3% +2.2%
February
U.K. Construction PMI 52.8 52.4
Overnight saw fairly unremarkable numbers from Europe. Euro-zone GDP was much as expected. The good bit was the +0.8% capital expenditure while household consumption disappointed by dropping -0.1%.
It should be a surprise either that the recent decline in U.K. house prices has led to a pullback in construction with the future uncertain for developers.
Two comments from ECB members were of note.
Orphanides commented that the slowdown in the Euro-zone economy will help inflation lower. I’m not sure it will be that pronounced. While a slowdown should normally have that impact we are seeing businesses which have absorbed higher costs and these are getting squeezed now. Also the greater problem is the wider spreads that are having to be paid on borrowings may well lessen the impact of a slowdown. Will crude oil prices at current levels this also maintains inflationary pressures.
Quaden was the latest to demand that the U.S. reaffirms their position on a stronger Dollar. Words are words. Investors losing money is another situation. If this means anything then what he is asking is for the Fed to intervene to support the Dollar…
Kohn pointed out there was no quick solution for the market turmoil and this itself will drag in more and more at-risk companies who are hoping that a quick turn round can pull them back from the brink.
There may even be conflict now within the Fed as Fisher slam dunked with his comment “Containing inflation is the purpose of the ship I crew for. If a temporary economic slowdown is what we must endure while we achieve that purpose, then it is, in my opinion, a burden we must bear, however politically inconvenient.”
Another bad day for global equities. Even Citibank shares are at 9 years lows. A string of Fed officials made statements of more problems to be faced and may even understate if the comment from Mishkin on the likelihood of a “soft Q1” is taken as an example.
As for Bush’s words when chiding OPEC on holding output steady and maintaining a too-high level of prices. We have to remember from where the first jolt came…
In spite of all the extreme negativity the Dollar failed to break lower again yesterday and has recovered slightly towards the end of NY trading. It is difficult to justify any Dollar strength with all this commotion around except to say that if the market hasn’t taken advantage of the comments yesterday then it does suggest there is a possibility that the market is oversold right now and needs a clear out of short term positions.
Wait for breaks higher – and I’ll cover these in the next update – but just be aware that while the 1.5660 Euro, 1.000 Swissie and 100-101 Yen targets are still valid, this doesn’t mean they will be reached directly.
More later once the daily analysis has been done…
The following are economic releases from Asia due today:
Japan Q4 Capital Spending (QoQ) -2.5%
Japan Q4 Capital Spending Excl software (QoQ) -3.0%
Australian AiG February Performance of Service Index
Australian Q4 GDP (QoQ) +0.8%
Australian Q4 GDP (YoY) +3.8%
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