What Is The Best Way To Be Successful in Forex?
November 3, 2006 by Trader Rich
What are the best ways to become a successful forex trader? These results are taken from a Moneytec poll that had over 6,000 respondents and are ordered by most votes first. My comments follow each result.
- Study by yourself and get experience - Over 45% of the respondents said this was the best way. I have to totally agree with this and is what I've been doing for the last year. One point I'd like to make is that you don't have to do it all by yourself. If you can find a trading partner who has the same drive and motivation as yourself, this could be even more beneficial.
- Develop your own system - Over 25% voted for this but I think this goes hand in hand with #1. If you are studying by yourself and want to get more experience, developing your own system is an absolute must even if you never use it.
- Learn from a mentor - 15% said this. I think I've stated my views on mentors clearly in previous posts. Mentors are what you make of them.
- Open a managed account and monitor it for education - 5% voted for this. I personally have never tried this method. I did just hear last week that you can open a managed account with Raghee Horner called Autotrade FX. You open your own account at TradeDirectFX and it mirrors her every buy and sell order. Interesting concept but I think difficult to learn from. You see all the buy and sell orders but no rationale behind them.
- Hire a portfolio manager - This was voted as the best way by 2.65% of respondents. I don't get it. I'd rather be self-sufficient and how do you know who to trust.
- There is no way to become continually profitable in forex - 1.51% negative respondents to this one. The jury is still out on this for me personally. I hope I don't come to this conclusion.
- Get signal alerts by subscription or live from a guru - 1.09% voted for this. I don't know if this helps or not. I don't like it though. Who do you trust with the never-ending list of scammers out there. If you want to listen to someone else though, there are plenty of sites where you can get free trade calls and technical analysis. In fact, there are just too many out there to choose from.
Get Analytical reports and Make your Judgement - Less than 1% chose this response. Sound very similar to #7. The analytical reports are basically going to tell you which way to trade so making judgment calls here is probably kept to a minimum. Not for me.
Buy Software or Strategy Description - Less than 1% chose this response probably because this too is very similar to #2, developing your own system. If you are going to trade forex with TA, you need software and you need a strategy.
Popularity: 2%
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Beware the ‘Rogue Wave’
If you live anywhere near the ocean, you’re familiar with term ‘undertow’. Undertow is a current beneath the surface that runs away from the beach in opposition to the waves which break toward the beach. Undertows are dangerous because they can drag a swimmer out to sea despite all efforts to swim ashore.
Feeling any empathy for the swimmer caught in a current going against him?
Like undertows, ‘rogue waves’ are threatening, not because they can drag a trader down and out to sea, but because they are both unpredictable and enormous in size. Rogue waves can be and often are, fatal; a not so charming characteristic dramatically portrayed in several popular movies.
Unexpected NEWS is the ‘Rogue Wave’ of trading, and today we had a good example of what a rogue wave can do when it crashes down upon the forex market.
Today, Friday, November 3rd, traders expected the non-farm payroll report as it was scheduled for release at 8:30 AM. The consensus was that the number for October would low as the U.S. economy is thought to be in a slowing phase.
As is typical on such days, volatility was expected. What often happens, in fact, is that omnivorous traders drive down the price of popular currencies such as EUR and GBP just prior to release of the news … purposely feeding on the easy prey by swallowing all the stop loss nets put in place by unsuspecting traders. Hey, never said trading was for sissies!
Anyway, true to tradition, at approximately 8:15, the EUR dropped to 1.2755 and then jittered about a bit. I went long at 1.2763. At 8:30, the EUR shot to 1.2792 and I attempted an exit - without success as prices were changing too fast. Then, the EUR ratcheted back hard and I was lucky to exit at 1.2769 … booking a 6 pip profit …
… then a ton of real crap hit the fan … and EUR dropped like a 10 ton steel safe falling from the top floor of a 40 story highrise … not slowing at all as it ran down 30 … 40 … 50 … 60 … 70 … 80 pips … not hitting bottom until 1.2681 … a total of 118 pips from its high and 88 pips from my lucky exit at 1.2769.
What the Hell had hit EUR – and popped USD like a cork rising from the ocean floor?
NEWS! A damn Rogue Wave of news!
October’s non-farm payroll report had a low number … only 91,000 jobs and the number that was more or less predicted … but, September’s earlier number had been revised up from 51,000 to 148,000 jobs … and traders interpreted this, as well as related news that the unemployment rate had dropped to 4.4% … as inflationary. Interest rates immediately screamed upward more than 100 basis points before exhausting the inflationary fuel that had propelled their launch.
‘Rogue Waves’ are huge and inherently unpredictable … and yet this news event was predicted … and, everyone was intensely focused on the numbers … traders just expected the news to drive prices in the opposite direction!
The lesson is that Rogue Waves can strike at any time … even when a news wave has been formally scheduled! Rogue Waves are nearly impossible to trade and represent far more peril than opportunity. At a minimum Rogue Waves are as dangerous to traders as undertows are to swimmers. More often than not, when Rogue Waves roil across the forex market, traders hear the two words that blackjack dealers most love to speak: “You lose.”