Forex Market Commentary
Adage: The trend is your friend
Now let's just pause and hold that thought. What is the definition of a trend? Quite simply put; it is the delineation of price action over a longer period of time, usually constituting 52 weeks or a single year. Such being the case why traders have to jump on to the volatility band-wagon is beyond my comprehension and certainly defeats all understanding of identifying a trend and moving your positions within that trend.
Volatility in daily price action is caused by big commercial banks and large speculators moving the demand for a currency for commercial and investment reasons. Withing this daily tussle, particularly over the last 10 years since the likes of Refco and Man Financial with innovative trading platforms for simple retail traders, the accessibility to the Forex markets has become universal. Moreover, bred with a false marketing image of the Forex trader in the guise of some swashbuckling hero, there seems to be an erroneous myth that Forex traders make huge amounts of money. Contrary to common knowledge I must state that successful Forex traders barely make 30% return per annum on their portfolio, year in, year out. Yet the myth persists that Forex traders make huge money and this in part may be caused by the lack of understanding through the media presentation of the original billion Dollar currency victory of George Soros way back in the early 90's.
Apart from George Soros, if we peck our way down the Forbes list, we cannot find a single true Forex trader that has become a billionaire. But people make a billion dollars in all other walks of life.
Forex trading requires years of discipline and constant learning. 80% of Forex traders will perish and a mere 20% of Forex traders will use their portfolio growth as a means to other accomplishments in trading and as a complement to an eventual bigger plan in life. Day trading on news releases and swing trading over 2-3 day horizons can being opportunities but also enormous risk of price reversals. usually swing traders do not last long before they blow up their portfolio. the First year maybe exciting but then the second year can easily wipe out a portfolio. But the trader who waits and identifies the trend and moves within the trend and rides the storms of volatility is the trader that persists. the longer one persists, the more likely one succeeds.
Portfolio building is better served where positions can combine different elements of risk. If you are going to run a sprint over a course that stretches to the horizon then eventually you are going to run out of steam. Similarly; to trade Forex per se over a 10 year span career is akin to sprinting a marathon race. A wise trader like the marathon runner sets his pace so that he may optimize his energy expenditure to reach the horizon with efficiency. a better trader chooses to trade Forex only as a high risk category when balanced with equal weight to a market position in equities and fixed income. Trading over the long term requires a sense of balance in the exercise of portfolio building. The successful trader spends more of his/ her daily time researching and analyzing than to hang on to a screen searching for 50 pip moves on sudden news releases. A few trend trades in the monthly or the quarterly horizon is better suited with the ability to hedge and obtain a higher degree of success than naked trading on the daily winds of change. The glamor of day trading eventually takes its toll.
Read again the Credit Suisse article on volatility in the currency markets over the last week:
http://www.thefinancialist.com/spark/volatility-back-with-a-vengeance/
Markets move up, markets move down and markets move sideways. In all 3 markets the channels of price action will experience low volatility and high volatility which will mark the boundaries of the 3 channels which identify the trend.
Pieter Bergli - DeLoren Trust Holdings
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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.
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