Forex Market Commentary
Very briefly I will explain why I consider Day Trading upon 5 min charts is a dangerous activity in comparison to Position Trading from several angles and in my argument I hope that readers will take a good look at the trading arena which has become so accessible over the last decade.
Financial markets are mediums for individuals to invest their money and make a return. But equally they can become arenas where money can be lost very very quickly.
1. Forex traders today seem to be bombarded with a whole lot of mis-information and misrepresentation about the ability to make money very fast on internet based forex trading platforms. Such marketing material appeals to our very human nature to want to get somewhere in life as fast as possible. Such experts give you a set of tools which primarily revolve around following data release events using the popular tools of measurement such as candlestick charts and they go on to say that with a large degree of probability you will make gains. But I will now demonstrate to you the flaw in this logic.
2. When you flip a coin 10 times perhaps you may end up with 7 heads and 3 tails or 2 heads and 8 tails. But for the sake of empirical evidence and reasoning conclusions you need to have a higher account of events like 1000 flips where eventually the numbers would settle with even probability for head and tail counts. Candlestick charts are a great set of tools when applied to longer term charts like the day and weekly charts because they can reasonably sum up the market psychology and pressures on price action. With day charts we can stretch out analysis back over several years. However with the 5 min charts which day traders use we are more or less restricted to 12 candles per hour x 8 for a session. In total that's 96 candles for a day trading session. In comparison looking at the daily charts you have a reference of some 300 candles reflecting 300 trading days in the year. Empirically you can now see the picture how day trading on 5 min charts has less data reference than a position trader who can refer to an entire year range of date.
3. In a shorter time frame the candles become blurred. If a day candle can sum up price action, trader psychology, fears, expectations, fundamental factors and illustrate the overall feeling for the market for that day, then what exactly does a 5 min candle represent at a microscopic level? Essential, in the short term what we have is noise.
Here is the day chart GBP/USD and today 5 min chart.
On the day chart with a high degree of probability a gap up usually is followed by reluctance and steams out into a shooting star that leads to a collapse in prices. This is the Brexit day. If you entered a short trade on the shooting star towards end of day session you would have made gains.
On the 5 min chart GBP/USD the noise becomes blurred. Many traders take a 5 candle momentum up as a need for a pause and pull back and enter a short trade but here in the 5 min chart the price climb did not stop. and the candles have become unreliable. Usually in day charts a hanging man candle leads to a collapse on the basis of a 50% retracement if you are using Fibonacci guidelines. But the hanging man candle in the 5 min chart became unreliable and failed as did the shooting star red which was followed by a green successful shooting star. Thus you can see in a shorter time frame it becomes harder to evaluate the market psychology in candlestick charts. There is just too much noise in the short term 5 min charts for the candles to truly represent price action.
3. When candlesticks go wrong for the day trader when a trader is using a forex platform there is no ability to hedge. In comparison, when you trade futures you can hedge yourself with options and in rapid moving markets you can figure out the put-call parity to work out actual pricing. But many forex platforms do not provide a hedging ability. i am more in favor of trading currencies with the more regulated Futures Commission Merchants because there is more security on your money.
In conclusion I believe that we read to much into our expectations by what we hear from experts on the internet and consequently many traders see their capital wiped out. trading forex should be for the longer term where more judgemental analysis can be reached with more accuracy in candlestick charts reflecting a longer time horizon. However, as ever, too many of us want to get to our goals too quickly. Forex trading should be a part of a comprehensive and balanced plan for managing your money together with stocks and bonds and commodities. We should put out of our minds ideas of making 100% returns and keep our expectations to a more modest level with the aim of conserving and preserving capital first and thereafter to carefully grow investment direction with forex trading as part of a larger plan to grow wealth.
For these reasons forex day traders usually struggle because the experts themselves give flawed presentations on candlestick charts. What the experts do not do is point out that candles are better suited for longer term analysis.
Financial markets are mediums for individuals to invest their money and make a return. But equally they can become arenas where money can be lost very very quickly.
1. Forex traders today seem to be bombarded with a whole lot of mis-information and misrepresentation about the ability to make money very fast on internet based forex trading platforms. Such marketing material appeals to our very human nature to want to get somewhere in life as fast as possible. Such experts give you a set of tools which primarily revolve around following data release events using the popular tools of measurement such as candlestick charts and they go on to say that with a large degree of probability you will make gains. But I will now demonstrate to you the flaw in this logic.
2. When you flip a coin 10 times perhaps you may end up with 7 heads and 3 tails or 2 heads and 8 tails. But for the sake of empirical evidence and reasoning conclusions you need to have a higher account of events like 1000 flips where eventually the numbers would settle with even probability for head and tail counts. Candlestick charts are a great set of tools when applied to longer term charts like the day and weekly charts because they can reasonably sum up the market psychology and pressures on price action. With day charts we can stretch out analysis back over several years. However with the 5 min charts which day traders use we are more or less restricted to 12 candles per hour x 8 for a session. In total that's 96 candles for a day trading session. In comparison looking at the daily charts you have a reference of some 300 candles reflecting 300 trading days in the year. Empirically you can now see the picture how day trading on 5 min charts has less data reference than a position trader who can refer to an entire year range of date.
3. In a shorter time frame the candles become blurred. If a day candle can sum up price action, trader psychology, fears, expectations, fundamental factors and illustrate the overall feeling for the market for that day, then what exactly does a 5 min candle represent at a microscopic level? Essential, in the short term what we have is noise.
Here is the day chart GBP/USD and today 5 min chart.
On the day chart with a high degree of probability a gap up usually is followed by reluctance and steams out into a shooting star that leads to a collapse in prices. This is the Brexit day. If you entered a short trade on the shooting star towards end of day session you would have made gains.
On the 5 min chart GBP/USD the noise becomes blurred. Many traders take a 5 candle momentum up as a need for a pause and pull back and enter a short trade but here in the 5 min chart the price climb did not stop. and the candles have become unreliable. Usually in day charts a hanging man candle leads to a collapse on the basis of a 50% retracement if you are using Fibonacci guidelines. But the hanging man candle in the 5 min chart became unreliable and failed as did the shooting star red which was followed by a green successful shooting star. Thus you can see in a shorter time frame it becomes harder to evaluate the market psychology in candlestick charts. There is just too much noise in the short term 5 min charts for the candles to truly represent price action.
3. When candlesticks go wrong for the day trader when a trader is using a forex platform there is no ability to hedge. In comparison, when you trade futures you can hedge yourself with options and in rapid moving markets you can figure out the put-call parity to work out actual pricing. But many forex platforms do not provide a hedging ability. i am more in favor of trading currencies with the more regulated Futures Commission Merchants because there is more security on your money.
In conclusion I believe that we read to much into our expectations by what we hear from experts on the internet and consequently many traders see their capital wiped out. trading forex should be for the longer term where more judgemental analysis can be reached with more accuracy in candlestick charts reflecting a longer time horizon. However, as ever, too many of us want to get to our goals too quickly. Forex trading should be a part of a comprehensive and balanced plan for managing your money together with stocks and bonds and commodities. We should put out of our minds ideas of making 100% returns and keep our expectations to a more modest level with the aim of conserving and preserving capital first and thereafter to carefully grow investment direction with forex trading as part of a larger plan to grow wealth.
For these reasons forex day traders usually struggle because the experts themselves give flawed presentations on candlestick charts. What the experts do not do is point out that candles are better suited for longer term analysis.
Pieter Bergli - Trader X16
A non-profit service for free education on in the forex markets
Disclaimer - U.S. Government Required Disclaimer - Commodity Futures Trading Commission
Futures and Options trading involves risks of losses. No representation is being made that any reader and account will or is likely to achieve profits or losses similar to those that are being discussed on this blog http://forexeducationperspective.blogspot.com/. The past performance of any trading system or methodology discussed is not necessarily indicative of future results.
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.
All trades, patterns, charts, systems, etc., discussed in this blog http://forexeducationperspective.blogspot.com/ are for educative and illustrative purposes only and not to be construed as specific advisory recommendations for actual trades. Disclaimer - http://forexeducationperspective.blogspot.com/ bears no responsibility for the trading actions of its readers.
* European Union laws require European Union visitors to this blog to know that cookies are used by Blogger and Google, including use of Google Analytics and AdSense cookies and in reading material from this blog do consent to the use of such cookies
A non-profit service for free education on in the forex markets
Disclaimer - U.S. Government Required Disclaimer - Commodity Futures Trading Commission
Futures and Options trading involves risks of losses. No representation is being made that any reader and account will or is likely to achieve profits or losses similar to those that are being discussed on this blog http://forexeducationperspective.blogspot.com/. The past performance of any trading system or methodology discussed is not necessarily indicative of future results.
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.
All trades, patterns, charts, systems, etc., discussed in this blog http://forexeducationperspective.blogspot.com/ are for educative and illustrative purposes only and not to be construed as specific advisory recommendations for actual trades. Disclaimer - http://forexeducationperspective.blogspot.com/ bears no responsibility for the trading actions of its readers.
* European Union laws require European Union visitors to this blog to know that cookies are used by Blogger and Google, including use of Google Analytics and AdSense cookies and in reading material from this blog do consent to the use of such cookies
