Forex Trading - Avoiding Mistakes.pdf - Forex - Ryjufka

FOREX TRADER

Avoiding mistakes in forex trading

er, and particularly those trad-

ing e-forex, is finding perspective.

Achieving that in markets with regu-

lar hours is hard enough, but with

forex, where prices are moving 24

hours a day, seven days a week, it is

exceptionally laborious.

When inundated with constantly

shifting market information, it is

hard to separate yourself from the

action and avoid personal

responses to the market.

The market doesn’t care

about your feelings.

Traders have heard it in

many different ways — the

only thing you can control

is when you buy and when

you sell. In response to

that, it is easier to know

how not to trade then how

to trade. Along those lines,

here are some tips on

avoiding common pitfalls

when trading forex.

slow down the weakening of his cur-

rency, then we must wonder

whether there is fear the opposite

will happen. In this case, that was

the outcome as on Dec. 14 the dollar

vs. the yen surged to a three-year

high. The Prime Minister’s statement

acted as a contrarian indicator. This

is what “fade the news” means.

Often, a bank analyst or trader will

be quoted with a public statement on

a bank forecast of a currency’s move.

these events, professional traders

take cover and see what happens.

The retail trader also should let the

market digest such shocks.

Trading during an announcement

or right before, or amid some tur-

moil, minimizes the odds of predict-

ing the probable direction. Technical

indicators during surge periods will

be distorted. You should wait for a

confirmation of the new direction

and remember that price action will

tend to revert to pre-surge

ranges providing nothing

fundamental has occurred.

An example is the Nov.

12 crash of the airplane in

Queens, N.Y. Instantly, all

currencies reacted. But

within a short period of

time, the surge that

reflected the tendency to

panic retraced.

NEWS YOU (DON’T) USE

Often, news that might seem definitively bullish to someone

new to the forex market might be as bearish as you can get.

3) Simple is better. The

desire to achieve great

gains in forex trading can

drive us to keep adding

indicators in a never-end-

ing quest for the impossi-

ble dream.

Similarly, trading with a

dozen indicators is not nec-

essary. Many indicators

just add redundant infor-

mation. Indicators should

be used that give clues to:

1) trend direction, 2) resis-

tance, 3) support and 4)

buying and selling pres-

sure. One tool helpful with

all of these factors is the

point-and-figure chart (see

“Getting the point”).

Point-and-figure charts

are one of the earliest forms of tech-

nical analysis. Now, with technology,

they are easier for traders to use

than ever before. While point-and-

figure analysis is available on several

stand-alone programs, most online

platforms do not offer these charts.

A few that do are www.quotespeed.

com, www.chartanalytics.com and

www.dorseywright.com.

Source: Quote Spread

1) Don’t read the news —

analyze the news. Many

times, seemingly straight-

forward news releases

from government agencies

are really public relation

vehicles to advance a par-

ticular point of view or pol-

icy. Such “news,” in the

forex markets more than

any other, is used as a tool

to affect the investment

psychology of the crowd.

Such media manipulation

is not inherently a nega-

tive. Governments and

traders try to do that all

the time. The new forex trader must

realize that it is important to read

the news to assess the message

behind the drums.

For example, Japan’s Prime

Minister Masajuro Shiokowa was

quoted in a news report on Dec. 13

that “an excessive depreciation of the

yen should be avoided. But we

should make efforts and give consid-

eration to guide the yen lower if it is

relatively overvalued.”

When a government official is ask-

ing, in effect, if traders would please

0.93

Euro (25 pips x

3-box reversal)

0.91

0.89

Support at 0.8875

0.87

0.85

When this occurs, they are signaling

they hope it will go that way. Why

put your reputation on the line, say-

ing the currency is going to break

out, if you don’t benefit by that

move? A cynical position, yes, but

traders in the forex markets always

need to be on guard. Read the news

with the perspective that, in forex,

how the event is reported can be as

important as the event itself.

2) Don’t trade surges. A price surge is

a signature of panic or surprise. In

Abe Cofnas is president of Learn4x.com,

which provides education for forex traders.

E-mail: learn4xtrading@aol.com.

Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.

24 www.futuresmag.com February 2002

By Abe Cofnas

A difficult challenge facing a trad-

GETTING THE POINT

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T rading spot currencies can be tricky with-

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