The FX trading realm has exploded with volume in the past 10 years, thanks to the push of the retail trading environment and growth of private money managers. What was once a market reserved for the banks and other large, institutional players, the FX market has created a following the likes of which P.T. Barnum would only dream.
Like anything else in the world where the situation for the little guy only seems to get worse while the big players crank in more profits, retail traders have historically suffered a severe disadvantage due to the sheer overflow of information available to them. Most of this information is particularly devastating to their accounts, as trading basics get pushed to the side in favor of highly complicated technical and general fundamental analysis, most of which offers little value except to the person on the other side of the trade (usually your banking buddy).
The basics of trading need a revisit for one simple fact: for all of the trading systems developed out there, the basics will always hold true, and are followed by every major player across the FX market, day in and day out. Being on the right side of the trade is obviously the most important thing, so why try and fight the inevitable? The “inevitable” are the basics of trading. The inevitable will get you that house, braces for the kids, or the second, third or fourth car, and have you trading profitably and consistency with little failure.
So why do most trading systems fail? First, we have to look at who is really moving the trillions of dollars on a daily basis and understand what it is THEY are looking at, and understand why the market is behaving in the manner that it is. We would like to think that we play a bigger part in the FX market, but the mere fact of the matter is that we don’t. Banks and other large players are placing orders that dwarf our trades, influencing other players to jump on in and follow like sheep. I have heard many times that the FX market is “so big that no single person can influence it”. That, my friends, might hold true as a basic premise, but large positions slapped on by major players certainly influence other players to follow along and continue price movement.
When a price area gets so much attention that Large Player A, Large Player B and Large Player C are all focused in on it simultaneously, and order after order is placed in one single direction at any given point in time, a chain reaction occurs, moving the market in this new direction and continuing to do so for XX ticks.
So back to our question of why so many trading systems fail: these price areas, the most widely followed by the ones that influence the market, are ignored by these systems in favor of exponentially or arithmetically calculated indicators. Here’s a fact of in regards to market movers: not everyone is looking at a MACD, not everyone is looking at that RSI, not everyone is looking at that particular moving average, not everyone is setting those pivot points in the same timeframe as you are. Consistency is vital and many of these systems ignore this.
A consistently profitable trader needs to see what the majority of the influence is in the market. Lucky for us, the FX and Futures markets are highly technical, as speculators drive much of the intraday momentum on price action. Our basic system for entering trades is not some kind of big secret or mystery to any experienced trader, but we have mastered it to a point where it is nearly all we look at and all we use on an intraday and long term basis. Its all we need, and we never run out of potential trading opportunities. Each and every day extremely highly probable trade setups stare us in the face and tell us to take the money. Our job is to comply.