With approximately 3.2 trillion dollars of capital exchange per day, the Forex Market is the largest daily redistribution pool of capital in the world.
The Forex market contains two distinct groups of traders. To begin with, the difference between these two groups should be carefully understood.
GROUP ONE:
Group One has a vast trading capital resources, fewer players and far more trading experience than Group Two. Group one essentially controls the game. Group One is made of mainly of Institutional players such as Banks, Commercial and Corporate Macro Accounts
GROUP TWO:
Like Group One, Group Two also has vast trading capital resources but…that is where the similarity ends.
Unlike Group One, Group two has millions of players, mostly private individuals. In addition, Group Two has by and large, far LESS experience at trading the Forex than Group One. Group Two does not trade as one cohesive unit, all in one direction, often scalping the market or trading against the directional flow created by Group One. Therefore Most of the Players in Group Two LOSE the game Most of the Time.
So, how can the players in Group Two compete?
Smaller account players can compete consistently if they are able to counter the big money players on two fronts. Small money players cannot compete in terms in shear volume of capital and so they must compete in terms of understanding how the big money players play the market.
One, execute positions with low draw downs (tight stop losses)
Two, know how to use the technical and fundamental analysis used by the big money players in such a way as to get into positions where the lowest amount of intra day volatility occurs, thus getting a jump on the market at and getting to ‘zero loss- zero risk’ positions using the momentum generated by the infusion of big player institutional capital.
These are of course all words. Actions are what matters.
The art of executing positions with tight stop loss, low draw downs and quick ‘no loss – no risk’ positioning is not something that can be taught in a short time frame. It requires many hours of learning and many more hours of practice.
As a Forex trader, one needs to understand what bargain basement hunting means but once fully understood it becomes the crux of proficient trading. There is a term I use for this that I call, being ‘At the Moment’.
There’s a beginning and an ending to everything; the ending of the movement of majority capital flow in one direction is always the beginning of the movement of majority capital flow in the opposite direction.
Every large movement in the market hinges on a moment of transition. Understanding how and where to find the moment of transition is the very heart of what I‘ve studied for years.
Let’s look at this quite logically and ask one critical question:
If a trader executes a position with a drawdown (stop loss) of 75, 100 or 150 pips, does the trader really understand which way the majority of capital flow is moving or, is the trading guessing? If the trader is guessing, what does that say about the experience of the trader? What does it say about how much risk the trader is willing to take by ‘betting’ on which way the majority of capital flow will move? High school mathematics would readily tell us that, if the trader is guessing, the trader will lose his or her drawdown about 50% on the time. If the trader requires a stop loss of 75, 100 or 150 pips there is obviously some doubt about what portion of the stop loss will be required in order to give the trade a chance of succeeding. Logic would suggest that the trader is guessing.
Unless you have millions of dollars and can withstand high ranges of intra-day volatility, successfully trading the Forex market comes down to few basic principles;
- Understanding when and how to execute a trade in the proper direction WITH a minimal stop loss of the broker spread plus about 20 pips, a total of about 25 pips on average. I use about 15 to 20 pips under most circumstances when trading majors, slightly more when trading exotics.
- Understanding how to manage your trading account so that you’re getting the maximum benefit from the broker margin while retaining the least exposure to your own money.
- Knowing when and how to circumvent the multitude of risks that are prevalent in the market within the time interval in which you are trading. What this comes down to is understanding ‘what the majority of other astute traders are doing’ so that you’re not doing the opposite.
It’s these ‘How To-s’ that most traders don’t get a chance to learn that causes them to consistently watch their trading accounts evaporate, time after time.
In summation regular, every day Forex traders need to understand precision trade execution techniques in order to compete with the large money players.
Not understanding them is where high risk and large draw downs undermines any chance of being able to compete. This is the reason why most traders who are new to the Forex market get ‘knocked out’, lose their accounts, lose their confidence and ultimately give up trading altogether.
