DEFINING RISK IN FOREX – 4
The Trend Is Your Friend?
Well, sure! Any trader will tell you that. I am not about to argue the point. “The trend is your friend.”
BUT in foreign exchange, this friend is so fickle minded. Because of the speed by which the forex market is moving, you better be certain what kind of a friend (trend) you are following and for how long you are going to be “friends” before you commit a considerable amount of resources (money) to it.
After all, even in your other life (outside of Forex) “best friends” can be your worst enemies as well!
One of the advices experts giveto a trader to remain faithful to a trend is to study a chart of a longer time frame. A daily chart for example can give you a better idea of the bigger (general) trend of the market compared to a 15 minute chart. But while a daily chart may take a while to show a change in direction (up, down or sideways), and while a chart of shorter time frame may confuse you as to which general direction the market is really moving, you better be ready to heed their bidding.
And it doesn’t help that every time I give up a losing position, I almost always find myself on the opposite side of the trend - which means, that the direction of the market has reverted back to the direction of my previous position!
Isn’t that nice?
Grrrrr!
That’s right. You do it several times with the same results and you are ready to snarl at anyone who happens to be nearby. Including the computer you are using to do the forex trades.
But getting even (especially with the market) will just add up to what seems like already insurmountable risks you are facing in foreign exchange.
Lose your head and get even with the market - and you end up losing even more!
Now, since it is the nature of the market to advance in a jagged (up and down) movement, knowing when the market has already turned or reverted back to its previous direction is quite a challenge.
This is where I am losing my money. If I stick it out with the original direction I selected because I believe that’s where it will continue to go after a bit of a “pullback” (thanks, but no thanks to a prediction of experts which I read) I often discover that the direction has, in fact, already changed! By the time I realized that, I have already lost a lot and the more that I am hesitant to give up my initial position since it would mean confirming my losses.
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A trend is a good idea in most investments.
But to invest in foreign exchange you also have to be very well infomed and commit to that task. Shorting the Euro immediately the Greek debt issue got out was also a good idea, but now it's fallen so far i'd buy it long now for a mid term gain, whereas i'd short the peso, now an instinctive social spender has been elected at a time of rapidly rising government debt and a fatuous policy that no new taxes are needed if we collect the ones we are already owed.
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