“The bigger you are, the harder to trade.”
(New York Times, 1900)
In other words, when you trade with large amounts you have two big effects:
– first of all you trade with large amounts of money or securities and you can influence too much the price, in the opposite of the desired direction;
– secondly, the fear factor increases – the more you trade, the more you can loose and the more risk averse you become.
Archive for April 2010
Or (if you want) miss-correlations. As all of your guru traders will say, in the forex trading you learn for your lifetime. And when you think you saw them all, something comes and takes away all your confidence (and hopefully not your profits, especially when you have the risk management tools in place).
What happened? I decided to test today on the MetaTrader 4 (MT4) platform the buy stop and the buy limit orders on the “twister sister” or the GBP/JPY pair. And the results were quite interesting.
So what happened? I placed from the previous day a buy limit order on the GBP/JPY, on the assumption that the yen currency will devaluate a bit whilst the pound will be stable. This was based on the relatively mild-to-bad incoming economic news: the trade balance of Japan was on the larger side of the forecasts, whilst the GBP news (public sector borrowing, retail sales and preliminary mortgage approvals, to name just a few) should have been better. And so they were. Read more