“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.
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.
Lately I have been reading many forex trading books, trying to climb quickly the steep learning curve necessary. Necessary to transform this into a full time occupation. In the beginning I thought it was easy, as most of the beginner traders think. Just read a couple of books and test a bit the platform for trading forex pairs, no matter what it is: Metastock or metatrader or other proprietary platform. They all looked the same and the methods seemed easy. Manage your risk, manage your emotions, play with technical indicators and your life will become soon easy and flowing.
I tried last week to trade yen against the news. I thought that the news release on China (that exports are much stronger than expected) will actually move the yen a bit upwards versus other currencies, then the Japan currency will resume its decline. In brief, I was arguing that the yen appreciation will last very short.
Here we go further with our forex blog here, on doitinvest.com. The forex trading insight of today’s blog is quite simple - I found out a rare pattern which could be interesting for the amateur or professional money makers.
I was looking recently on my IPhone on the EUR to USD (EURUSD) pair. Although I do not trade it, the EURUSD is the most traded pair on earth, so it meets the criteria for perfect trading - high volatility, liquidity, accessibility 24 hours. For me, the EURUSD is like the master market for the online trading, so naturally I look at it periodically.
Well, I was looking for a long time after an easier book on technical analysis techniques using a programming language. In other words, I was in for a book where you do not get only the usual lengthy descriptions of various trading techniques and their charts with pointers. After all, it is easy to develop a technique and let it fit with any possible trading - in hindsight.
What I was looking for was a simple way to improve my trading skills and to limit my forex trading risks. If possible, for a book which could be rather practical than conceptual, from which I could learn some code snippets and apply those to trading.
The good news is that there is such a book. “Volatility-Based Technical Analysis: Strategies for Trading the Invisible” by Kirk Northington fills a gap between the individual knowledge of a single trader and the collective wisdom of the large financial institutions. In other words, Northington teaches you how to trade individually using the techniques and the leverages of a large institution. This is a big advantage, especially since the rise of the trading platforms which are so easy to use nowadays online. And where the risk is so high and it is so easy to loose large amounts of money in the blink of an eye 
A simple search on this title over any search engine will show you the true power of the concept – there are 118,000 results only on Google. I don’t know if this because of the “Dummies” franchise or because of the number of traders willing to learn the ropes of the field. Certainly there is an incredibly high demand for this title and the reasons are simple – the demand for online currency trading is surging.
The recent news that Dubai suspended the repayment of its $59 billion debt sent shockwaves through the markets. Some shockwaves were expected, others came completely out of the blue.
In the first category there are the news of the spreads widening. In the second enter the appreciation of the yen, completely unexpected. Nobody was thinking that the panic will make the yen become what it was once – a safe haven for the investors. Yet, the yen continues to trade higher and higher.
The main resource of Dubai was the oil. And the government from Dubai has to repay somehow their debts. Even in the case of default, they must repay at least partially those bonds. It means that the Dubai sovereign funds and the Dubai asset owners must pump more oil to sell on the global market.
Technical analysis is one of my passions, so here we go with another recent release of a book focusing on that topic. Given the recent advent of the online trading platforms (e.g the MetaTrade 4 or MT), trading has ecome much easier than a few years ago. In the same time, it has become also much more dangerous, since the easiness of trading is simply translated into a greater risk for the trader. And risk means the possibility to have huge profits in a short time, but also the possibility to be wiped out from the market very quickly. Being wiped out from a trading platform means loosing all the money you deposited as a leverage (your trading capital, of course).
Well, a book on investing on shares by a Forbes columnist who has more experience than my professional age? Could be interesting, don’t you think?
And indeed it was. Ken Fisher writes in a somehow difficult manner. He sidetracks with his three questions back and forth on the same subject. And repeats quite obsessively some of his ideas in the 400+ pages of this project. But at the end of the day I found “The only 3 questions you need to ask” informing and well documented. And full of (arguably) useful insights on shares investing.
What is the book about?
Well, about investing in shares and about how you can sustainably beat the markets.
