90% of currency trades are not speculation but rather just, day to day business, as clients from Industry go about their normal business and worldwide commerce transactions. What does this mean ? It means that there is far less "emotion" involved in currency markets then equities. What does this mean ? It means that all chart patterns and normal TA will fail miserably. Why ? Because all TA is based off emotion. I caution those that want to trade these markets that you better trade with quadruple your intended stops or NOT trade them at all.
(Singing) "And Another One Bites the Dust AH!!!, And Another One Bites, Another One Bites, Another One Bites the Dust!!" LOL. I had too. Yes, I do agree with you. But in all do respect, technical analysis works just fine. Technicals dont all have to be relative to cash players emotions. You can momentum trade or use volatility price breakouts almost all day long in the forex, if done correctly. (Note: Not saying this isnt relative to investors emotions, Im just saying IMO, these type of strategies are more relative to following price action, rather then patterns for example, which historically IMO are realtive to emotional skew.) No pun intended, just making a observation. - secXces
Sounds like somebody is undercapitalized and blew out 3/4 of his trustfund. Try Fx futures after Papa cuts you a new check, at least your stops will be honored. el surdo
I recently posted briefly on that subject: http://www.elitetrader.com/vb/showthread.php?s=&postid=1305375#post1305375 Your first sentence reflects a valid aspect of reality in this marketplace, useful to keep in mind for the speculator. Even though I believe that the non-speculative activity represents way, way less than 90% today. The rest of your post... it's all downhill, I'm afraid. First, around news shocks -- both scheduled and unscheduled -- there's just as much, if not more, emotions being expressed via high-velocity price action in the currency market as in any other market. Eminently tradeable price action, if that's your cup of tea. Second, a statement such as "all chart patterns and normal TA will fail miserably" does not logically follow from your other statements, even if they were true, nor is correct. Certain parts of classic technical analysis work quite well in the currency market and are employed by many successful institutional players as essential trading tools. In fact, the aforementioned multi-billion dollar currency hedge fund was built primarily on TA models. Models which I helped refine, properly optimize and overlay money management on, in a multi-currency portfolio context. You'd better believe they work. Finally, your last piece of advice regarding stops in forex trading... well, it's hard to comment on without also addressing one's time frame, leverage, strategy type, etc. For instance, in an intraday, higher leverage, countertrend method (sell resistance -- buy support), relatively tight stops (such as 35-40 pips for cable, less for Euro) are optimal. Scalping would be another obvious example, allowing for much tighter stops still. In other strategies, sure, tight stops would be a recipe for bleeding to death slowly but surely.
This is my understanding as well. The percentage of forex trading that is purely speculative is 90 percent (or close to that), not 10 percent. The latter is the OP's assertion. The percentage of purely speculative trading has increased in recent years and continues to increase. That would explain (to me anyway) the compression in daily trading ranges in the majors and commodity currencies. I base this information in part on a recent paper by two Australian academicians. Unfortunately I don't have the citation. I didn't save it after seeing the abstract of the paper while surfing. Some other ET members, I'm certain, can give authoritative numbers on the percentages if anyway wants more on this topic.
Joab, While I respect your take on this, I would love to find out where you came up with those numbers. They seem very silly and I don't know why you would post that. Here is some simple math: Let's say the published "advertised" reports are correct and the market trades appx $1.5 trillion a day. 10% spec is $150 billion (Man, that's still a lot). I am small, but the guy (one guy mind you) who taught me a lot about the business trades $130 million a day (roughly). Add that to mine, and between he and I we trade 10% of the spec volume in FX. Haha. That's funny. I am a piker.