Hi BuddhaTop, as we progress I will be demonstrating how to download and use a particular broker's trading platform. At that time I'll go over brokers in general and why you may want to chose one over the other. Sam
Thursday, April 28, 05 2:53AM PST As I sit here with my cheap, tortoise-shell reading glasses on hung just below my eyes so I can peak over onto the screen, not that need them, you see, they just make me feel smart, as if, since I am so wise I need to have reading glasses on, it makes me much more intelligent than you, something occurred to me: I need to add a few items to this body of lessons on how to trade currencies so people who already open and close trades can have something here they'd want to read. This is so what I write will be read by more people. The additions I am adding address basic components of the forex market. They are market structure and current events, or rather my comments on current events that influence the forex. My credentials are pretty simple. My money is embedded in over a dozen major cross rates including EUR/USD that I constantly open and close trades in. One must be able to make sense of at least a few common market laws and realities in order to trade, stay alive, win and trade some more without getting killed: My writing here is proof that I do this. Since I am in the market live with my personal cash on the line daily I get directly hit with the same market forces and price swings that most only read about, economists predict about, and market analysts tell us about in their cleverly-worded synopses of why this or that happened or is happening. I live it. I trade it. You must be more right about these matters than wrong in order to win more than you lose, since trading is not all just pure luck. There is bad luck. I want to make you a better trader so you will commit more of your money to trading. When you do I will get some of your money because ultimately I am a better trader than you are, especially when you are first beginning. Fairly stated, when you close a trade in a loss I will get a cut of your money. That makes me happy enough to teach you how to proficiently trade currencies. How else am I going to earn money? Since working and being productive in society is a waste of time. OK, let's get on with the additions. You've Heard of Market Sentiment, What Is It? Market sentiment is created when you have 100 people in a room (or in a trading market) and 51 of them feel the same way about something. The other 49 shmucks don't matter because they are the minority and, all things being equal, each person has the average amount of cash to buy and sell money that everyone else has. Therefore, the 51 people will cause the swings and more drastic price moves because collectively this group commits more money than the 49 people. Market sentiment comes and goes. Therefore while you can successfully trade on it sometimes, you cannot all the time. It is a rug constantly being pulled out from under you. Keeping track on market sentiment is like hunting quail at night, in a forrest, with a mist floating 3 feet up from the ground with a sliver of moonlight making its way at times through the trees. You'll miss more than you aim and fire at. Please go now to the next entry on market components titled, "the next entry on market components." sKaLpZ
The Next Entry on Market Components by sKaLpZ (because I am the author). Another structural component of the forex (what moves the market) is really sheer stupidity. I call the component Sheer Stupidity. Sheer Stupidity dwells in the hearts and minds of the most brilliant people on earth, and it only takes a moment or two to surface while they make a trade to reflect in the price movement of a currency rate. I know, I know, not everyone makes large enough trades to move the market, but, stats have it that the average mutual fund run by 'trading experts' returned less than 4% in 2004. Whatever that means to you is one thing, that means to me that 96% of their trades collectively large enough to move a price rate resulted in a loss due to their stupidity. I'll happily collect 96% of the billions and billions of dollars that get committed to trades later only to get closed in losses due to 'trading experts' being brilliant. Or rather thinking they are brilliant enough to buy or sell currencies just before they see how dumb the trade really was. Market Law: People never learn. In this scenario it's not a matter of IF they will lose it is just how much they are willing to risk (read gamble) on the rate returning into their favor (if it does) in order to lessen their loss before they close the trade. Lesson here is keep your eye on stupidity because in the trading world it's all around you. Please move to the next entry on market components appropriately titled, No more on market components at this point because I want to introduce Current Events That Effect Prices. Later I will get back to more market components. And EACH letter will be capitalized in the title. sKaLpZ
No More On Market Components For Now Because I want To Introduce Current Events That Effect Prices. Later I Will Get Back To More Market Components. And EACH Letter Will Capitalized In The Title! Current Events is the other newly-added feature you will find sprinkled in this novel that will invariably keep you riveted to the edge of your chair seat just enough where your chair almost flips on its rollers out from under you. The current current event coming up in the next few hours is the GDP. Which, for some, stands for GahDehmPrices!!!!!!!!!! To the other 6 people who trade it stands for Gross Domestic Product, that is, Prices. Forget all that, it is the News that matters because the news gives the cue to the masses when to be stupid and trade accordingly. This is why, most the time, when the News comes out revealing an eco number (GDP) that is way off from what the analysts and economists predicted it would be, you'll see the market EXPLOAD in stupidity, currency rate prices careening to save their lives one way 100+ points then swerving back with even more stupidity 100+ points the other way to not get killed. Then gently dying down to mere floating currency rates bubbling, as 96% of money committed to trades was lost. The financial ambulances showing up to scrape the blood and guts off the global streets of fiscal responsibility. The next mini-money-explosion is due to hit the market in little over 2 hours from now (8:30AM ET) that being the GDP News announcement. The reason the market has been moving sideways in a tight trading band over the last few days is due to guys who are supposed to be trading either not trading (sitting on the sidelines) or not commiting money to any direction. That is seen as being brilliant. Which is really stupid. sKaLpZ
Sorry, but Sam will NOT be discussing particular brokers in this thread. If anyone would like to PM him for his personal recommendation you are free to do so. But given his history at ET any and all public conversations regarding brokers will not be permitted. Thank you for your cooperation.
Random Thought Hey Guys, Just a quick random thought before I rush out to get some Nike running shoes and trail shoes. From Fooled By Randomness by Nassim Nicholas Taleb, Ph.D.: [preface] "I found luck in the most unexpected of places. It is as if there were two planets: The one in which we actually live and the one, considerably more deterministic, on which people are convinced we live. It is as simple as that: Past events will always look less random than they were (it is called the hindsight bias). ... "You can mispredict everything for all your life yet think that you will get it right next time." Taleb indicates the existence in the trading world of something I call "market reality" versus what traders would typically refer to as "reality." Two worlds, or trading worlds. This "market reality" is what I will go into at a later time. Once I realized that it existed, my trading performance greatly excelled. I did good this week. Don't want to throw out awe numbers so I will leave it at that. The market managed an explosive closing, the euro/usd rate dropping dramatically to a new week low of 1.2850 in the final moments of trading. Next week we will see if that quick 100+ point tail-end fall from 1.2980 is second-guessed with a "whoops-retracement" back up or if the financial commitment is followed through with. High/Low for the week: 1.3077 to 1.2854. 223 points, not bad volatility. Current market: 1.2872 Sam
if 90% of volume is from 10% of traders and it is a zero sum game, does that mean for every big winner theres a big loser? and if not, how do all the big boys stay alive i.e. who are they feeding of?
Hello Jonnysharp, My understanding of the forex is that primarily it is a banking proceedure. For instance, a company who does business in other countries needs to convert their home currency back and forth between their home country and the country's currency they import/export to. On this basis typically they would just go to a bank and say "Convert my X-amount of currency into such and such currency." The bank at that point simply fulfills their client's request. Doing so does not automatically make them "forex traders" anymore than those who make golf clubs automatically makes the manufacturers Tiger Woods. To my understanding, these type transactions account for most of the money being exchanged daily. As far as the zero-sum issue, there are two views. Some say it is and some say it is not. Amongst market participants and forex traders I think the equation is more like 99% lose to the 1% who consistently win. The percentages may even be more narrow than that. Sam