Saturday, June 5, 2010


Trading forex is like watching a school of fish move. One minute is total harmony, the next, complete chaos. As the observer of this school of fish, do you believe you can accurately predict the direction the school of fish will move each time? Would you bet on it?
What causes the fish to move the way they do? Why do they work together in one moment, moving with force and precision, and move in what seems to be an infinite number of directions the next? There’s no way to know unless you can sense what the fish sense each time they move. The fish have an instinct about the nature of their environment. They understand the context of all things around them – natively – and can react accordingly. Surely if you shared this understanding you’d be a much more accurate predictor of fish movement!
Trading forex is not much different - we need to develop that keen sense of what is happening around us. Will we ever be able to predict every move in the forex markets? Absolutely not. But we can use our understanding of the context of the market – the six forces of forex – to make better, more profitable trading choices. Once we understand these forces, we can create and operate within a comprehensive trading plan:

  •  Who trades forex? Understand who participates in the markets, why they are successful, and how you can emulate them.
  •  Why trade forex? There are superior returns in forex, but not for all investors. Are you one of them?
  •  Where should you trade? Choose to work with service providers who can efficiently enable your style of trading.
  •  What should you trade? Select the currency pair, entry, exit and money management methods that will maximize your returns.
  •  When should you trade? Trade when the environment is most likely to produce the best conditions for executing your system.
  •  How should you trade? Trade using methods that maximize your ability to emulate the proven winners.

Knowledge of these forces and how they work is a major determinant of your success as a trader. Figure 1 shows these 6 forces, their relative rarity, and their effect on profitability.

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