Thursday, April 1, 2021

Why are the short-term fluctuations of the Forex market almost unreliable?

Markets fluctuate up and down. You know this even if you have just observed the Forex market for 1 or 2 days. However, we also realize that not all ups and downs are important. Trying to grasp everything in your hand will put you under tremendous pressure. Or even worse, they can cost you (a lot of) money.

How many times have you tried to trade all day with both buy and sell orders in front of a computer screen? You hope to make a lot of money but the main trend of the market turns its back on you and kills your orders mercilessly.

How many times have you hastily taken profit (when it’s still far from your initial profit-taking point) when the market reverses just a bit? Then, you regret it when the price returns to the trend you believe in which could have dramatically increased your profit.

We all make these mistakes (lessons) not only several times but many times. In today’s article, I will discuss the price action and market movements as well as how to limit and avoid the temptation of continuous up and down movements. From there, help you (again) realize that less is better (less is more) in forex trading.

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The first fact is: It’s hard to stop the freight train in the Forex market

Go to your MT4 screen and look at the daily chart (W1) of the EURO-USD, AUD-USD, and USD-JPY pairs. You can easily spot a strong trend that has lasted for months in these markets. These are trends that have a lot of thrust and inertia behind them. And just like a bulky cargo train, it will not change directions easily or quickly.

So we can see that the fluttering movements, on the other hand, are nothing compared to them. So, there’s no reason for you and me to try to trade the opposite direction in this market. In my point of view, in a down market, I never place a buy order, and vice versa.

The first fact is: It's hard to stop a freight train
The first fact is: It’s hard to stop a freight train

You must have heard the familiar saying “trend is your friend” many times, maybe on the stock market first. And indeed, the trend is our best friend. This best friend is extremely strong. If you follow “him”, you will have many opportunities to make money. On the contrary, if you go against or fight with “him”, Mr. Market will drown you in the waves even before you realize it.

Most traders always scratch their heads thinking of ways to find the peaks and troughs of a trend. They try to maximize profits and often go against the trend (place a buy order in a bearish market).

If you are always tempted by the small movements of prices, you will not be able to make money (either long-term or short-term) in this market. In the Forex market, when a trend appears, this is the best time for you to trade. Because it often gives us the most valuable opportunity to make money.

Imagine you are standing on the tracks, and a freight train is coming, whether you can resist it or you will be blown away from its direction. Yep, it is the trend in the forex market.

Remember that trend is your friend
Remember that trend is your friend

The second fact is: Losing money feels bad

If you walk down the road and randomly ask anyone “Do you like losing money?”, that person will probably think you have a mental problem. Because no one ever likes losing money.

If you put 10 people in front of the trading chart and briefly teach them how to trade, probably, 9 of them will sit in front of the computer screen all day. They will observe all time frames (especially small ones) to make a lot of money according to their logical reasoning (trade a lot – make a lot). They will still do so even if you say in advance that it will cost them money.

Pairing 2 things above, we see a very funny thing. Nobody wants to lose money, but the way they trade shows that they DO want to lose money.

Losing money feels really uncomfortable. I hate that, and so do you. Therefore, as a trader, your number 1 goal is not to lose money (remember the saying of W. Buffett). The easiest and surest way to avoid losing money in the Forex market is to avoid looking at the charts too much. Try to avoid thinking about it all day and trading on every little bit of market volatility.

Losing money feels bad
Losing money feels bad

You can’t trade all these fluctuations, and most of them don’t mean much. You need to get rid of the “addiction” of sitting and watching the market for hours on end. I would like to give some suggestions to help you do this well:

– The best trading pattern is always very clear. You don’t need to be a rocket scientist to capture it. If you are struggling to find an entry point, then it is not worth the risk. Just ignore it! Keep money safe in your account! Forex trading is not the place for you to gamble.

– The way you make money in the market is to protect your account against opportunities that are not clear and worth your risk. From there, you have enough “necessary” money to place else orders with truly obvious opportunities.

You need to understand that not every up and down movement in the market makes sense. In contrast, most of them are meaningless. Train your discipline and patience to act only when your strategy fits with what is going on in the market.

The third fact is: Long-term trends suppress short-term ones in the Forex market

If we are having strong trends that last for months like the EURO-USD pairs (downtrend), we all see that short-term bullish trends do not last long. They are extinguished very quickly.

As a price action trader, we need to know what the market trend is. From there, we will find entry points to only “sell” or “buy” in that market. Many traders even try to trade with reversal points (trading against the market trend). They expect to make money with every movement, no matter how small it is. However, they often fail, because it is too difficult for you to know not only once but many times where the peak (or trough) of a short-term fluctuation is, or when the market will change its direction, etc.?

Long-term trends suppress short-term ones in the Forex market
Long-term trends suppress short-term ones in the Forex market

In short

Hopefully, with this article, you will realize that you should not try to trade on all market fluctuations. Protect the balance in your account. Stay patient and disciplined waiting for a clear opportunity to go all in. And when that time comes, don’t hesitate.

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The post Why are the short-term fluctuations of the Forex market almost unreliable? appeared first on How To Trade Blog.


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