I wanted to talk a bit today about the way the forex markets fool retail traders. The way the whole thing is set up against you unless you know what to look for.
Low Time Frames
Have you ever noticed that when you start up MT4 or other trading platforms linked to brokers they start on small timeframes. That is because small timeframes are much more difficult to trade. You have to be much more exact. With daily timeframes it is much easier to get bigger pips because you are trading the overall direction of the pair. Even if you get a bad entry and it pulls back, it will normally go your way.
Something I have noticed is this, if you have a winning trade in the EUR/GBP/USD session it will 9 times out of 10 pull back during the asian session and the other way round as well. Pull backs or retraces are a part of trading, it’s ok for me for a trade to go 50 pips the wrong way. Why? Because if my GENERAL DIRECTION is right it WILL come back and achieve target. A lot of traders panic trade instead of holding on to the plan for the trade. How many pips have I thrown away because of pull backs and being frightened the pair is changing direction.
Fake changes of direction
Take a look at this GBPJPY chart, I’m in a short that triggered when it went below the support @ 170.701, however what has happened? It has bounced back. Am I worried? No, look at the pattern of the pair. It is well below the 50 period moving average (the signal line) and actually I EXPECT it to go against me now probably till tuesday next week. *BUT* I will triumph in the end probably thursday next week. It hasn’t changed direction it’s just going my way the wrong way.
Oh and the giveaway by the way is that the GBP pair is way weaker than JPY so even if it DOES manage to climb up a bit the pressure will be too much.
Spikes or Whipsaws
There is little you can do about spikes. They are fast moves up and down normally caused by news or sometimes I think thrown in by the broker to take out retail traders (harsh I know but it’s just a theory). People who have stops that are way to tight will often be a victim of these, people who trade through important news releases either have to have big stops or a lot of prayer.
Going the opposite direction before a big move
You’d be surprised how before news or a big move they move the pairs the opposite direction to the way they want to go….retail traders will panic trade and take a long when actually the pair is going to fall through the floor. The market will trap you, eat you, chew you up and spit you out!
The practice of chopping really can only be seen on smaller timeframes. Again, smaller timeframe traders will be constantly chasing the trade, choppiness is normally caused by uncertainty in the market, or simply a lack of volatility. This results in an almost impossible market.
NEVER EVER trust what a bank says. If a bank says “we’re going long EURUSD”, have a laugh and pay NO ATTENTION. They are probably going to trade against you.
Trading into a whole bunch of resistance
The number of traders who trade slap bang into a load of resistance is incredible. If you have a lot of resistance or support at a particular level stay away, the big traders will ONLY trade into big gaps between support and resistance. Because the pair is more likely not to stop when it breaks into that area. Incidentally sometimes a pair will poke a tail into the big area then pull back. You know what that means? We’re going down there soon we just have to do some housekeeping and take out a few stops.