By: Charley Warady
They say that trading Forex is not for the feint of heart. And as we all know, for the most part, that is true. It's fast, it's exciting, it's an adrenaline junkie's dream. For the most part.
Particularly for the day trader in Forex, the constant action and fluctuations are what make the game appealing. The changes in trends; the riding of the trends; the reversals of positions; and even the quick stop-loss holds everyone's noses close to the computer's screen(s). And the beauty is that you can jump from Forex pairing to Forex pairing and have more balls in the air than the best juggler. Sure, the risk is more, but so are the opportunities!
Believe it or not, the situations listed above aren't the most dangerous times for the Forex trader. For obvious reasons, there are no real “safe” times for the Forex trader, but like everything else, it's all relative. The most dangerous time for the Forex trader is not when the markets are wild and there are massive fluctuations in the market. Those are the good times. Those are the times when it's easy to get in and easy to get out. When you can cut a loss short and ride a profit comfortably. Those are the times that grab your attention and don't let it go, because a brief lapse could mean a missed opportunity or a sudden loss. Those are days of missed breakfasts or lunches or dinners and coffee at the desk.
Even the Forex markets take a break some days. There are days, for as many reasons as there are days, that there is what seems to be an interminable amount of inactivity in the markets. It could be that pending news is due out. It could be a Fed report is being released. It could be the banks are gearing up to do something big; or nothing at all. It doesn't matter. The reasoning behind the lull shouldn't be the concern of the Forex trader. The lull itself is the only thing that matters. The market isn't moving. It's just not doing anything. Fifteen minutes seems like fifteen hours.
This inactivity is possibly one of the biggest land mine zones for the Forex trader. Traders want to trade. It's as natural as fish swimming or football players taking steroids. But the inactive market can pose the biggest potential for loss simply because of its inactivity. What generally happens is that a trader places a trade and the market moves against him or her. A slight bit. Nothing much. But then it stays there. The inactivity convinces the trader that they're wrong, so not only will they get out of the trade taking a loss, but will reverse the trade thinking the trend is going in the opposite direction. And the cycle begins. At the end of the day the Forex trader can't believe the losses sustained in such a limited trading range. But it happens all the time. All the time.
The solution is simple, but not easy, and only involves two words: “Walk away”. The market isn't going anywhere. It will be there tomorrow and the day after. Go play golf. Go for a walk. Solve world hunger. Anything that will involve just walking away. If you insist on trading at all, have a game plan and don't try to day trade. Place a trade and put stop losses on both sides of the trade. And then...walk away. If you sit there and watch the screens it is a sure bet that you're going to change those stops or get rid of them entirely.
There will be plenty of days of action in the Forex markets, and you'll be there to take advantage of them. But some days...even the markets need a day off.