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The Truth about the Forex Markets

Actually, there are quite a few truths you really need to know!

The first truth is that the Forex market is a very “choppy” market. By that I mean that movement can be small and slow, it wiggles and jiggles up and down all day on every pair; sometimes just a few pips and sometimes up to ten… up and down on almost every pair.

The second truth is that what goes up or down usually returns in time. It’s just that it can take a ton of time for things to return!

The third truth is that there is no “ETA”. You might see a short or a long and get involved. It can take far longer than you ever expected or thought possible for it to do what you want it to do. If you don’t have any patience, this really might not be the business for you. Patience is an absolute must.

The fourth truth is that markets can stay irrational longer than you can stay solvent, especially if you are trading too big. Trading too big is the number one account killer in the universe.

The fifth truth is that the markets are mostly range bound during a tremendous amount of the time. It’s been well said that Forex trading is hours upon hours of sheer boredom…. followed by moments of sheer terror (if you are on the wrong side of course… if you are trading too big)!

The market is almost always boring! I trade 8 to 10 hours a day and it’s really very boring. A ton of traders just cannot handle this. They have this desire to get long or short and would really like it if there was no drawdown at all. They desire trades to just rock and roll to target and that is something that barely ever happens.

The sixth truth is that the NY session is run by algos (algorithmic HFT). They can be very slow moving and not do great “runs”. Just like I said above, 4 to 12 pips is a common run before something stalls out on a 1 minute chart and reverses. Traders seem to hate this. They seem to not want to take 4 to 12 pips all day long. In reality, it’s one of the very best ways to trade. If it’s good enough for the multi-million dollar algos, then it should be good enough for you and me.

The seventh truth is that stop loss areas are amazing places where you should actually consider taking the other side. For instance GBPJPY broke a stop loss area this morning and then rebounded 50 pips pretty fast. It all happened in about nine M5 bars. So in 45 minutes time, 50 pips is a darn good trade.

The eighth truth is that perfection is almost unattainable. Folks who desire perfect entries with zero drawdown are usually very unrealistic. It’s very common to enter and then have it go against you a bit. The beauty of trading small is that you can “dip a toe in the water” and if you see you have a price improvement you can then add a second tiny bullet long or short. But if you are “all in”, you have no chance for that and you just sweat a lot.

The ninth truth is that while they tell you that “the Forex market is a 24 hour market and you can trade whenever you want” the reality is that when Europe closes and the NY session enters the doldrums, you can clearly see countless hours upon hours of static with hardly any movement. The market barely has a heartbeat! I mean you can see many consecutive hours of Euro with red/green/red/green bars that do not move over 5 pips up or down for massive lengths of time! There is no “edge” at all to trading at that time. Also, you see that past 4pm in NY to 8pm when the Asia session starts, there is a four hour lull where nothing is real. Nothing. All moves are fake as heck.

The tenth truth is that market makers use the news to clean out of various assets. Sometimes this can be super swift and violent; so fast that you really barely have time to think. We have seen flash crashes of 500 pips in 10 minutes or news crashes or surges of 100 pips in 5 minutes flat, like yesterday.

The eleventh and final truth (and you might not like this) is that severe focus is often required. By that I mean a darn good solid look at the M1, M5, M15 and H1 charts all at the same time, attempting to hunt for the best possible entry. The use of tick charts is also very helpful though time consuming. When you are looking at the ticks you are literally watching the algos in motion. The Forex market is basically a trade a second! Someone is at least placing a trade every single second so that is 60 trades in just one minute and 360 or more trades going off per hour. Think about that.

Trade small, trade safe and breathe easy. Focus, discipline and patience should be tattooed across the three fingers on your hand that hold and click the mouse.

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