Quote from Spectre2007:
Matt,
FX is broken down to this:
1) Scalpers, I can scalp a account up to 30-40% return on equity using maximum leverage in a 24 hr period. And you can imagine what it implies. But in order to do this. The 'pulse/tone' of the market needs to agreeable. Also the second requirement to be able to do this is, TDA(trading dynamic adherence), mean the market in its fluctuations must adhere to some rationale of sorts. That rationale once its grasped can be taken advantage of. When I trade the yen. I wait for 6:30-7:30 orderflow on the open of asian session. It usually bumps up in a particular direction. The prices gap a few pips(10-20) from previous session close. Then if the 'pulse' of the market stays the same, then prices start adhereing to TDA. Sometimes that initial orderflow is a fake out, and counter orderflow starts and the prices trend in one direction for the rest of the session till it approachs European open, then the Europeans 'test' what the Asians printed on the charts, reaffirming the Asian move or countertrending the Asian move. Then the final test becomes USA session. US session has the highest degree of volatility. So when I was trading Asian session once I took advantage of the Asian sentiment I would close out before Europe opened and that was around 2:00 am EST USA time, sometimes earlier.
2) Momentum Traders: usually in GBP/USD, GBP has a tendency to gap and not look back. Mean it moves up 10-20 pips and doesnt retrace 15 pips. The orderflow continues, so this market has trained a lot of people over the globe to follow the gaps, and hope more orderflow is coming behind the initial gap. When you observe a time when you see GBP/USD push up and not retrace, then it means just hop on board. The price tends to usually move 100 pips or so before retracement to some degree.
3) Volatility Traders: they buy/sell in the middle of a price band, but usually in the direction of the longterm trend. And the lot size is the smallest, they would rather take advantage of the volatility and can weather a large drawdown in price on the account. And given enough time on average the price does test the other end of the band. And once it does, they take profit. They kind of treat FX like a stock and dont use maxium leverage. They take advantage of the inherent need of the market to run stops.
4) Swing Traders: as it is implied.
5) News Traders: its similar to momentum traders, they hope on average that price will move in the direction that news implies. They will enter immediately after the news, and make money on the initial gaps then get out.
There is a subclass of news traders, they don't actually trade the news, but trade the 'pulse + TDA' that is increased during news times. Non-farm payrolls is the best one.
These are some of the ways to make money in forex, again whats important is to recognize the type of market it is. TDA is not always followed. And there are periods of chaos in the market. When the mind can not fixate on what the market is doing except to run stops on any variable direction. Chaos is the enemy of all traders. The setups dont appear and if they do appear, they don't mature.
The most important thing in forex is to learn to follow price action and once price action fails in one direction take the otherside. Price action is only elucidated when following tick to tick movements.
Chris
