Random Lesson
sKaLpZ, On The Nature of Drawdowns
Neuro brought up a good point, that is, learning to trade forex and make money is only part of becoming a success.
Another part is learning the components of the instrument you trade, in this case, forex.
Due to the high liquidity and 24-hour market, currency flucuation is high.
When I trade there are two things I
love:
One. When the market (or, currency pair I'm trading) goes into my favor because then I make money when I close the trade.
*cheap trumpets sound in the background*
Two. When the trade goes against me. This is bliss.
WHAT?? Yes, because, you see, a drawdown represents movement in the pair... flucuation, volatility.
Why are these things an important aspect of your trading in the forex environment?
Because when a currency flucuates and moves even 100 points (i.e. "one-cent") it means it can also move INTO your favor (the direction [long or short] of your trade) as many or more points as well.
It means the pair you are trading has traders interested in it, flooding it with liquidity. That's what can cause volatility and a "fast market."
Great volatility and fast markets can make you rich in the currency market.
Once you hit more advanced trading methods and attain a deeper knowledge of trading skills, you may be able to learn how to structure your trades through better money management techniques so that you may take advantage of these flucuations, even if they are against you!
Most traders lose - that goes without saying.
But if you think about it, most people lose. Be it in a business, a profession or any number of endeavors.
They say 90% of businesses fail within the first 5 years. There are businesses that have failed after 100 years. For example that old, well-known N.Y. retail company that went up in smoke a few years back.
Even nations go broke.
The ones that succeed typically out-work and out-apply those who fail, no matter what the undertaking.
Study Sam Walton, founder of Walmart.
Now, Sam was fortunate to have a brother, Bud Walton, who, as I understand it, was by Sam's side all during his efforts and inroads into establishing Walmart.
Bud was one tough cookie. Think Jed Clampett of
The Beverly Hillbillies.
That was Bud.
Be that as it may, Sam and Bud worked and applied themselves countless hours. Their diligence in business dwarfed even the highest paid executives of competitor companies.
The reason this is mentioned is because if you study the system structures of losing traders most of them dread thus avoid the Feared Drawdown so much so that they will
kill their trade and LOSE significant amounts of money based on a core component of most commonly-used trading systems called a "Stop Loss."
In other words, they cut their loss on a "bad trade."
A question arises. If they are supposed to be traders,
why are they constantly making "bad trades?"
Isn't that what beginners are supposed to do?
So, see, if you combine the Walton principle of hard work and study and application beyond that of their peers and competitors, together with the common reasons why most lose in trading forex, you get a scenario that begs further investigating.
That is what?
To not trade the way most losing traders do who apparently may not work hard enough, study hard enough, educate themselves long enough and apply themselves more than their fellow traders.
If you're going to advance in trading, a good question to ask yourself may be, "Are there any other ways to deal with and successfully negotiate a drawdown other than taking the most commonly-used choice of losers?"
The answer to this may enable you to reach greaters levels in forex trading than the majority who lose outright.
Gamal Saham Ruach
