FOREX TRADER

Avoiding mistakes in forex trading

By Abe Cofnas

slow down the weakening of his curthese events, professional traders

rency, then we must wonder
take cover and see what happens.
difficult challenge facing a tradwhether there is fear the opposite
The retail trader also should let the
er, and particularly those tradwill happen. In this case, that was
market digest such shocks.
ing e-forex, is finding perspective.
the outcome as on Dec. 14 the dollar
Trading during an announcement
Achieving that in markets with reguvs. the yen surged to a three-year
or right before, or amid some turlar hours is hard enough, but with
high. The Prime Ministers statement
moil, minimizes the odds of predictforex, where prices are moving 24
acted as a contrarian indicator. This
ing the probable direction. Technical
hours a day, seven days a week, it is
is what fade the news means.
indicators during surge periods will
exceptionally laborious.
Often, a bank analyst or trader will
be distorted. You should wait for a
When inundated with constantly
be quoted with a public statement on
confirmation of the new direction
shifting market information, it is
a bank forecast of a currencys move.
and remember that price action will
hard to separate yourself from the
tend to revert to pre-surge
action and avoid personal
ranges providing nothing
responses to the market.
NEWS YOU (DONT) USE
fundamental has occurred.
The market doesnt care
Often, news that might seem definitively bullish to someone
An example is the Nov.
about your feelings.
new to the forex market might be as bearish as you can get.
12 crash of the airplane in
Traders have heard it in
Queens, N.Y. Instantly, all
many different ways the
currencies reacted. But
only thing you can control
within a short period of
is when you buy and when
time, the surge that
you sell. In response to
reflected the tendency to
that, it is easier to know
panic retraced.
how not to trade then how
to trade. Along those lines,
here are some tips on
3) Simple is better. The
avoiding common pitfalls
desire to achieve great
when trading forex.
gains in forex trading can
Source: Quote Spread
drive us to keep adding
indicators in a never-end1) Dont read the news
ing quest for the impossianalyze the news. Many
GETTING THE POINT
ble dream.
times, seemingly straightMarket analysis should be kept simple, particularly in a fast-moving
Similarly, trading with a
forward news releases
environment such as forex trading. Point-and-figure charts are an
dozen indicators is not necfrom government agencies
elegant tool that provides much of the market information a trader needs.
essary. Many indicators
are really public relation
0.93
just add redundant inforvehicles to advance a parEuro (25 pips x
mation. Indicators should
ticular point of view or pol3-box reversal)
0.91
be used that give clues to:
icy. Such news, in the
1) trend direction, 2) resisforex markets more than
0.89
tance, 3) support and 4)
any other, is used as a tool
buying and selling presto affect the investment
0.87
Support at 0.8875
sure. One tool helpful with
psychology of the crowd.
all of these factors is the
Such media manipulation
0.85
point-and-figure chart (see
is not inherently a negaGetting the point).
tive. Governments and
Point-and-figure charts
traders try to do that all
are one of the earliest forms of techthe time. The new forex trader must
When this occurs, they are signaling
nical analysis. Now, with technology,
realize that it is important to read
they hope it will go that way. Why
they are easier for traders to use
the news to assess the message
put your reputation on the line, saythan ever before. While point-andbehind the drums.
ing the currency is going to break
figure analysis is available on several
For example, Japans Prime
out, if you dont benefit by that
stand-alone programs, most online
Minister Masajuro Shiokowa was
move? A cynical position, yes, but
platforms do not offer these charts.
quoted in a news report on Dec. 13
traders in the forex markets always
A few that do are www.quotespeed.
that an excessive depreciation of the
need to be on guard. Read the news
com, www.chartanalytics.com and
yen should be avoided. But we
with the perspective that, in forex,
www.dorseywright.com.
should make efforts and give considhow the event is reported can be as
FM
eration to guide the yen lower if it is
important as the event itself.
relatively overvalued.
Abe Cofnas is president of Learn4x.com,
When a government official is ask2) Dont trade surges. A price surge is
which provides education for forex traders.
ing, in effect, if traders would please
a signature of panic or surprise. In
E-mail: learn4xtrading@aol.com.

24 www.futuresmag.com February 2002

Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.

Copyright 2002 by Futures Magazine Group, 250 S. Wacker Dr., Suite 1150, Chicago, IL 60606

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