November 15, 2009
At The Top Of Your Game With Currency Trading
I had decided to write an article about punters in forex trading. I looked up various definitions of ‘punter’ on the internet in relation to this. Simply searching for ‘punt’ resulting in more definitions than I needed, so I focussed on the word ‘punter’. This lead to the definition I was after. The definition came from Britain, and describes a punter as a person who uses a bookmaker to place bets and gamble.
In terms of forex trading, what is a punter? There are no recognized definitions, but most people would refer to a forex punter as someone who follows his gut instinct, often trading against the market. A forex punter often appears to be gambling, rather than trading, and is in line with the definition I had previously found for the word ‘punter’.
Even after many years in forex trading, every now and then I find myself wanting to take a punt, but I am too disciplined to do so. This is the reason that I wanted to write the article. A reason for my desire maybe related to my early career as a bank trader. This was in the days before banks of screens covered the trading floor, and we had to rely on instinct to make trades. Alternatively, perhaps it is the development of electronic trading that makes it easy to be pulled into trading by constantly watching a price rise and fall on a screen. Whatever the reason, I know that no matter how good your instinct are, punting is unlikely to be method for long term trading success.
Gut instinct trades are not well thought through in terms of risk and reward. When you are on the right side of trading, the profits come too soon, but on the wrong side the losses come too late. Instinctive trades are based on the hope that you have timed it right to find wither the top or bottom of the market.
Today there was an event that encouraged me to begin to write this article. After the bank of Canada announced its decision on monetary policy – to keep rates unchanged – the USD/CAD firmed. The previous day, the rate had closed at 1.0298, after a sharp fall in line with a weaker USD. Before the announcement, trading was around 1.0310. However, afterwards, the price began to firm and punters were instinctively looking to sell at each pause. This was also my instinct, but experience told me to look at the charts and I abandoned the idea. Punters were lured into trading as the USD/CAD paused at various levels, but it carried on rising higher, until peaking at around 1.0525. Some punters may have been fortunate enough to gain a few pips, but the price action offered a poor risk/reward. The losses far outweighed the gains if the timing of entry was not perfect.
You cannot guarantee long term success by either punting or any other form of forex trading. If you currency trading is approached as though you were in a casino, in the long-term you will get the same results as though you were gambling in a casino. When forex trading is approached with solid business strategies, with good analyses, proper risk/reward rations and money management in place, the chances of success are much improved.
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