Power Lesson 1: Right And Wrong

Being right about the overall direction of the market does not guarantee profits. In fact, it is possible to be wrong about the overall direction of the market and still be a very profitable trader. 

Novice traders often place too much focus on “trying to figure it all out”. Surely, it is possible to predict general market direction. Consider for example the recent dramatic rise in the euro against the US dollar (this is being written Feb 2003). With such strong macroeconomic reasons to support this move, many were able to predict the euro’s appreciation. Despite this foreseeable move, however, the euro’s rise did not come without hiccups. Indeed, in July of 2002, many traders who had the right overall view of being long euro, sustained significant losses as the euro temporarily made a sizeable move in the opposite direction. 

Because of market volatility, most traders do not have the financial resources or the patience to take advantage of the macroeconomic trends that move the market over the long term. In a market that constantly zigzags, tracing and retracing on the way to establishing its long term trend, long term traders must be prepared to weather short term losses when right about market direction or large losses when wrong. Conversely, short and medium term traders are able to determine whether their trading strategy is right or wrong early thus minimizing potential losses. Moreover, since currencies fluctuate constantly, there are many opportunities for short and medium term traders to profit from small fluctuations, trading 5, 10, and 15 times a day.

There are many benefits of short and medium term trading over long term trading in the spot currency market. The FX Power course focuses on showing traders how to use the right tools to determine what moves markets in the short to medium term and, in turn, maximize trading performance.