Be Less Dumb – Avoiding Trading Traps Part 2
In the second part of my series I take a look at the common market traps that befall us all
Try our Forex Trading Signals and Trading Club for:
Known event risk
Someone once quipped that dying was easy -- comedy was hard. Sometimes I feel that the same can be said about trading. Markets are notoriously fickle. In FX where the news never stops we can step on a landmine at any given point in time. An unexpected sovereign downgrade, natural disaster, political scandal. You name it -- during the course of a day anything can happen and quickly wreak havoc with your trading position.
My point is that there are plenty of unknown surprises in the market that can trip us up, so we do not need to endanger ourselves further by stepping in front of known event risks. I run a variety of systems on my accounts but I try to turn them off in front of key events. If you are running negative risk reward strategies it is always better to give up the profit than to take on an unnecessary loss.
Event Risks That I Avoid
NFPs This is the stupidest trade you can make. One time I calculated that consensus view on NFPs was off by more than 20K 16 out of 20 times. The market is wrong 80% of the time. In short nobody knows anything. Trying to handicap the US labor number is a suckers game. Worse trying to handicap the immediate market reaction to the US labor data is an even bigger gamble. It is generally much better to wait, process the data and then trade off the reaction.
The rule about avoiding the NFPs extends to the labor data of other countries. especially the commodity block where small populations can create massive divergence from expectations and destroy you if you are on the wrong side of the trade.
Central Bank Meetings Central banks ARE the FX market. What they say can reverberate for days, weeks and sometimes months. It is much better to process their message and then react. The market will not adjust instantly. If the central bank decides to change course the market will change with it. Witness the BOJ and USD/JPY. If you run a system in front of central bank meeting you are begging to be stopped out. Totally unnecessary trap.
G-20 Meetings, Eco Fin Meeting, Endless EU Rescue Meetings What would politicians do without meetings? They probably couldn’t exist. Most political meetings are a waste of time. A lot of these meetings are routine -- but if they are meeting over the weekend you can bet that s* is about to hit the fan. A good rule of thumb to use -- if you see Angela Merkel’s face on the front page of the business section, avoid taking a position before she speaks.
I’ll conclude this week piece with a quute from last week -- the motto for success in our business is Be Less Dumb.
The key to making money from the markets does not lie developing in a newfangled system every week. It is much more dependent on avoiding the common traps that occur day and day out. The markets will naturally force us to make plenty of mistakes, no need to add to the problem by making unnecessary ones.
This of it this way. You can probably run across a multi lane highway in the middle of the night and avoid getting hit by a Mack truck -- but why the f- would you want to?
Like to trade the EUR/USD? So do we!
At BKForex, a large part of our trading is short term and the EUR/USD is one our favorite currency pairs to trade.
The EUR/USD is the world’s most actively traded currency pair and for many forex traders, this activity provides opportunity.
Sign up to receive our FREE 17 Page EUR/USD Trading Strategy
*By signing up for this strategy you agree to receiving promotional emails from BKForex.com