Understanding Currency Trading Dynamics

Most books and courses on the subject of currency trading say that it is normal for beginners to lose money at first. Some even go as far as to say that it is normal to have a losing streak that lasts for several months! This philosophy stems from the rationale that after losing significant amount of money, you will have more experience and knowledge in your future trading endeavors. If you went by their standards, how much of your hardea
ed money will be left in a few months? This type of attitude sets you up to fail. Why enter a battle if you are destined to lose? The only purpose for such advice is for currency and futures brokers and dealers to make money on the spreads and commissions that you will pay to them. More often you trade, more profits for your broker or dealer. Day trading in its purest form may have worked in the late 90’s for traders who were trading volatile high tech stocks.

Some traders also called “scalpers” were getting in and out of positions in matters of minutes, even seconds and were making their profits on small differences between bid and ask price. However, those days are now gone. In currency trading, if you are planning to scalp, or if you are planning to jump in and out of positions all day long you will not last long. I can guarantee you that. Also if you plan to purchase an X amount of Euros, GBP or Swiss Francs and just forget about them in a “buy and hold” fashion, most likely you won’t get anywhere. Currencies do not behave in the same fashion as stocks or stock market indexes for the reasons that we have described earlier.

Well, if you should not day trade and you should not buy and hold, what should you do? The best approach to currency trading is called swing trading or short term trading where you hold your positions for periods anywhere from few days to few weeks, and very rarely for a few months.

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