Marc Walton on November 3, 2013
I know what you’re thinking…..you’ve already heard from your
co-worker, neighbor and mother that “Forex trading is just gambling, and
you can never make money.” So you see the title of this article and
think “Oh fantastic, now this guy is going to tell me just HOW much
trading is like gambling.” Sorry folks, but not only have I learned
that trading done responsibly is NOT gambling, but I don’t even consider
Texas Hold Em’ gambling once you get beyond a certain skill level.What I have learned though, is that there are many skills professional poker players posses that apply very well to trading. Sure, there is an element of chance involved in both…..but who are we kidding?? Every time you get behind the wheel of the car, or simply take another step outside, you are entering into life’s big wheel of chance of the billions of possible things that can happen to you. But do we simply stop driving or moving because there is a statistical chance that tragedy may befall us?? No way!! (I speak of most of us here) We choose the situation that serves us the best and go forwards in our lives. But back to our poker and trading discussion. Here’s a few things we can learn from poker to help with our trading:
- You Play the Player, Not the Cards: Beginners at poker are totally engulfed in the “nuts and bolts” of which hand beats this, what to do in this situation, how to bet, etc….. More experienced players realize that everyone gets the same random “roll” of the way the cards come out, but there is an advantage to be had in understanding how to psychologically beat your opponent. In trading, this comes down to the difference between learning “techniques” and how the market works versus your own personal psychology in your trading. I have found it is relatively easy to find out information about which methods work in the market, but remarkably difficult to become a psychologically successful trader. The former takes very little time, and the latter can take years to develop. To move further ahead in trading, as in poker, focus not on your system’s “failures” but your own psychological battles. Many times, rather than the system not being profitable, it is the trader who lacks the discipline and approach to make ANY system profitable.
- In The End, It’s YOUR Butt In that Seat: You can read all the books, watch all the pros on TV, but at the end of the day, you are your own player. No two players really play cards totally alike and simply asking your friend sitting behind you at the poker table “what you should do” won’t help you in the game. Why?? The other players will see that and change their game to compensate, either in the form of seizing on your weakness, or avoiding the hand altogether. It’s simply too dynamic just like trading. Having someone “spoonfeed” you trades isn’t going to help you become a better trader. Although it is wise to learn from others, the only true path to success in forex just as in poker is taking your own path and doing things your own way.
- Understanding The Odds Makes You a Better Player: More advanced pokers players can tell you both the odds of them winning the hand with what they’ve got, AND the reward/risk ratio of taking the next bet that’s out on the table. Having this depth of knowledge lets them make better decisions at the table. They get to play hands where they have the best chance of winning and they let the rest to play out. In trading, only going after the trades you have the best chance of winning is a much easier way to enjoy the wins and avoid the losses, rather than going after every opportunity the same. I like to go for the “low-hanging fruit” that gives me a high probability of success. Doing your homework and understanding the potential reward/risk of any trade is essential to this process. The “numbers” effect everyone the same, but what you can control is which opportunities you go after.
- Know When to Hold Em’, Know When To Fold Em’: A better poker player will know (usually) when they are beat, and not risk any more chips to make sure they have enough to cash in when they find themselves in a more favorable position to place a bet. Preserving capital while exploiting opportunity is the clearest way to steady gains. Keep your money off the table when you know you were wrong, and stay in the market despite the drawdown when you are most likely right. This can take time to get better at, but the first place to start is choosing a stop NOT in an arbitrary distance from entry. By using various forms of S/R and resistance as protection for your stop, you know if your stop is taken out, that the market has reversed (at least temporarily) and you should not be in a trade in that direction. By doing that, you can have more confidence if you face some drawdown, but won’t be tempted to move your stop further out if the market actually reverses and comes to take you out.
So, how’s this for fun?? We have several weeks of completely garbage markets because of the US govt. shutdown……then they get it “resolved” and we get our normal first week’s news at the end of the month of October. Happy Halloween!! This week of news made for some rough seas. As if that wasn’t enough, we now enter into a week where we finish with NFP (because they didn’t squeeze it in at the end of last week). As usual, expect anything, ranging from stagnant markets until Friday, normal markets, insane volatility all week, OR any combination of those things. We are certainly looking forward to next week, which should hopefully be the start of a brilliant 3 weeks to the end of the November. Excited yet??? Don’t let the moves that happened towards the end of last week scare you, but don’t deny them either. We may be looking at reversals on many pairs, but we haven’t gotten clear signs of that yet. Stay nimble, stay “small” (don’t gun for the big trades right now), and most of all stay cautious and within your comfort zone (clearer heads seem to prevail there).
Euro/$: Monthly candle seems a bit bearish but not all the way to finish October. We have pulled back to 1.3485 which is the area I am most interested in to start this week. Would very much prefer a long from this area if price reacts BUT I am not simply placing a forward order here. A pullback all the way to 1.3400 may occur, but I feel where we are now is likely the “reaction zone”. Explained in the video.
Gbp/$: Also a bearish candle to finish October, but the real “big picture” is that we are in a bit of a range between 1.5900-1.6225(50). Our trades are to long at 1.5900, or short at 1.6225-1.6250 until the range is broken on either side, then we look to M2 breakout-pullback trade those areas. Smaller timezones seem rather volatile on this pair, so if you do secure a winning trade, make sure you actively manage it to not give back the gain.
Aud/$: Seems to be pulling back to .9400 which of course gives us another opportunity to long from here. Should give us a nice ride up to almost .9600 and possibly all the way back to .9750. The monthly candle (October) closed above .9400 which is more validation that the uptrend is still intact. Check the vid for more details.
Euro/Gbp: Our monthly candle that just closed yet again confirms our areas of s/r. We may have witnessed a nice bottom weeks ago at around .8300 and we might be headed back to .8600, but we continue to bounce around from week to week. No clear trend established here so we will continue to work the important areas of .8440, .8360, and .8600 as price seems to be meandering between those areas. Check the video for more details.
$/Yen: Looking at the monthly situation, one gets a clear view that this pair is not bent on making big moves at the moment. So we must adjust to the current conditions and look for smaller trades. Market closed above 98.50 so we will look for reasons to long at this point to start the week, keeping in mind we want “point-to-point” trades from there to 99.50 or 97.50. To the upside, 100.00 and 100.50 are important and below further is 97.00. Until we see a really great reason on bigger timeframes to hold on to our trades longer, we should continue to try and trade between these areas, actively managing our trades as we go.
Euro/Yen: Still doesn’t look great, but at least it seems we have an area to work with. We are back yet again at 132.50 and that’s where we should look to trade. To the upside, 135.00 looms large overhead and to the downside, 130.80 is still support below 132.50. Conservative approach is just to wait, but there are opportunities on this pair if you look at smaller timeframes and the areas highlighted above.
Aud Yen: Although this pair certainly has been moving more than the other two Yens, it is still mired around the same areas we have worked for weeks now. 93.00 seems to be supporting price well, but a breakout below 92.50 and you can expect a fall all the way to 90.00. I am still interested in longing from 93.60 if price can make the breakout again from this area. Check the video for more info.
Usd/Cad: This pair continues to confuse on the longer timeframes, but it does seem to be swinging back up towards 1.0560. Look to long from 1.0400, or if price breaks above 1.0435, then from that area instead. 1.0500 and 1.0560 loom above for potential shorts, but any break above 560 would definitely have me interested in a long from that point.
Eur/Cad: The newest pair on the block, has two apparent options. The aggressive approach is to look for reasons to long from 1.4000 since we have a trendline and whole number there. The conservative approach is to wait for a re-break of 1.4100 and look to M2 long from there. Check out the video for coverage on this new pair.
New members please note: If I am looking to take a trade long, at for example 1.5000 , I place my order 10 pips above & 10 pips below for a short. This is because price often does not quite reach a major line and you need to allow for spreads.
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Hope you enjoy the analysis!! See you Wednesday for an update!! Best wishes and happy trading to all!!!