Why the scalper is the potential biggest losers in forex trading?

Most novice traders thinks that utilize every ups and downs of the market fluctuation will make the most profits out of forex trading and that is fundamentally true if most of the trades goes their way. However that is not the case happening to most people - in fact scalp trading is high dangerous especially with stop losses.

Just remember this - all the technical indicators including MACD, Stochastic, Support / Resistance, Price Actions, etc has its disadvantage at times and it is not always according to what is predicted. In fact the perfect so called forex signal will fail and that's where you should be weary at all time in all time frames.

In high market volatility is where most of the technical indicators will fail as the price swing ups and downs defying all indicators' signal in high volume. Even the ideal support / resistance becoming dynamic and it doesn't all fall at the same place. This is where the market makers will take advantage of the scalpers because they know perfectly how to play your emotions to make it looks unbelievable.

1. Scalpers with stop losses - will fail immediately

2. Scalpers without stop losses will fail miserably as confident wearing out.

Let's analyze why?

The market makers where you trade have all the data about your trading activity at all times - and they will utilize this to take advantage of all the small traders because they know you cannot afford to loose a lot. The scalpers have the habits of winning few pips and close while putting stop losses and they know exactly this behavior.

Scalpers with stop losses will fail immediately when the market goes against their trade and hit the stop losses. This is too easy for the market makers to destroy especially small scale stop losses they could swing once and kill many over and over again until no one dare.

Scalpers without stop losses will fail miserably and confident eventually wearing thin - by the high volume trades against them. The market make easily making the trade looks unbelievable until the great fear starting to kick in. Eventually the these type of scalpers close prematurely in high volume losses and then the market reverses with unimaginable regrets.

Some forex gurus out there suggest to scalp on trending market instead of ranging market. That is not true because the market maker have the money at any landscape of the market direction. For example the is making corrections while on uptrend - so the scalpers expect that the market will definitely goes up. But instead it goes further way down to an unbelievable territories forcing the scalpers to think that it has changed direction. If they wait it will keep further down until close then it will swing back up.

Therefore being a scalpers in forex trading is more to lose than as swing traders - the problem is simple small pips / money are too little for the market maker and small time frame is the perfect territory to execute temporary executions against all the small traders.

Holy Grail or Perfection - Does not exist in Forex.

Whoever seek for the Holy Grail they will fail big time, because perfection simply does not exist in forex trading for the following obvious reasons:

Currency Correlation

The inter-relation between currencies can affect great one another at any moment. At any particular moment the unexpected can happen when one of the pair is making a significant move. So the most affected part in trading by the currency correlation is the timing of movement and also the volume.

News Traders

The fundamental or news traders rely so much on the outcome of the economic data. So they will place their order according to the news expectation. Even though the news might not follow their expectation, and as long as the crowds are on their side the market will move according to their will. News traders are playing like the head and tail games, hoping that they are correct on one side.

Long Term Traders

They are usually cause the big movement to the market, as they only spot the long-term movement and setup their trade position at significant point of support and resistant.

Technical Indicators & Settings

Each traders has their own preference of which indicators and settings they use. The impact of these differences making the market unpredictable at times because everyone applying their own ways.

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Currencies correlation - monitoring!!

As one of the most significant factor in the volume of market movement currency correlation playing big roles in movement the market unexpectedly either opposite direction or overbought oversold.



Take for example today EUR-USD and GBP-USD which their movement are very identical to each other. However the volume at how much they move is different and this is closely correlated to the EUR-GBP movement.

Today's analysis Example.

The expectation towards EUR-USD should be moving upward after reaching resistant at 1.4307 however it never happens and instead keep moving downward deep down to 1.4287. However the GBP-USD making a correct movement where it swing back to 1.5961 after reaching resistant level at 1.5836.

So at this temporary point the identical movement of EUR-USD and GBP-USD is temporary off track. This is resulted by the movement of EUR-GBP which is going down big time making the Great Britain Pound stronger than the Euro.

Therefore next time when you trade the EUR-USD and GBP-USD take note of the EUR-GBP which has the direct impact on their movement. This is one unpredictable factor.

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Difficulties to decide in trading - MACD and Fibonacci

The intention to setup a trade position is not only about to make profit but also setting it correctly so that it does not incur losses. However it is not that easy to decide where is the best setup position when traders are using many methods and strategies which affect the market movement significantly.

In this blog i would like to discuss about two indicators that i feel significantly affect the market but at the same time contradict the signals of one another. The result of this contradiction often caused confusion and making it very difficult to decide when to open position in trading. The indicators are combination of MACD and Stochastic Vs Fibonacci.

The environment of trading where both indicators usually contradict each other is when the market moving in support & resistant area. Where some traders will apply fibonacci as their setup while others use MACD and Stochastic combination.

MACD and Stochastic

At some point MACD and Stochastic can be very confusing when used in support and resistant trading, because it does not require both indicators to be in the same direction to confirm the market movement. In fact stochastic can be more superior than MACD, because traders wants to make fast movement ups and downs. This is not the only factor that need to be considered but also the time frame at which the significant movement will take place is also important. At most popular time frame based on observation is 1 hourly and 4 hourly are very common.

Fibonacci.

The fibonacci traders prefer to use the level of movement based on Fibonacci indicators that they apply on the chart. The significant market movement will take place based on the fibonacci level point regardless of the direction of MACD and Stochastic. Most often traders will use the previous movement to decide their setup position.

So as a result of the above contradiction it is extremely difficult to decide where to setup trading position when they are not synchronize. In this article i am unable to provide solution to the problem, in order to study this problem you need take closer look at the chart and carefully take note of the statistical data.

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My Fundamental Perspective - forex gambling

Even though i believe in the influence of fundamental factors on the market movement but i am not a keen fundamentalist practitioner when it comes to forex trading. In my opinion using the fundamental is like a gambling game. I have come to this conclusion after some of my observational experiences failed to discover consistent patterns that i can rely for over 3 years now. Perhaps the experience fundamental traders could explain more about this but i have a point to tell you why i believe it a gamble

Let's us evaluate one intriguing fundamental situations that we face everyday.

Consider a situation where you have access to the major central bank staff who is responsible for the economic data release everyday. In which the case you are always been informed ahead of others about the results of economic data that will come out on daily basis. Where as the major crowds is behind you. Since you hold the knowledge of the results, you have the ultimate confidence to open trade position based on the economic data expectation. During the release event itself the uninformed crowds are becoming anxious where some will open their trade position according to the data and some others on the opposite. In an unexpected situation suddenly there are more major crowds opening their bet against you. So you are obviously losing because the crowds are not on your side where the most money party is the winner. So think about it again even having the knowledge of the data release may not help you much in this kind of situation.

My best observation of such case is during Non-Farm payroll data release where the market moves very fast in extra-ordinary volumes within minutes or seconds. Despite ofmy long time observation still i failed to discover consistent patterns to address the exact direction of the market and occasionally losing in this special event in forex trading.

It is one of my great challenge to understanding the forex fundamental that eventually making me losing my interest of studying them to the deepest level and nearly stop in doing so nowadays. I used to ignore the news release and stay away from trading during those turbulence hours. I believe it is enough just to know the fundamental factors shake the market temporarily and use technical indicators to measure the spill over and trade the correction part.

USD-CAD Technical Analysis (24 May 2009)

Recent downturn of USD-CAD is the result of upside major correction which takes place for the 3 months earlier. At this point we witness again that the US Dollar is still not yet recover from weakness against the Canadian Dollar.

Throughout my personal experience this is normal and it shows that USD-CAD recovery is nowhere near. Historical statistic from my observational experience there are two possibilities in this case that the pair might target the middle bollinger band lines of the weekly time frame or worse case back to the bottom.

However since the pair is moving from the top bollinger band line therefore the perfect target with the highest probability should be the middle band line. If it moves directly to the bottom band then it is oversold again. Anyway we do not want to speculate too much in this case because the unexpected can happen anytime. This is proven as it happens time and time again during my years of trading observation and analysis.

Based purely on technical perspective we can expect that the USD-CAD should reverse upside again by the month of June. We will wait and see...

AUD-USD Technical Analysis (24 May 2009)

AUD-USD recent upward movement is one special case that we cannot predict in forex. By right based on weekly slow stochastic and candlestick counting (weekly time frame) it should move down, but in reality it chose to move up (overbought). This is where many traders can fail if they rely too much on their technical indicators and strategies to predict the market direction.

Even though this phenomena happens occasionally but the impact is like losing frequently. At this point you have no idea if the market will continue the overbought or reverse soon. Throughout my long-time observation i have encountered many situations like this and despite of my familiarity with it still i failed to avoid losses when it happens. This is because i just cannot predict when exactly the market will move.

Therefore sometimes i just use my guts feeling to trade and usually close my position if it is not moving according to my expectation after a certain period of time.

Something we don't know that you need to know in Forex Trading

As i was come from the rank of novice trader, i used to boast about my system telling people how accurate and effective it is. Day by day i am looking to improve the system into a perfect precise indicators to predict the exact time of break outs and also the distance from the initial until the end of the break outs.

However none of this will eventually work in the end and now i still prefer to trade within the range of safety zone and not to push myself to the limits where it should ended or precise setup. Why is this so?

Experience tells me so, when i come to realize that there are some unpredictable factors that playing bigger role in the currency market such as follow.

1. The number of people trading during a single day trade?
No body can predict or gather a statistical figure about the number of people trading in the forex market on daily basis. Even there is no technology yet to do this. If there is, then this will become an important factor to estimate the amount of money traded daily.

2. The amount of money traded on daily basis?
If we know the number of people trade in daily basis, we can determine the estimated volume of money traded. By knowing this we can precisely setup trading position at the correct place and estimate precise limit of movement based on the volume traded.

3. When will everyone place their trade?
This is an important questions that is never been solved in every minutes of trading. This effect can be seen on the daily trading chart of as to why there is short or long candlestick. Because not all people set up their trading at the same time.