Two Common Trading Misconceptions
Reprinted from June 6th, 2008
One of the most common mistakes non-professionals make in trading is they believe market movement is pre-determined. No matter how easy it looks at times, with the technicals mirroring the fundamentals — as happened this morning w/ the non-farm payroll and the technical sell signal immediately following in the US stock indices, and the buy trigger in GBPUSD and sell trigger in USDJPY an hour later– market movements are not predetermined and we never know when a trade will be a nice winner or a small loss. Of course we always use stops, and we should never risk more than 2% of our risk capital, insuring losses are small. So if you ever hear yourself saying “this trade is a lock” lose the cockiness and remember your humility. Nothing is predetermined to the degree that 95% of the population thinks it is.
Another huge misconception amongst amateur traders centers around the argument of Fundamental vs. Technical Analysis. Choosing one over the other to me is like saying day is better then night, or spring better then summer. There is no doubt that fundamentals move markets, and that fundamental events and developments have a huge effect on the underlying structure of the market. Nor should there be any doubt that technicals are imperative in giving us signals and triggers at a specific time and price. They are yin and yang; you can’t have one without the other. No matter how influenced traders are by underlying and developing fundamentals I can almost guarantee that in most cases they use a technical trigger to help w/ timing and price. I will agree with technicians that you don’t need a fundamental understanding of influential news to make money as a trader, but having a sound foundation of how markets behave and how economics function i.e. fundamental analysis, can help a traders confidence more than hurt. Bottom line: knowledge gleaned from accurate fundamental information and the correct interpretation of it, coupled with a sound technical methodology, only adds to the professional trader’s effectiveness.
Jay Norris
www.trading-com
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments.
What is the best reference for fundamental info?
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