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Two Common Trading Misconceptions
Not only have I gotten to learn from my own mistakes, in my position as a customer man, I get to learn from the mistakes of others. 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 800-971-2154 [url]www.brewerfx.com/jnorrisedu/[/url] 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. The impact of such events is already factored into market prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from Brewer Investment Group, LLC or its affiliates that you will profit or that losses can or will be limited in any way. Loss-limiting strategies such as stop loss orders may not be effective because market or technological conditions may make it impossible to execute such orders. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only, was obtained from sources believed to be reliable, but is in no way guaranteed.
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