Wednesday, October 16, 2013

Waiting for a resolution in the US debt talks reminds us: You can only take from the market what it will give you

As all traders wait to see if the most important economy on the planet can overcome the restrictions it has imposed on itself regarding its borrowing and start functioning again, or whether it will go ahead and default on its debt obligations and trigger what, according to many analysts, would be as big a catastrophe for the global economy as the collapse of Lehman Brothers, it is wise to remind ourselves that we are always dependent on a level of volatility in order to be able to profit from trading.

Right now the volatility index (VIX) shows that activity in the EURUSD, the most widely traded of all Forex pairs, is at its lowest for the last six years.   

Part of Omicron Forex training and the Omicron Forex Trading Manual is the subject of Trading Psychology. This emphasises the need to have a stable, realistic and positive mental attitude in your Forex activities.

One of the most important things to understand in this context is that you can only take out of the market what the market will make available. This can best be illustrated by imagining an extreme case, that of where there is no activity at all - price remains the same at all times and the charts show a straight, horizontal line. If such a thing were to happen there would be no opportunity to make profits, period.

It is also reasonable to suggest that there are situations where the price action, although not completely stopped, is very low. So low, in fact, that trading opportunities are of such poor quality that they might as well not exist. Because in addition to making small moves, such low volatility also makes the market direction unreliable.

When these conditions are present, there is nothing, but nothing, that the individual trader can do to change them. All he or she can do is wait.

So it is a big mistake to beat yourself up for finding trading difficult on a low volatility time, which is what we are going through at present.

What you must do is train yourself to be able to see such occasions for what they are: part and parcel of the trading environment, just like losses from time to time.