Trading always comes down to timing. To truly appreciate this, we simply need to note that one of the biggest gains in stock market history occurred on October 19, , during the day of its greatest crash. While most traders that day lost money, those who bought that bottom at 1: Conversely, traders unfortunate enough to have shorted at 1: If nothing else, the stock market crash of proved that trading is all about timing.
Timing is hard to master, but you can still capture significant gains on an ill-timed trade if you follow a few simple rules. The Advantage of Avoiding Margin What happens to traders who are terrible timers? Can traders who are poor timers ever succeed - especially in the currency market where ultra-high leverage and stop driven price action often forces margin calls? Some of the world's best traders, including market wizard Jim Rogers, are still able to succeed.
Rogers - and his famous short trade in gold - is well worth examining in more detail. In , when gold spiked to record highs on the back of double-digit inflation and geopolitical unrest, Rogers became convinced that market for the yellow metal was becoming manic.
He knew that like all parabolic markets, the rise in gold could not continue indefinitely. Unfortunately, as is so often the case with Rogers, he was early to the trade. Aside from his keen analytics and a steely resolve, what was the key to Rogers' success?
He used no leverage in his trade. By not employing margin , Rogers never put himself at the mercy of the market and could therefore liquidate his position when he chose to do so rather than when a margin call forced him out of the trade.
By not employing leverage on his position, Rogers was not only able to stay in the trade but he was also able to add to it at higher levels, creating a better overall blended price. Experienced traders are familiar with being stopped out or margin called from a position that was going their way. What makes trading such a difficult vocation is that timing is very hard to master. By using little or no leverage, Rogers provided himself with a much larger margin for error and, therefore, did not need to be correct to the penny in order to capture massive gains.
Currency traders who are unable to accurately time the market would be well advised to follow his strategy and deleverage themselves. Just like the common cooking saying, success in FX trading is based on the idea that 'slow and low is the way to go'.
Namely, traders should enter into their positions slowly, with very small chunks of capital and use only the smallest leverage to initiate a trade. To better illustrate this point, let's look at two traders. Trader A employs Trader B, on the other hand, uses much more conservative leverage of 5: When the pair rallies to 1.
Furthermore, as the pair rallies to 1. If the pair then finally turns down and simply trades back down to his original entry level, trader B already becomes profitable. Both traders made the same trade. Both were completely wrong on timing, yet the results could not have been more different. Jim Rogers' slow and low approach to trading, while clearly successful, suffers from one glaring flaw: While Rogers' method of buying value and selling hysteria has worked well over the years, it can very be vulnerable to a catastrophic event that can take prices to unimagined extremes and wipe out even the most conservative trading strategy.
That is why currency traders may want to examine the methods of another market wizard, Gary Bielfeldt. Gary Bielfeldt went long Treasury bond futures once rates hit those levels, believing that such high rates of interest were economically unsustainable and would not persist. However, much like Jimmy Rogers, Gary Bielfeldt was not a great timer. He initiated his trade with bonds trading at the 63 level but they kept falling, eventually trading all the way down to However, Bielfeldt did not allow his losses to get out of control.
He simply took stops every time the position moved a half or one point against him. He was stopped out several times as bonds slowly and painfully carved out a bottom.
However, he never wavered in his analysis and continued to execute the same trade despite losing money repeatedly. When bonds prices finally turned, his approach paid off as his longs soared in value and he was able to collect profits far in excess of his accumulated losses.
Gary Bielfeldt's method of trading holds many lessons for currency traders. Much like Jim Rogers, Bielfeldt is a successful trader who had difficulty timing the market. Instead of nursing losses, however, he would methodically stop himself out.
What made him unique was his unwavering confidence in his analysis, which allowed him to enter the same trade over and over again, while many lesser traders quit and walked away from the profit opportunity.
Bielfeldt's probative approach served him well by allowing him to participate in the trade while limiting his losses. This strong combination of discipline and persistence is a great example to currency traders who wish to succeed in trading but are unable to properly time their trades. A Little Technical Help While both Rogers and Bielfeldt used fundamental analysis as the basis behind their trades, there are also technical indicators that currency traders can use to help them trade more effectively.
One such tool is the relative strength index RSI. The RSI compares the magnitude of the currency pair's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to A value of 70 or more is considered to be overbought and a value of 30 or less is seen as oversold.
A trader who has a strong opinion on the direction of a particular currency pair would do well to wait until his thesis was confirmed by RSI readings.
Conclusion Timing is a vital ingredient to successful trading , but traders can still achieve profitability even if they are poor timers. In the currency market, the key to success lies with taking small positions using low leverage so that ill-timed trades can have plenty of room to absorb any adverse price action. However, trading without stops is never a wise strategy. That is why even poor timers should adopt a probative approach that methodically keeps trading losses to a minimum while allowing the trader to continuously re-establish the position.
Finally, using even a simple technical indicator such as RSI can make fundamental strategies much more efficient by improving trade entries. Some of the greatest traders in the world have proven that one does not need to be a great timer to make money in the markets, but by using the techniques discussed above, the chances of success improve dramatically.
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The answer is yes. Figure 1 Conclusion Timing is a vital ingredient to successful trading , but traders can still achieve profitability even if they are poor timers. How much a fixed asset is worth at the end of its lease, or at the end of its useful life. If you lease a car for three years, A target hash is a number that a hashed block header must be less than or equal to in order for a new block to be awarded. Payout ratio is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage.
The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as No thanks, I prefer not making money. Get Free Newsletters Newsletters.More...