Forex and the Art of Timing

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At this precise moment in time there are four ordinary people trading the British Pound (GBP) versus the U.S. Dollar (USD).

There is nothing surprising in that. In fact many thousands of people are at this precise moment, most likely doing exactly the same.

What you may find surprising about these four individuals, lets call them John, Mary, Joe and Susan, are their individual trade results so far. Remember, they are all in their trades right now.

John is long the GBP and is showing profit. Mary is also long the GBP and is showing a loss. Joe is short the GBP and is also showing a loss. Susan is also short the GBP and is in profit.

Why is this?

If you take a look at a long term chart of the GBP/USD you will find that the GBP has been in an up trend since around February 2002, starting at a price of 1.3931 and has risen at it’s zenith to 2.0652 a rise of 6,721 pips or a reward of $67,210 for 1 standard lot at 100:1 leverage (not allowing for roll over interest), and is currently at a price of 2.0312

John bought the GBP against the USD in May 2002 at 1.4461. He got the timing right and is currently showing a profit of 5,851 pips or for 1 single standard lot at 100:1 leverage, $58,510 (not allowing for roll over interest).

Currencies tend to trend rather well over time, but they do not move in a straight line. They have periods when they are trending, periods when they retrace, periods when they consolidate and periods when they resume the trend.

Currencies can also reverse the trend and establish a new trend in the opposite direction, but we are looking at the GBP/USD which at the time of writing is still in the same direction of trend that it has been in since 2002.

Mary unfortunately got the timing wrong. She bought the GBP/USD on July 24th 2007 at 2.0650 and is currently down 338 pips or minus $3,380 (not allowing for roll over interest).

Joe also got his timing wrong when on March 31st 2006 he sold the GBP/USD at 1.8248 and is currently showing a loss of over $20,000.

Finally, we look at Susan’s trade. She sold the GBP yesterday at 2.0473 and is currently in profit by 161 pips.

So what is the lesson here? Despite what people may say, trading the Forex market is not as simple as deciding “Will it go up? or Will it go down?” because as you can see from the example above, even if you are right – you can still make a loss if you get the timing wrong.

One of the important aspects of trading is being on “the right side of the market”. You could say that in some respects, like life in general, “timing is everything”.

Article Source: http://depositarticles.com/

Martin Bottomley is a full time professional forex trader, forex tutor, acknowledged author and co-developer of forex trading software including The Amazing Stealth Forex Trading system. He is featured in the forthcoming book “Millionaire Traders” You will find more information at: www.stealthforex.com

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