realize it, their financial risk can befar greater than just the money in their accounts. In futures markets especially, where bad weather or geopolitical unrest can cause several days’worth of limit up or limit down moves when price movement is capped bypredetermined rules, many speculators have lost not only their accountsbut their whole net worth after having to meet massive margin calls fromtheir brokers.FX is different. Because markets are open 24 hours a day, dealers can
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TECHNICAL ANALYSIS OF THE CURRENCY MARKET
always find liquidity and therefore offer guarantees to traders that theywill never lose more money than they put into their accounts. To be sure,margin calls in FX are automatic—there are no circumspect calls from account executives asking for money or even informing the trader of the factof the margin call trigger. The dealer’s risk management software simplycloses out all positions the second they breach margin levels as machinesperform the task with brutal efficiency. But the advantage is that traderscan sleep soundly knowing that their risk is strictly limited.It is because of this unique feature of the FX market that some traderslike to utilize the extreme leverage offered by the market makers. Forthese traders, the high leverage and the automatic margin call feature turnthe FX trading into a de facto option contract on steroids. Imagine the following. You are a retail trader who has allocated $10,000 for speculativecapital. However, instead of putting all $10,000 into your FX account youdeposit only $1,000 and keep the other $9,000 in your bank account. At400:1 leverage you can control up to 400,000 units of currency with justthis $1,000 deposit. However, under those circumstances even a 1-pointmove against your position would trigger a margin call, so instead you decide to trade a maximum of 200,000 or two standard lots. With margin setat $250 per lot you will have $500 of available margin for your position:$1,000 initial deposit– $500 margin requirement ($250 × 2 lots = $500)= $500/2 lots = $250 or 25 points of riskIn other words, you have just created a position that acts very muchlike a long option trade; that is, your upside is uncapped while your risk islimited to capital invested. In reality the risk is even less, since presumably your position would be liquidated with $500 still in the account minusany slippage that may occur. Even better than a real-life option, the position has no expiration date and its delta is 1, meaning that you will participate in any profitable move point for point with price.Thus, while leverage is clearly dangerous, this particular strategy ofjudiciously deploying only controlled portions of your speculative capitalmay work quite well for aggressive traders who like to maximize theirtrades. After all, going back to our initial example, if the trader was correct on direction and EUR/USD moved 200 points his way, he would beable to bank $4,000 of profit (200 points × 2 standard lots at $10 per point)on risk of little more than $500. Unfortunately, most novice traders do nottrade like that. They will instead put all of their speculative capital intotheir account at the highest leverage possible, take a trade that goesagainst them without leaving any stop-loss orders, and then watch help-
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FX 101
lessly as their position is finally liquidated with less than a quarter of theircapital left.High leverage presents yet another problem—it leaves the trader withvery little room to maneuver. The higher the leverage, the smaller the margin for error. Even in our previous example where you, the trader, useonly a small portion of your overall capital, your biggest possible drawdown before margin call liquidation kicks in is only 25 points. Given thefact that the average daily range in EUR/USD can exceed 100 points, youcan easily be stopped out of a trade that could eventually move your way.That’s why many successful traders use the opposite approach. Taking advantage of mini or even micro lots, they trade with a very small leveragefactor and instead scale into trades over large price ranges in order toavoid frequent stop-outs and achieve a blended price closer to actual market price.
LEARN THE CARRY OR PAY THE PRICERegardless of how it is used, leverage is a critical aspect of currency trading that leads us to a discussion of the most common trading strategy inthe market—the carry trade. In FX every currency carries an interest rate.These interest rates are set by the central banks of their respective countries, and within the industrialized world can vary widely (see Figure 1.3).In 2005, for example, one of the largest interest rate differentials existedbetween Australia and Japan. The Australian economy, buoyed by a hugedemand from China for metals and commodities, has experienced stronggrowth at the beginning of the new century, with unemployment reaching
FIGURE 1.3 Central Bank RatesSource: DailyFX (www.dailyfx.com).
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TECHNICAL ANALYSIS OF THE CURRENCY MARKET
all-time lows and the housing market booming. In order to control growth,the Reserve Bank of Australia steadily increased interest rates until by2005 they reached 5.50 percent. Meanwhile, Japan’s central bank, trying torevive the country’s economy after its decade long bout with deflation,maintained an ultra-accommodative monetary policy, setting interestrates at 0 percent. Thus the spread between the two interest rates was5.50 percent, establishing the groundwork for the carry trade—the mostpopular FX strategy among the multibillion-dollar hedge funds.The premise of the carry trade is simple. A trader goes long the currency with the higher yield and short the currency with the lower yield. Inthe case of the AUD/JPY trade, the trader would receive 5.50 percent annual interest on his long Aussie dollar position while being obligated topay nothing on his short yen position because JPY interest rates were 0percent. The net spread on the trade would be 5.50 percent. If the price ofAUD/JPY did not change by even 1 point from the time of the trade to oneyear forward, the trader would still be able to harvest 5.50 percent inprofit from interest income alone.While a 5.50 percent annual rate of return may seem only mildly interesting, the true power of the carry trade comes from leverage. The verysame trader on only 10:1 leverage would now earn 55 percent per year,even if the currency pair remained completely stationary. If the trade alsogenerated capital appreciation of 5 percent or more, on 10:1 leverage returns could jump to triple digits!The carry trade explains the principal dynamic behind hedge funds’outsized compensation schedule, which typically translates to 2 percentof gross assets and 20 percent of net profits. Yet the principles of the strategy are extremely simple, and some may wonder just why these mastersof the universe are so well paid. Whatever the reasons, the key question is:Why is the carry trade important to the technically oriented trader? Fortraders who intend only to day trade and close out all their positions by 5P.M. EST (the official close of the trading day in FX), the answer is that it isnot important at all. However, for any swing or longer-term trader, ignorance of the carry trade can be an expensive lesson to learn. Note thattraders who are on the positive side of the carry will receive an interestcredit into their accounts every single day. However, traders who areshort the carry trade will have interest deducted from their accountsevery day. On currency pairs with large differentials the cost per day canquickly add up. Consider the GBP/JPY pairing, which at the time of writing (summer of 2005) had a differential of 475 basis points. Every day atrader who was short the pair would be debited 2.5 points (or approximately $25). That may not sound like much, but note that at 100:1 thetrader would need to put down only $1,000 to control 100,000 units ofGBP/JPY, and after only 10 days fully one-quarter ($250) of his margin
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would be eaten away by the carry trade costs. Imagine the trade lasting1,001 days during which the trader would pay $2,500 in interest rate costs,fully 2.5 times his minimal required margin! Now perhaps you can appreciate why even the most technically oriented trader needs to know aboutthe carry trade. In FX the dictum is: Learn the carry or pay the price.In FX even many traders who are pure technicians will not tradeagainst the carry. Yet trading in the opposite direction of the carry can bevery profitable as well. Currencies with the widest differentials in interestrates often have the highest-volatility moves. For traders who thrive onvolatility this is a tremendous gift. Using tools and techniques that I willshow you, you will be able to better time your entries and possibly capture the huge swings in price that result from many speculators exiting thecarry trade all at once. However, the key rule about countertrading thecarry trade that nobody should ever forget is: Be right or be out.A few final warnings about practices to watch out for: The carry tradeinterest is paid at the discretion of the dealer, but carry trade interestcosts are always charged. Before opening an account with a dealer, always ask what the rules of the house are. Some dealers are terrificallyforthright and will pay you interest on any amount of capital you mayhave on deposit and will even compound it for you hourly. Other dealerswill ask that you trade on 2 percent margin or higher but will offer someof the highest carry credits in the business. Yet other less-scrupulous dealers will not pay any credits on the carry and will charge interest on countercarry positions. Finally, the absolutely worst dealers may offer asmattering of interest credit but will charge upwards of 300 percent of actually carry costs for anyone trading the countercarry position. To translate that into actual numbers, if the true carry cost on GBP/JPY is about2.5 points or $25 per day, these dealers may charge 7.5 points or $75 perday, turning what is essentially a common financial service in the FXworld into a surreptitious profit center for the firm.How do they get away with it? Ignorance. Many traders are not evenaware of the interest rate dynamics of currencies that underlie the carrytrade. These novice speculators blissfully trade away their capital withouteven realizing they are being fleeced.
GOOD TECHNICIANS KNOW THEIR FUNDAMENTALSCan you trade FX from price charts only? Yes, but that would like fightingwith one arm tied behind your back. FX is a news-driven market, and basicawareness of fundamentals is tremendously helpful to your success as atrader. You may find it amusing that a book on technical analysis is espous-
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TECHNICAL ANALYSIS OF THE CURRENCY MARKET
ing the value of fundamental data, but having a clear idea as to what fundamental factors matter to the market helps the technical trader to properlyassess the technical picture. Just as the gastroenterologist will want toknow what you’ve recently eaten so that she may analyze the results of anupper gastrointestinal tract exam in proper context, so, too, a technicianwill be able to draw more accurate conclusions from price patterns if heknows and understands the impact of economic news. Many technicianslike to dismiss fundamental data on the grounds that it is often complexand contradictory and that currencies will frequently react in the exact opposite way from what fundamental data would indicate. This is certainlytrue, and doubly so for the day-to-day economic releases, which canmuddy short-term trading with volatile swings up and down. However, major economic news is vital to understanding and succeeding in the market.Understand the story and you will understand your trade. It is far easier tohold a technical position on both emotional and intellectual grounds if thefundamental picture supports your position.Bruce Kovner, one of the largest and most seasoned currency speculators in the world, a man so good that other traders give him their retirement funds to manage, summed it up best in Jack D. Schwager’sseminal book, Market Wizards (New York Institute of Finance, 1989;HarperBusiness, 1993). When asked by Schwager what he thought wasmore important, fundamental or technical analysis, Kovner replied,“This is like asking a doctor whether he would prefer treating a patientwith diagnostics or with a chart monitoring his condition. You needboth.”Technical traders who trade price only, so as not to be confused bythe news, are simply being lazy in their decision-making process. Pricedoes not form in a vacuum, and a trader who is ignorant of fundamentalnews will not be able to adjust to or profit from the changing tone of themarket. As we’ll see later on, indicators that work great in one environment fail miserably in another; the key difference between success andfailure is understanding which trading regime the market is in andadapting accordingly. Truly great technical traders are always aware ofthe news backdrop and know how to exploit it with technical tools.Although the array of economic data released into the markets by various government agencies on a daily basis can be staggering—and it iseasy to understand how some traders can feel overwhelmed—understanding fundamental data in the currency markets is really quite simple.No advanced degrees in macroeconomics are required—really. Four keythemes drive the currency markets:1. Economic growth2. Interest rates
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3. Trade balance4. Political stability
Economic GrowthAn expanding gross domestic product (GDP) will take care of a multitudeof sins. The most basic and fundamental fact that FX markets like to focuson is the strength of economic activity. Much like individual companyearnings, the country’s gross domestic product measures the basic healthof the economy. If GDP is expanding rapidly—and most importantly ifthat growth takes place in a noninflationary environment—the currencymarket will most likely bid up the currency due to investors’ desire to participate in this positive story.
Interest RatesThis factor relates directly to our friend the carry trader. Typically, wheneconomic growth picks up, the country’s central bank will begin to increase interest rates in order to prevent too much speculative activity inthe economy from creating imbalances and inflation. As interest rates increase, carry traders flock to the currency and bid up its value. The oneexception to this scenario is if the central bank raises rates not as a policyresponse to rapid growth but as a means of curtailing runaway inflation.Such circumstances would suggest that the country is awash in too muchmoney stock, and the FX market would therefore be wary of bidding upthe currency regardless of what interest rate was attached, as the fear offurther debasement of the currency would outweigh the reward of ahigher yield. A good way to understand why that happens is to imagine thefollowing situation.Suppose your next-door neighbor asks to borrow $1,000 for a monthand is willing to pay you 10 percent in interest for the privilege. You’veknown the man for 20 years. He has always been honest and honorable inhis dealings and you also know that he has run a successful business forthe past 10 years. Would you take the risk of lending him money for amonth? Most likely yes. Now imagine you are approached by a man on thestreet you do not know. His hair is matted, his fingernails are dirty, and unfortunately his arm displays the unmistakable scars of a heroin junkie.The man asks you for a $100 loan payable in one day with 100 percent interest. Would you loan this fellow the money? You may give him money ascharity, but if your decision were based strictly on business reasons,clearly the answer would be no. Although his promised rate of interest is10 times the size of your neighbor’s, his lack of creditworthiness outweighs the potential rewards.
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TECHNICAL ANALYSIS OF THE CURRENCY MARKET
Much in the same way, a high interest rate in a currency does notguarantee appreciation if it’s a result of high inflation rather than strongeconomic growth.
Trade BalanceThe flow of goods and services between two countries can have a tremendous effect on currency movements. The idea is really quite simple. Imaginetwo countries. Country A sells $100 billion more products to Country B thanit buys. In order to purchase those goods and services, citizens of Country Bhave to buy Country A’s currency and sell their own. Thus Country A—thecountry with a trade surplus—will have an appreciating currency, and Country B—the country with the trade deficit—will see its currency decline.This is, of course, an extremely simplified example. In the real worldtrade balance issues can become quite complicated. Honda’s plants inMartinsville, Ohio, actually export some of their vehicles back to Japan,while the United States can pay for its deficits by simply printing moredollars, because the dollar is the reserve currency in FX. Nevertheless,this basic model is critical to understanding the valuation of currenciesand can help the trader grasp why currencies decline in value when theirtrade balance deficits become too large.
Political StabilityIf you are a political junkie, the FX market is truly your domain. Unlikethe stock market, where it doesn’t matter if the U.S. President comes froma red state or a blue state as long as your portfolio is green, in FX politicscan have a massive impact. After all, we are trading the fates of nations,not companies, so political as well as economic concerns will influencethe market. Even if politics is not your bailiwick, it is very important tounderstand that the FX market hates political instability because it thencannot rationally handicap future economic growth. That’s why countrieswith strong economic growth will often see their currencies decline ifthere is even a hint of political upheaval, especially if it involves any sortof corruption within the government. A good example of such a dynamichappened in the summer of 2005 when the Canadian dollar experienced about of weakness against the U.S. dollar despite rising oil prices, whichwere highly beneficial to energy-rich Canada. The reason? Worries overthe stability of the ruling Liberal Party government led by Paul Martin,which was embroiled in a political scandal. As soon as Paul Martin survived the no-confidence motion (by one vote, mind you) the Canadian dollar regained its strength.
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For technically oriented traders, keeping an eye on these four simplefundamental factors can provide a far better and richer perspective for making successful trades. In fact, just as divergence is one of the key tools intechnical trading, so it can be in fundamental trading as well. In 2004 whenthe U.S. dollar was making all-time lows against the euro, the U.S. economywas actually producing a string of consistent positive economic surprises.Astute technical traders who tracked this data shorted the euro with a greatdegree of confidence once their technical tools signaled price weakness andwere able to stay in the trade as the dollar’s fortunes turned in 2005.
TRY BEFORE YOU BUYOne very underappreciated benefit of retail FX is that every dealer offers afree demo trading account that allows the trader to experiment with thetrading platform before actually risking any capital. The demo accountsare exact replicas of the dealer’s real trading platforms. The dealer simplyfunds the account with “demo dollars” in amounts ranging from $5,000 to$100,000 and allows the trader to trade to his heart’s content. Some demoaccounts automatically expire after 30 days, while others can live in perpetuity. Regardless of the specifics, they are all valuable because they allow traders to test not only their strategies but also the executioncapabilities of the platform. Since FX is a decentralized market, each platform is unique. Some have advanced charting, back-testing capabilities,and the latest FX news all built in. Others are simply stripped-down execution engines with all the glamour of a Soviet-style factory.Don’t be fooled, however, by pretty candles and fancy indicators. Thekey value of a sound FX platform is speed and accuracy of execution. It doesa trader little good to have beautiful charts and highly profitable back-testedstrategies if the dealer cannot provide a smooth and consistent price feed.By watching the demo, a trader can also learn how each dealer makes itsspreads. Does the dealer always keep spreads fixed? Or do spreads widenout in times of high volatility? Dealer A may keep spreads in EUR/USD 2 pipswide, while Dealer B’s spreads are 3 pips wide. However, during major newsreleases like nonfarm payrolls Dealer A may widen spreads to 20 pip, meaning that the currency would have to move 20 points in the trader’s directionbefore he could break even on the position. Dealer B may keep spreads fixedat 3 pips regardless of market volatility. Which dealer is better? The answerdepends a lot on your trading style. However, if you are a short-term trader,wide spreads could negatively affect profitability.Another key factor in comparing dealing platforms is determining whatamount of currency can be traded in the account. Some dealers only allow
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TECHNICAL ANALYSIS OF THE CURRENCY MARKET
traders to execute mini (10,000-unit) and standard (100,000-unit) lots. Manyeven require a separate account for each size the trader wishes to trade.Other brokers, in contrast, allow traders to make trades as small as 1 unit toas large as 10 million units all from one platform. (Yes, you could actuallybuy and sell 1 unit of currency on some platforms! In the case of EUR/USD,if the pair went your way for 1,000 points you would make a whopping 10cents on your trade.) Somewhere in the middle are dealers who will allowtrades in increments of 1,000 units or larger. Again, the importance of smallsize capability depends on the trader. If you scale into your positions inmany small increments, then small lots are a must. If, however, you are asingle entry/single exit trader, “flexi-lots” are not nearly as important.Yet another key fact to ascertain beforehand is how various dealerscharge and credit interest on your positions. Every dealer will charge interest, but some will not credit it. Others will credit interest but only if theaccount is first set to a margin of 2 percent or higher. Still others will simply not credit interest as a matter of policy. Even worse, some dealers willcharge interest as high as three times the actual market rate while offeringcredit at below market rate. In contrast, other dealers will calculate andcredit interest on an hourly rather than daily basis and require no accountor margin minimums. A decentralized market has decentralized rules. Bytrading the demo, traders will discover the quirks before they can impacttheir working capital. How important are these differences in interest payment policy? If the trader trades only short-term, closing all positionsevery day before the 5 P.M. EST rollover time, they are meaningless. However, if carry trading is a large part of the trader’s strategy or he is simply aposition trader, dealer interest policy is crucial.One area that gets completely overlooked by traders because it is somundane is the reporting capability of the each platform. Granted, account reporting is hardly the first concern of an FX speculator—but inmany cases it should be. Understand that in case of an active trader whoplaces 10 trades per day, an end-of-year statement can generate 2,500 entries. Some dealers’ platforms have terrifically sophisticated reportingcapabilities that segregate every single position, separate interest payments and credits, and summarize the end-of-year equity position in asimple, easy-to-understand format that can literally be handed to the accountant and mailed to the Internal Revenue Service (IRS) with almostno additional work. Other platforms will spit out such confusing mishmash that traders may have to spend hundreds of hours of preparationreconciling their trades before they can conform to generally acceptedaccounting principles (GAAP). Again, trading the demo allows the traderto test the reporting capabilities of the platform to determine whetherthey are an asset or a liability (see Tables 1.2 through 1.4). Note how this
FX 101
TABLE 1.2 Closed Trade ListSource: Forex Capital Markets (FXCM).
TABLE 1.3 Outstanding OrdersSource: Forex Capital Markets (FXCM).
TABLE 1.4 Open/Floating PositionsSource: Forex Capital Markets (FXCM).
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platform elegantly separates closed trades, outstanding orders, andfloating positions and then tidily summarizes all the key activity in theaccount summary (see Table 1.5).This platform shows only transaction history, though, leaving tradersto their own devices to reconcile transactions by trade. Some platformsprovide a trade history listing each transaction (see Table 1.6).However, the question of whether the platform executes well duringtimes of stress is impossible to answer on the demo platform, as the demoplatforms are often assigned to a different set of servers and may performflawlessly, while the real account servers could experience blackouts dueto overwhelming volume.
TABLE 1.5 Account SummarySource: Forex Capital Markets (FXCM).
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TABLE 1.6 Trade HistorySource: Oanda.
Generally, here are 10 questions the trader can answer by trading thedemo first:1. How active are the dealer’s quotes? Do they update smoothly or do
they sit listlessly, only to jump 3 to 5 points at a time?2. How wide is the spread between bid and ask?3. Does the spread widen or it is fixed?4. What kind of charting and news capabilities does the platform offer?Are they built in or added on?5. Does the platform provide back-testing capabilities?6. Can the platform run automated trading strategies?7. Does the platform accept wireless trading? How stable is it? Whatfail-safe measures are there to make sure that orders actually wentthrough? Is the dealing desk accessible by phone or through computer only?8. What are the interest policies of the dealer?9. What does reporting look like?10. Does the platform require a separate software download or can it betraded through any browser via a Java applet?
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TECHNICAL ANALYSIS OF THE CURRENCY MARKET
In the end demo trading not only is important at the start of a trader’sforay into forex but it also is a vital tool even after he begins to trade live.Expert traders, just like expert scientists, continue to probe and exploretheir craft even after having mastered it. Just as accomplished scientistscontinue to challenge themselves with unconventional experiments, sodo seasoned traders pursue and refine new ideas on the demo accountseven as they trade their established setups live. In trading, one truth is incontrovertible: While there is no guarantee that your success in demotrading will translate into profits in a real account, a strategy that doesnot make money in the demo almost assuredly would be a failure in reallife as well. One of the best aspects of forex is that laboratories are free—why not use them?
CHAPTER 2
Is It AllJust Random?
A
ccording to many academics, technical analysis is a pure waste oftime. Price, they claim, is absolutely random. Using patterns and indicators to predict its behavior is no different and no less primitivethan reading entrails of a dead animal in order to divine your future. Oneof the favorite tricks of the pure randomness crowd is to have the randomfunction in Microsoft Excel generate a series of numbers and then plot iton a graph. Admittedly, when many technically oriented traders are confronted with a seemingly nice chart pattern only to be told later that it’s allrandom, they experience a loss of confidence. Is it all a ruse? Is technicalanalysis useless? Are we hopelessly wasting our time trying to learn itsprecepts? No, no, and no.Price patterns are no more random than all human behavior—that isto say, they can be quite accurately predicted in general but quite oftenmiss in the specific. Let’s play the following game. Your job is to observea wealthy Upper East Side businessman (for fun we’ll assume that he always wears a dark blue pin-striped suit and yellow polka-dotted tie andis known to all as Mr. X) as he leaves his Park Avenue penthouse to walk20 blocks to his high-rise office in the famous Met Life Insurance building. If you can accurately predict when he will appear in the door of hisapartment building you win $1,000. If you are wrong you lose $1,000.What do you think your chances of winning would be if you simply had tochoose morning or afternoon? How about if you were required to call thetime to the hour? What about to the minute? The second? The millisecond? Of course, the more precise you had to be the less likely you wouldbe right and the more likely you would lose money. File that thought away,25
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TECHNICAL ANALYSIS OF THE CURRENCY MARKET
because we will come back to this very important concept later in thebook. In the meantime, answer this question: Are the activities of Mr. Xrandom just because you cannot consistently predict his appearance atthe door of his apartment building to the second or the millisecond of occurring? Of course not.In fact Mr. X’s behavior is highly predictable. If you observe him longenough you might know that on Fridays he seldom ventures out, preferring to work at home. Or that during Christmas week he doesn’t go to theoffice at all, leaving the city altogether. Or perhaps that on particularlypleasant mornings he likes to linger on his balcony and smell the flowersplanted in his flower boxes before heading off to the office. You wouldobtain all this information through observation—which is what speculation really is. The more you observed the better your information wouldbecome. Yet would you ever be able to bet your life savings on any oneoutcome of Mr. X’s behavior? No, not if you were smart—because all ofMr. X’s actions, like all human behavior and like all life, has an element ofchaos to them. One Christmas week, for example, he may have been involved in a multibillion-dollar deal and therefore gone to his office everyday. Another time he may have been bedridden with the flu and not havecome out for days. Yet another day a neighbor’s dog might have unexpectedly jumped on him in the elevator and torn his pants, necessitatinga trip back upstairs and delaying his appearance at the door by more than15 minutes.To an untrained novice unaccustomed to Mr. X’s habits, these changesof behavior would connote randomness and the player will most likelygive up on the game after losing several thousand dollars, arguing that Mr.X’s actions are completely unpredictable. But a skilled observer would understand that these deviations are simply the result of the normal degreeof chaos in Mr. X’s life. An expert in Mr. X’s movements would know witha high degree of certainty that on most mornings Mr. X would appear atthe door of his apartment building before 8 A.M., and the expert would beable to collect $1,000 making that bet.Price data exhibits very similar dynamics. Unlike ivory-towered academicians, veteran traders who actually observe price action day in andday out for thousands of days at a time, realize that what is most strikingabout price behavior is not its wild randomness, but rather its mundanerepetitiveness. Price patterns repeat themselves over and over and overagain on many different time scales. What is different each time—andwhat makes trading sometimes maddeningly frustrating—is the amplitudeof the move. Sometimes breakouts can last for 100 points and sometimesonly for 10—just as sometimes Mr. X will have 100 uninterrupted days ofpunctually walking to his office and sometimes his schedule will be wildlyskewed as other events in his life cause a temporary change of pattern.
Is It All Just Random?
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Observation through technical analysis simply provides the trader adegree of expectancy but absolutely no guarantee that any particulartrade analysis will be correct. Nevertheless, the greater the degree ofexpectancy, the better the trader’s edge and the stronger the chance ofultimate success. After all, markets are not some robotic mechanismsthat can be studied with keen dispassion through some elegant mathematical models. They are living, breathing organisms made up of millions of traders.What do we trade in FX? I often ask this question at seminars. I getmany answers but rarely the right one, for what