Part I
The Foundation for Success
A house needs to be built on a strong foundation. Otherwise, there is a risk that the house will fall down in a storm. A successful trader has a strong trading foundation. Otherwise, the risk is the trader's account will blow up in a volatile market.
The currency market is characterized—rightly or wrongly—by volatility. I think what people might mean when they say this is that currencies can go up and they can go down. The evening news will say, “The dollar is strong” or “The dollar is weak.” That may sound volatile to a stock investor who is used to buying and holding because over time stocks go higher. However, is that theory still necessarily true, especially in a country like the United States, which has seen stock prices move up and down over the last 10 or so years? If you listen now, the stock market is characterized as being “more volatile” as well.
To me, volatility means that the price can trend one way and then trend the other way. Those trend changes can wreak havoc if a trader does not have a firm foundation for the risk. It is not good enough to buy and hold, because the reversals in trends can be storms that cause total failure. Many traders blame the failures from large losses on volatility. They may blame them on the institutional traders or “big boys” whom they believe cause that volatility, that change in trend. I like to think the blame lies with a faulty trading foundation. A foundation that is not strong enough to weather ...
