There are thousands of articles and media reports that equate any type of investing to gambling. When you focus on investing on the Forex or commodities markets there is even more of the inherent prejudice of the mass media to discredit it as an investment and call it gambling. While this is not an accurate depiction of the markets, it may accurately describe many of the people involved in the market. The Forex and Commodities Exchanges are legitimate venues for investors with risk capital. Many of the people that trade in these markets are gamblers rather than investors.
The impression that currency speculation is actually gambling comes from a lack of understanding about the process. The people choosing to call it gambling have some pretty strong facts on their side however. More individuals lose money in the Forex market than make profits and no system is foolproof. These are simple facts but they cloud the real picture. It is the same amount of money be being lost or gained. Every loss or gain results in the opposite loss or gain on the other side of the equation. This does not mean (as some suggest) that it is impossible to profit over the long term based on the structure of the market. The fact that the majority of the profits are made by an overall minority of the investors, it is clear that there is in fact a skill and strategy involved that can be learned and developed.
Investing is a Business – Treat it Like One
I will show you why doing nothing is surprisingly powerful in trading.
This simple exercise had a profound impact on how I will try to manage my trades in future. Once I open a trade and I’ve got my stop to break even its time to do nothing, just walk away.
Obviously the vast majority of my trades would have been stopped out at break even however the small percentage that survived were taken by the long term trend and became little profit pulling machines! To give you an idea of the power of doing nothing lets take just one trade from the EURUSD. I entered this short sell trade back in January 2010, it was a simple trend collapse breakout trade risking 35 pips (2% of my account) and I took profit at around 95 pips. Which is not bad right? I risked 1 to get almost 3. (see details of the move at end of this post)
Now lets take a look what happened if I did nothing. The Daily trend took this trade and it never came back to hit my break even stop. In June 2010 it hit a maximum profit of 2410 pips and if it wasn’t closed it would be sitting right now at 1250 pips. Realistically I believe any long term sell positions on the EURUSD would have been closed the moment the head and shoulders pattern played out on the daily chart at the end of June. This would have closed the trade with a profit of about 1800 pips.
Now here is the shocking part!
Remember that the initial risk on this trade was 35 pips, which was equivalent to 2% of the trading account.Closing the trade at 1800 pips would have resulted in a gain of 102.8% on the account! Remember, this is just one trade!
