How The Forex Market Works

How The Forex Market Works.

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers; "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."

The villagers rounded up with all their savings and bought all the monkeys.

They never saw the man nor his assistant, only monkeys everywhere!

Now you have a better understanding of how the forex market work.

FX Trading Insights

I have been busy refining my trading strategies. And so far, it has served me well. 

I have learned the following in the past 2 - 3 weeks. I will share just 2 points for you to chew on.

• Money management was something I neglected in the past. Have you ever experienced making 3 consecutive winning trades, but giving it all back in 1 losing trade. Guess what? It happened to me ALL THE TIME! The loss weighs heavily on my mind - It affects my confidence. I start to doubt my trading strategies, and the next time I want to place a trade, I am afraid to pull the trigger. Now, I keep my lot size fixed for at least 1 month. I know that even if I lose 1 trade, my capital is still intact. Knowing that my capital is safe allows me to trade without much stress.

• Having a good trading Strategy is definitely one of the most important components in our journey to be consistent. Someone recently shared with me that in a range market, you buy low, sell high. And in a trending market, you buy high and sell low. It made a lot of sense. In the past, I am often afraid to buy high, and sell high, for fear that market will suddenly reverse against me. Instead of buying high, I would sell high in a trending market, making it effectively a counter-trend trade. You cannot imagine how many times I have bled money by trading counter-trend trades. So really, the smarter thing to do is to keep things simple in FX trading. Now, I am confident in my trading method because I know it works. Why? Because following the market always work. At the same time, though, I have room for improvement, and I strive to improve everyday.

 I will share more about my other insights in the next few posts. Stay tuned!

Trading Psychology

The past 2 months is a great example of how a bad mindset can affect your trading results.


My equity curve plummeted in Nov and Dec 2012 because I shifted my focus on trading set ups to trading for money. Because I wanted so badly to make 1000% return a month (after observing how so many people do it on Demo Competition, I wanted it as well), I over-traded, and lost sight of my money management rules. Initially, it didn't occur to me that in order to gain 1000% return a month, my level of risk will be OTT (over-the-top). Only hit me when my DD hit 70%.

After the whole fiasco, I accepted the fact that my method of trading will not bring me 1000% a month. Even if it is possible, it means that my risk will be extremely high.

My trading method can give me 1 - 2 good set ups per day. Because I only have 1 - 2 good opportunities, I have to wait for the trade with the highest probability. 

Well, at least now, I have been profitable in the past 2 weeks. It is not difficult to be profitable, I figured, when one focuses on trading the best set ups, stick to a sound money management plan, and stop expecting to make 1000% a month.