A N A L Y S I S

A N A L Y S I S
For most traders, a comprehensive trading plan is an unmet ideal.  In the
foreign exchange markets in particular, the lure of easy money often
distracts the trader from the reality of hard work.  But as anyone who has
had success trading can attest, trading is a discipline.  It requires a plan
informed by extensive knowledge of the markets and the ability to
carefully, consistently apply that knowledge.  The main ingredient of any
trading plan is an understanding of the context that defines the trading
environment.
THE SIX FORCES OF FOREX
Trading forex is like watching a school of fish move.  One minute is total
harmony, the next, complete chaos.  As the observer of this school of fish,
do you believe you can accurately predict the direction the school of fish
will move each time?  Would you bet on it?
What causes the fish to move the way they do?  Why do they work together
in one moment, moving with force and precision, and move in what seems
to be an infinite number of directions the next?  There’s no way to know
unless you can sense what the fish sense each time they move.  The fish
have an instinct about the nature of their environment.  They understand
the context of all things around them – natively – and can react
accordingly.  Surely if you shared this understanding you’d be a much
more accurate predictor of fish movement!
Trading forex is not much different - we need to develop that keen sense of
what is happening around us.  Will we ever be able to predict every move
in the forex markets?  Absolutely not.  But we can use our understanding
of the context of the market – the six forces of forex – to make better,
more profitable trading choices.  Once we understand these forces, we can
create and operate within a comprehensive trading plan:
ƒ Who trades forex?  Understand who participates in the markets,
why they are successful, and how you can emulate them.
ƒ Why trade forex?  There are superior returns in forex, but not for
all investors.  Are you one of them?

ƒ Where should you trade?  Choose to work with service
providers who can efficiently enable your style of trading.
ƒ What should you trade?  Select the currency pair, entry, exit
and money management methods that will maximize your returns.
ƒ When should you trade?  Trade when the environment is most
likely to produce the best conditions for executing your system.
ƒ How should you trade?  Trade using methods that maximize
your ability to emulate the proven winners.
Knowledge of these forces and how they work is a major determinant of
your success as a trader.  Figure 1 shows these 6 forces, their relative
rarity, and their effect on profitability.