Figure 2: The Who’s Who of Fore

They key difference among these market participants is their level of 

sophistication, where the elements of sophistication include: 

ƒ Money management techniques 

ƒ Profit objectives 

ƒ Level of computerization 

ƒ Quantitative abilities 

ƒ Research abilities 

ƒ Level of discipline

Of course there are sophisticated and non-sophisticated banks, 

governments, corporations, investment funds, and traders.  But among 

these segments it is the individual trader who has the least amount of 

external governance.  Whereas governments, banks, corporations, and 

investment funds adhere to regulations and restrictions (to a certain 

extent), traders are only restricted by their level of capital. 

In the absence of these external restrictions, traders fall into two groups: 

those who can impose internal restrictions – discipline - on their trading 

strategies and those who cannot: the fence-swingers, et al.   

Those who can impose this discipline we will call the sophisticated 

investor.  In the zero-sum game of forex trading, the sophisticated investor 

uses tools and strategies that emulate those of the highly sophisticated 

institutional participants to extract profits from the novice participant.  It 

is only the sophisticated investor who has the ability to extract positive 

returns from the forex markets. 

WHY 

Forex trading has surged in recent years, as more individuals earn their 

living trading and the popularity of riskier investment vehicles like hedge 

funds has increased.  The bottom line for these investors is superior 

returns, and in foreign exchange four major factors create a unique 

investment environment: 

ƒ Liquidity  

ƒ Leverage  

ƒ Convenience  

ƒ Cost  

In no other market can you find a playing field that is so biased to the 

investor, at least on the surface.  But to take advantage of these factors you 

have to be constantly aware of their downside. 

Liquidity 

In a liquid market there is a high degree of transparency, even when large 

transactions change hands.  The sophisticated investor understands what 

this means: forex attracts huge players.  As a trader grows in 

sophistication, they understand that these huge players have significant 

price impact, and watch for their market entry. 

Leverage 

The low margin requirements in the forex markets make everyone’s whatif analysis yield forecasts with 1000% growth annually.  What those 

forecasts fail to account for is the multiplying effect of leverage during 

periods of consecutive losses

Figure 1: The Forex Vortex

Natural selection takes on a whole new meaning in the forex markets,
where survival of the fittest is the only rule, and market action ruthlessly
eliminates anyone who has not uncovered the context of the game.

WHO
Far more important than knowing who trades forex is knowing who trades
forex successfully, and how they do it.  The players in the forex markets
operate with widely varying perspectives.  When one of these players
enters the market, a force is created that is proportional to the perspective
of the trade initiator.  That force can play a role in the short term, creating
radical price changes, and it can play a long term role, defining trends.
Figure 2 shows the major perspectives in the forex markets.

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.

The Six Forces of Forex

Few traders ever stop to consider the context
that defines the foreign exchange marketplace,
but all of them should.  As forex matures in its
role as a retail investment environment the
rules – and the stakes – will only multiply.
ANALYSIS
• Who: The faces of forex that shape market action
• Why: Understand the nature of forex, and its inherent opportunity
• Where: Matching your objectives to the optimal dealer
• What: Choosing a trading vehicle based on your investment premise
• When: Time your trades for maximum efficiency
• How: Select a toolkit that actually improves your trading ability
ACTION
• Take an inventory of your personal trading plan
• Find solutions that can help you execute your plan, step by step
WHAT IT MEANS
• Bad News: Successful trading is more work than you thought
• Good News: Everything you need to win is right at your fingertips
RELATED MATERIAL
Test-drive FX Engines for free online at www.fxengines.com to see the power of
system building, system testing, and system automation.
ABOUT THIS REPORT
The Forex Report is a periodic publication that investigates advanced strategies
for superior trading performance in the foreign exchange markets.  These
reports utilize advanced statistical and econometric modeling techniques to
create new insight into the trading strategy of the average trader.  This report,
The Six Forces of Forex, is a more general report intended for all audiences,
including those new to the forex market.
To learn more about The Forex Report or to register for delivery of all future
reports by email, including Case Studies, please visit www.fxengines.com.

Baby Boomer Entrepreneur - Shouldn't You Know The Top 10 Dying Industries?

Top 10 Dying Industries - Real Time Economics - WSJ

As an aspiring baby boomer entrepreneur you look forward to the exciting and new opportunity before you. But are you taking time to look around you to see what is crumbling and how it may impact your plans?

This Wall Street Journal Article shares information about the top 10 dying industries around us. Does you business idea sell to, use products of, or depend upon people who work in these industries? If so, you need to know what the future of these industries will be.

In the big picture sense, the point of this article is that everything is changing around us. A few weeks ago, I drove through a community where I had once owned a small restaurant It has been 25 years since the business closed. I was amazed to see how the community had changed. I wondered what that change would have done to the restaurant if it had continued to operate. I saw corners with vacant lots where thriving businesses had once operated. I wondered ...

So as you make your plans for your business, what assumptions are you making. Do you expect the world to stand still except for the improvements your business will bring to the market? Think and think again!

Shallie

The Business Networking Blog is moving

The Business Networking Blog has a new home at https://www.nrg-networks.com/blogs.php?cat=1. Please check the new location for new posts with business networking tips, hints, advice and stories.

The full archive of posts is also available at the new site.

For new posts go the new home of the business networking blog.

EDIT July 5, 2011
A number of people still visit here so I'm going to start adding posts here too. It may take a while to catch up.

Good Networking!

Dave Clarke

Do you know where you are starting from?

Over the last week or so my inbox has been full of well meaning advice about goal setting and new year resolutions. The same topics have seemed to dominate on blogs and social media. One thing has been missing from a lot of what I have read - the importance of knowing where you are starting from. You may be a lot nearer to your goals than you think. One of the common mistakes people make when building a business network is thinking that it is all about making new contacts. Don't forget the people who already know, like, rate and trust you.

I shared some tips on how to identify the people already in your network in a short podcast that you can listen to here:

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I heard someone say once that if you don't know where you are going then any road will do as you don't know which one to follow. Equally if you don't know where you are then you don't know which road to take.

Good Networking!

Dave Clarke

Today's U.S.A News

A prominent forecaster, Mark Zandi of Moody’s Economy.com, predicted that the economy would be “off and running” next year. “The policy response, in its totality, has been very aggressive,” he said, “and I think ensures that the recovery will evolve into a self-sustaining expansion early in 2011.”
The recession officially ended in June 2009, when the economy started to grow again. Gross domestic product, the broadest measure of the country’s output, grew at an annualized rate of 3.7 percent in the first quarter of this year. But then it stalled, with the rate falling to a mere 1.7 percent in the second quarter and 2.6 percent in the third quarter.
Jan Hatzius, the chief United States economist at Goldman Sachs, said the economy was likely to grow at an annualized rate of around 3 percent this quarter. Goldman projected last week that the growth rate would be 4 percent for most of 2011. Morgan Stanley, which raised its growth forecast for 2011 to 4 percent, is even more optimistic, forecasting a rate of 4.5 percent this quarter

Today's U.S.A News

Tax incentives It is also trying to address one of the biggest impediments to the recovery — the reluctance of companies to invest their piles of cash in new plants and equipment — by granting tax incentives for business investment.
The measured optimism is reminiscent of the mood a year ago, when the economy seemed to be reviving, only to stall again in the spring amid widespread fears caused by the debt crisis in Greece and other European countries.

Even so, economists are increasingly upbeat about the outlook, saying that while the economy in 2011 will not be strong enough to drive unemployment down significantly, it should put the United States on its soundest footing since the financial crisis started an economic tailspin three years ago.

Phillip L. Swagel, who was the Treasury Department’s chief economist during the administration of George W. Bush and teaches at the University of Maryland, said, “The recovery in 2011 will be strong enough for us to see sustained job creation that will finally give Americans a tangible sense of an improving economy.”

Today's U.S.A News

The Federal Reserve, which has kept short-term interest rates near zero since the end of 2008, has made clear it is sticking by its controversial decision to try to hold down mortgage and other long-term interest rates by buying government securities.
President Obama’s $858 billion tax-cut compromise with Congressional Republicans is putting more cash in the hands of consumers through a temporary payroll-tax cut and an extension of unemployment insurance for the long-term unemployed.