Forex. Forest. It sounds like a rhyme in a rap song, or names of lovely twin babies. If the latter is true, that means they would definitely be a relationship between the two. However, these are two different worlds that share absolutely no relationship whatsoever. Their locations, what they represent, as well as their components are totally different from one another. That is the conclusion one would draw from the surface of the matter. However, if you dig much deeper into the minute component of each of the two seemingly distant environments, you would be shocked as to how closely related they are.
Right now you must be shaking your head, thinking that there is no way they can be related. I know it sounds crazy to think a thick wooded jungle can have any common denominator with a luxurious modern day world. I would have given you my psychiatrist’s number if you told me the two have a slightest degree of similarity back in the years. You would have been insane. In case you are wondering why I have a psychiatrist, I just wanted to make sure I wasn’t insane to conclude that the two were more identical than one would ever imagine. That was after I got lost in the forex jungle and made lots of discoveries trying to find my way home.
The forex market is the largest of all the financial markets to ever exist in the world. To paint a clear picture of how big it is, look at it as a tropical rainforest consisting of all kinds of species from both the animal and plant kingdom. From the smallest one-celled fungi that occupy the rivers of the forest, to the biggest and tallest trees that seem to be occupying the unreachable skies. From the smallest bacteria that occupy the surfaces of the earth to the largest mammals that seem to have locomotive difficulties. I can name each one of these spices and cite their characteristic until I finish this book and still haven’t scratched the surface yet. Well, just like a tropical rainforest, the foreign exchange is a jungle of its own kind. Upon arrival in this jungle, one would be welcome by all sorts of activities that will resemble the species of tropical rain forests. These would come in different forms such as the range of infinite indicators, chart timeframes, a billion strategies, unlimited number of brokers, variety of instruments to choose from, chart patterns and confusing candlestick names as well as jaw breaking vocabulary that would make you sound like a professor. As if that’s not enough confusion, politics, economic data and natural disasters occasional gate-crushes the party and cause yet another chaos. The list is endless, but it all sums to one thing. Money. Just like the forest sums up to life.
When one takes a tour to a tropical rain forest, either for hunting or adventure, they need to gear up for the inevitable. They make sure to research thoroughly and find all the finer details about what they should expect once they get there. The research can entail both the bad and good they can find in the midst of such a remote, lonely and uncontrollable atmosphere. You can never control the jungle all alone, unless if you are one of the ancient gods to whom every creature in that tropical forest bows down to. This is the same way the market atmosphere is. If you just dive in to the foreign exchange without proper prior research and planning, you are most likely in for a one big fat fail you were not prepared for. Do your research. Find out what kind of exposure you are entitled to. What’s the purpose of a reward if you won’t even make it alive from that jungle?
Take a hunter for example. He/she is drawn to the highly dense forest by the prospects of the amount of game it can offer to him. On the other hand, a trader is attracted to the market by the amount of money he/she can make. However, both parties need proper preparation to succeed on their missions. They need to assess the danger their lives are exposed to. A hunter can lose his/ her life due to a number of reasons. For instance, it’s a forest with wild animals, who survive on eating each other. Once in there, he/she is an animal and has to adapt to that life. He/she will be eating other animals for survival, as much as he/she can be eaten by another animal. That’s why it is important for him/her to put measures in place to protect her life until she returns home safe. With, or without game, it does not matter much. What is important is that he/she made it out alive, so he/she can hunt on another day.
The same is true for a trader. Entering into the market, is a hunting mission. As attractive as the returns of the market may seem, the trader must take into consideration the dangers they are exposing their own hard earned money to. They can lose their entire money due to a number of reason. Poor risk management tops that list. Once your money is in the market, another trader might make a profit at your account’s expense as much as you can make a profit at the expense of another trader’s expense. It is the trader’s responsibility to protect his/her account and get out of trades safe. With or without profits, it doesn’t matter. What matters is that they followed their prior preparation and could continue the mission the next day.
For a hunter, game would differ from as small as insects to trophy animals depending on the nature of the hunter in question. He/she might be looking for something to eat over lunch and would come back soon for supper. They would be happy with even the smallest of game they succeed to catch. Such a hunter would be frequently in and out of the forest. Yet on the other hand, a trophy hunter won’t even look once at a rabbit or any other small animals. Their mission is to catch one big trophy animal. Such a hunter would be in the forest for a long time and would also spend much time out of the forest planning their next hunting mission.
It’s not different with the forex market. One might be a scalper, who is aiming at small gains. They would be happy with 5 to 10 pips. Such a trader would frequently be in and out of the market, so to make sustainable profit. A position trader wouldn’t even consider wasting their time on a setup that would yield a mere 100 pips in potential profit. Their mission is to catch monster trends that would yield a lot of pips on one trade. They would spend days, if not months planning their trades. Once they enter the market, they would spent another long time managing their trades.
Depending on the type of hunter, weapons would also differ. Some would prefer a bow and arrow, yet some would go for a gun. Even a catapult is enough for small game such as rabbits and birds. The hunter needs to prepare their weapons depending on the type of game they are hunting. A trophy hunter would be crazy to go hunting with a catapult. I mean which trophy animal would they possibly kill with a pebble?
Back in the jungle of numbers, traders need to know what type of trading strategy they need to apply for profitability. A scalper would probably apply strategies that would allow them to trade smaller time frames such as M1 or M5, with a 5 pip stop loss. This is not applicable to a position trader. They will need a strategy that would allow them to look at the bigger picture presented by daily, weekly and even monthly time frame. Wider stop losses would be another component of such a strategy. Your entire trading system is your weapon as a trader. You need to find what works better for your personality.
It is these similarities of the two world that made me understand forex the way I do today. Like any visitor to any place they do not belong, one must respect the norms, rules and values of that land. Failure to adhere would lead to prosecution if it’s a civilized place or persecution in an unfair environment such as the forest. The same applies to the forex market. You have to respect its norms and values. Do not try to force it to do what you want. You have to follow its rules to make it alive or you would similarly face a hefty sentence. In a fortunate event, you might come out with a huge loss that would not just dent you’re your account but affect your mental stability as well. That is the reason why I always suggest having a psychiatrist’s number on speed dial if you are a new trader. You might need one, just in case you survive by the skin of the teeth from being eaten alive by those dangerous predators of the forex jungle. The only consolation in the forex jungle is the certainty of a second life if you happen to be eaten (blown your account), which is unfortunately not the case in the forest. However, the concept is the same. You need to protect yourself from the rage of these worlds.
Now that we have painted the picture of how identical these two worlds are, we now have to look at some of the ways both missionaries, being the hunter and trade can survive and most of all succeed in their missions. Remember that in both cases there is a bigger prize that attracted them to the jungle. This prize overweighs the price to be paid in case things go wrong. It is worth sacrificing for.