Forex and liquidity

Forex and liquidity

I have written several articles in 2012 and when I am reading them nowadays I am smiling.  Of course, nowadays is everything different… But as I want to start a blog to which I occassionally write something helpful I will start with what I have written a long time ago…

I know many good traders and each is trading with something else. Someone scalps, the other thinks more long-term, another has SL, another not… If I want to earn based on something I either don´t know aboslutely anything about the market or I have to know very much. In my opinion these are the two groups of the successful. With informational whirlwind hurtling towards us from each side the first group is being dissipated (unfortunately) because there is too much information and it makes chaos perhaps in everyone´s head… In the end almost everyone will get to the second group…

The biggest temptation of new participants not only at forex, but at overall financial market has become a thought that a man can earn on growth as well as on decline… This creates a beautiful feeling of invincibility and in the end it will make sheeps from the most of people… Perhaps the best step which I have ever made was that I have given up amazing profits from one side of the market and I have chosen that I will be a bull. If a starting trader does this right at the beginning (he/she can be a bear with no issue), he/she will get rid of a huge amount of mistakes which are initially done by totally everyone. He will not become a sheep which is chasing the market always in an opposite way!

Why is actually forex so liquid and why we have brokers offering lever even 1:500 or 1:100 as standard?

Trader – scalper who is selling EURUSD on resistance at graph M 15 at one side and at the other side an investor speculating about growth at SP 500?

Huge Euro fund buying actions in USD at one side and tiny scalper with low SL buying EURUSD on support at the other side?

Fund A in EUR, fund B in USD and fund C again in EUR are buying actions, commodities… at one side and tiny scalpers at the other side who are selling EURUSD according to crossing something… Fund A is being secured against currency risk, fund B is buying just assets in USD and fund C is not being secured against currency risk…

To above will be added a bank which is pouring billions across whole forex in and out, HFT system which is pushing big purchases to worse prices and supplies huge amount of short-term liquidity, arbitration systems which keep things in proper operation, Goldman Sachs analysis which is saying that gold will go in 2013 to level 1,500 USD and EURUSD to 1,2000… In the end, very positive foundation for Euro which was counted to the market long time ago…

Let´s say all of this will happen during a minute. Which direction will be moved EURUSD?

Forex is a place where we can always find someone who will buy what we need to sell. And usually even for a better price… But how to determine the direction when there is such hodgepodge in it? Well, perhaps the most important is to answer our own questions: „Am I a bull or a bear? Which money are real on market and which are unreal? Where is being pushed most of capital across the market? Does prevail the risk or an escape to safety? Who is on the market? Are those US traders or Europe? What is the day today? What is the time? Why is SP 500 descending despite EURUSD is growing? When is the closest Central Bank´s meeting? What is doing the crowd?…“

It is necessary to separate real capital (long-term) from unreal capital… Real capital is able to create interesting trends while unreal (short-term) capital is maximally chasing stops… Is it too much? And who has ever said that forex is simple?… So which forex strategies should we trade?

Because forex is extremely liquid and it would not be adrenaline without a lever nevertheless who is interested in moves within tenth of percentage in a day? People need adrenaline and that is why we have a lever which is making a rollercoaster from forex… If there was no lever, there would not be far so many prospects in forex… An interesting day can make on EURUSD 2%, on oil 5% and on actions of a small company 10%… Brokers have given us accounts starting at 2 USD with lever 1:500 in order to attract absolutely all prospects and in order to they can watch how they thresh themselves…

Jump to forex about 10 steps forward!