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Forex: No psychological limitations
by Joshua White
http://www.consistentforextrading.com
Back when I first started learning about investing, I decided to start
from the beginning and read basic books on personal finance as
well as "guides" for understanding all of the investment world in a
nut shell. Most of these authors were very knowledgeable and
informative, but their investment advice was far too conservative
for my taste. They would literally write chapter after chapter talking
about the differences between conservative investing, which
according to them generally yields somewhere around 5% PA, as
opposed to "risky" investing which usually meant a diversified
stock/mutual fund portfolio yielding (in my mind) only slightly
higher averages. What kind of returns can you expect in the stock
market? Well they say the market has gone up an average of 10%
a year since Adam and Eve. Popular indexes like the DOW and
the now more popular S&P500 have always, like real estate, "gone
up over time."
Now, these market averages are almost worshiped like golden
calves. Repeatedly drilled into my brain was the concept that there
were hundreds (if not thousands) of fund managers and other
"professionals" out there with Harvard degrees, decades of
experience, millions of dollars under management, and they were
all spending 15 hours a day consuming every single bit of market
information in the hopes of beating these golden calves by a few
points.
What chance did I have? If Dr. Fund Guru Jr. who eats, sleeps,
breathes the markets and has more credentials than I have
individual hairs on my body can't consistently make 20% a
year...well...forget it kid...your chances are slim to none. I guess I'll
buy some shares of XYZ fund and accept the scraps off the table
from the stock gurus.
NOT!
The foreign exchange market offers many benefits that the stock
market does not have. Most of these have been beaten to death on
various forums, blogs, articles, e-books, etc. However, it's always
good to reiterate the positive (my own personal reason is last):
- Forex offers unprecedented liquidity. With over two trillion dollars
transacted per day on the market, it makes filling any buy/sell order
virtually instant. That equates to less slippage and more
profitability. "Paper trading" stocks vs actually trading stocks is very
different, because orders may not be filled in a timely manner. The
difference between trading a forex demo account and an actual
account is virtually nill.
- Forex is available 24 hours a day 5.5 days a week, as opposed to
the daylight trading hours of the stock exchanges.
- Forex is uncontrollable by large entities. Large net worth
individuals, banks and fund managers who throw their weight
around in the stock market can often have huge effects on price
action. Because of the immense volume of foreign currency traded
per day, the market is unmoved by "heavy hitters." Not even central
banks can control the Forex market.
- Forex offers up to 200:1 leverage as opposed to 2:1 stock
leverage.
- Forex has no restrictions for selling short, as opposed to the stock
market's "uptick" rule
- Forex can actually be traded INSIDE of an IRA or Roth IRA
account.
- Forex gains are taxed at the preferred 60/40 rate, no matter what
trading style you use (intra-day, swing, position) as opposed to the
tax penalties for holding stocks for short periods of time.
The list does go on, but for me the biggest advantage is a
psychological one. I know it probably sounds silly, but fear and
intimidation can sometimes subconsciously defeat us before we
even begin. I don't like the idea of having to live up to, and in a
way, compete with "professional managers" who have more
knowledge of the fundamentals of the markets than I ever will. It's
almost as if Forex, in some way, levels the playing field. I don't
have to psychologically compete against anyone's idea of what
kind of returns are "acceptable and realistic" and what kind of
returns are "pure fantasy." I only have to trade until I can find an
acceptable reward to risk ratio, and consistent profitability thereof.
The only one I compete against is myself.
-Joshua White
http://www.consistentforextrading.com
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