What Is Your Advantage over Other Forex Traders?

The foreign exchange market is huge — its daily turnover is the greatest of all the financial markets, its intraday volatility is very high. This creates a lot of profit earning opportunities. The problem is that for every winning side, there is a losing side. For an average retail trader to win consistently, it is necessary to possess some advantage over other participants — the factor that will distinguish the trader from losers and will protect them from clearly overpowered market participants (central banks, big financial institutions, high-frequency traders, brokers, etc.)

Forex trading entry and exit signals are usually generated either by fundamental analysis or by technical analysis. It is great to be an expert in currencies, who is always up-to-date with the latest macroeconomic news and any other real-world factors affecting those currencies. Unfortunately, it is a very difficult accomplishment. One would have to constantly study a lot of sources and miss no important news. As an alternative, fundamental super-trader would have to get pricey consultations from some team of analysts. But even then, there is no guarantee that they would not succumb to an even more powerful trading entity.

Technical analysts do not need to process huge amounts of news and data with their minds, but rather they need to process a lot of chart information with their trading computers. It is not impossible to develop sophisticated algorithms, indicator strategies, or pure price action systems that would result in some nice positive expectancy (at least on historical charts). The problem here is that there is no way to tell whether your system beats anything except complete newbies.

Proper position sizing should allow a trader maximize the gains from a profitable trading system and minimize losses occurring during long-term losing streaks (NB: if you believe that you won't have losing streaks, you are in real trouble). Many market participants lack even an idea of position sizing and only few of them use some optimal rules for it. The problem with this advantage is that it still works only if your system's expectancy is positive. Otherwise, it will just help you to last a bit longer, but the end will be the same as without position sizing rules at all — zero balance.

Emotions play a great role in one's performance too. Even if you manage to combine all the virtues of technical and fundamental analysts with precise and effective money management rules, you would still be a subprime trader if you cannot control your emotions or demonstrate poor discipline. Unfortunately, it is nearly impossible to weed out psychological biases and other human factors from our trading, but those who succeed in this task can be outplayed only by trading robots.

It is said that in the currency market, unlike stock market, there are no insiders. You do not need to be an expert to call such statements false. Although, because of the market's size, insider information does not always yield a great advantage, it does not mean that it cannot be used at all. For example, big market makers possess important information about location of great many stop and profit orders. Another example of useful insider information in FX trading would be a close relationship with someone from a central bank or a big investment bank speculating in currencies.

If you lack any of the mentioned advantages, or if you are new to trading, you probably rely on pure luck. Yeah, some traders really believe that they are lucky and thus are entitled to profit. It seems that more often than not such traders end up feeding the profitable deals to other market participants.

If you would like to ask some question or share a detailed opinion on how you beat other FX market participants, please feel free to join our forum for a discussion.