Three taboos for foreign exchange speculation

foreign exchange marketThe participation of retail customers is significantly low, which also determines that the current information support and education for foreign exchange market participants in China are obviously lagging behind, and also makes many newbies go through many detours. The author summarizes the following foreign exchange trading taboos to share with readers:

1. Long-term investment.

First of all, it is necessary to make clear that the foreign exchange market is fundamentally different from other markets. The foreign exchange market is a relative market, and its essence is a place for zero-sum games. This property determines that it is definitely not worth long-term investment.

Data is the best proof, whether it is looking at the past 5 years or 10 years or even longer, no matter what kind of currency conversion you have made at the beginning, there are only two possible outcomes after a long time: the first is that the currency you exchanged has depreciated, which is really not worth the loss.

The second result that is relatively better is that even if the currency you buy has appreciated, what is the rate of return after time conversion? In mainstream currencies, we choose the Canadian dollar that has performed best in the past 5 and 10 years as an example. Its cumulative absolute increase against the US dollar is only 10% and 23%, and the annual compound return will hover around 2%. You must know that this is already the best of all options.

Therefore, before entering the foreign exchange market, it is necessary to clearly realize that this market is not a Buffett-style buy-and-cover market for a lifetime. This market requires diligent swing trading to achieve profit goals, although it does not completely exclude relatively long-term (no more than one year) strategic choices. In other words, the foreign exchange market is a true "trading" market.

2. Diversify investment.

For the same reason as the previous one, Markowitz's portfolio theory is basically not applicable in the foreign exchange market. If the truth of "don't put your eggs in one basket" is fully theoretical in other markets, especially capital markets, it will become a fallacy in the foreign exchange market.

Because different from capital markets, different trading targets will form weak correlations due to industry differences, individual differences and other factors. The characteristics of the foreign exchange market are that it has an obvious anchor (such as the US dollar since World War II). Almost all currencies and this anchor will form a consistent direction fluctuation, which also makes the order on the foreign exchange market actually more based on the judgment of the anchor direction. Once there is an anticipated anchor trend,

The selection of varieties in the second step has become a relatively minor task. Of course, in this second step of work, the author has always adhered to the principle of the only best choice. If we adopt an excessive diversification strategy at this time, it will involve unnecessary energy and affect the decision-making judgment in the first step.

At the extreme, if half of your foreign-currency asset pool is in dollars, and the other half is allocated to the corresponding non-US currencies according to the proportion of the US dollar index, then unfortunately, your portfolio has been able to ensure that you are invincible.

3. Superstitious experts.

Many friends who are new to the market will form a preference for individual experts when reading foreign exchange reviews through different channels. Of course, there are many foreign exchange analysts who have good market judgment accuracy, but this does not mean that they can bring much practical help to your actual trading. Not to mention that most foreign exchange reviews lack the timeliness that foreign exchange exchanges particularly value, more importantly, most trading strategies will not be static forever. If you only listen to a certain entry recommendation from an expert, but ignore the corresponding dynamic profit, stop loss, and sudden strategy changes, then most of your copying behavior will suffer. So instead of "fish" with experts, it is better to learn from experts "fish", so that in the long-term trading process, you can become a winner, not a loser.