Too many new traders spend time developing an approach to trading based on historical data and then when they use it live for the first time and lose, they throw it away thinking that it doesn’t work. The funded forex fact may be that the approach is solid, but it is our expectations that are not realistic. We shouldn’t expect to win every trade. Some of the best traders in the world win on less than half of their trades. But they also know that after a series of trades, because of sound money management they can expect to be profitable. This is because they are consistent in their approach, so they expect some consistency in their funded forex results. When developing a new strategy, you have to judge it’s effectiveness through different market conditions. This means that you have to see how it works when the market is trending up, trending down, in a range bound situation and also when the market seems confused and directionless. This may mean running through 100 practice trades to get a good feel for the strengths and weaknesses of the approach. Just because that approach loses three trades in a row, it does not mean it doesn’t work. If you and I were flipping a coin where I won on heads and you won on tails, we know that we would each win on about half of the flips. But if tails came up three times in a row, that does not mean that there is something wrong with the coin, it is just chance. We would still know that after a series of 100 flips, we would each still have won and lost about half of the flips. Think of this as you are working on ways to trade the market. Don’t be too quick to judge that approach on a small number of trades. Think long-term when evaluating and then if the results are acceptable, be consistent in taking the trades and your trading results will also start to show some consistency.
Can the US Dollar Fall Further?
The answer is yes. A trend in the currency market can last far longer than many people would otherwise expect. We have seen one way directional moves last for months and in some cases, even years. Interest rate outlooks play a major role in the future direction of currencies so with the market pricing in another 125bp of easing by the end of next year, the US dollar could easily fall to 1.50 against the Euro. This is especially true if the ECB remains nonchalant about the Euro’s move. At some point, the benefits of a weaker dollar such as increased exports and foreign investment will help to turn the
US economy around, at which point the dollar will begin to rise once again.
What Does This Mean for Your Investments?
Regardless of whether you are actively involved in the currency market or monitor it at all, the value of the US dollar or currencies does matter. Companies that do a lot of foreign sales will benefit the most because their foreign currency revenue will be higher when repatriated not because they sold more goods, but because their earnings from currency conversion will be larger. The industries with the greatest foreign sales exposure are energy, technology and consumer staples. Companies that produce commodities usually also benefit from dollar weakness while the companies that will be hurt the most are big importers. If you have a view on where the US dollar is headed or want to hedge against some of your stock market exposure, the purest way to do so would be through trading or investing in the US dollar directly in the currency market.
