Day Trading Tips and Tricks

June 9, 2011

Erich Senft

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In The Forex Jungle, You Can Be the Lion……..Or Be Lunch!

Making Money in the Forex JungleSo here we are. End of September/beginning of October. All our analysis seemed to point to there being tons of great trades on the way. Frustrated? Dying to catch something? Thinking about taking that marginal trade because you don’t want to miss out? Not so fast my friends!

You see, just as we can use market principles to explain the “real world” (Fibonacci numbers in particular are found EVERYWHERE in nature), we can explain market principles by using the “real world”.

Today I want to talk about the predator-prey relationship and how it relates to trading. Close your eyes and imagine the Serengeti. Masses of herbivores spend all their waking time grazing and looking for food. This produces very little caloric gain per pound of food they eat and they have to spend A LOT of their time eating. The entire time, some or all of them must be on the lookout for something that wants to make a meal of them. Where are the lions throughout this?  Probably playing or sleeping.

You see, the lion like many other “top tier” predators, focus their food- gathering efforts into a much smaller span of time, because when they finally do get a kill, the calorie payout will be much higher per pound of food caught. They lie in wait, stalk, and go after the easiest target possible. I’m not suggesting for a second that predators have easy work, but once the hunt is over, they can play around and enjoy their kill. Lions spend much less relative time getting a higher amount of relative calories than the herbivore without ever having to worry about being eaten.

So how the heck does this compare to trading?

Well, imagine the herbivore as a trader constantly taking trades in the market. They are using every reason they can to “graze” across many different pairs, styles and strategies, all in the hopes that by the end of the week, the huge volume of action leads to positive gains overall.

By comparison, the predator is the trader who essentially sits on the sidelines and waits. This trader only wants targets that have a very high probability of winning, although this means he/she will have to wait longer for a better setup to occur. As price nears the well-researched and desired areas, this trader “stalks” the trade and is patient for the perfect situation to present itself and them BAM! Takes the trade… with much less time spent worrying about trades winning or losing (if nothing else, because there are so many less trades to keep track of ), more time can be spent looking for the choicest setups.

The rest of the time can be spent doing something else, rather than being chained to the computer constantly looking for trades. And the “food chain” analogy? Think of this: the more time you spend with trades in the market, the more chance you have to be exposed to a “black swan” or rare trading situation where you see a massive spike, gap or scary volatility. By spending less time in the market, the predator leaves themselves much less time to risk a catastrophic market event from affecting them (don’t get me wrong, there is NOTHING wrong with holding a big winner for a long time because even scary events usually don’t have too much impact on these trades and at worst, you get busted out at b/e). So are you going to be the predator or prey?

June 9, 2011

Erich Senft

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