At this precise moment in time there are four ordinary
people trading the British Pound (GBP) versus the U.S.
Dollar (USD).
There is nothing surprising in that. In fact many thousands
of people are at this precise moment, most likely doing
exactly the same.
What you may find surprising about these four individuals,
lets call them John, Mary, Joe and Susan, are their
individual trade results so far. Remember, they are all in
their trades right now.
John is long the GBP and is showing profit. Mary is also
long the GBP and is showing a loss. Joe is short the GBP
and is also showing a loss. Susan is also short the GBP and
is in profit.
Why is this?
If you take a look at a long term chart of the GBP/USD you
will find that the GBP has been in an up trend since around
February 2002, starting at a price of 1.3931 and has risen
at it's zenith to 2.0652 a rise of 6,721 pips or a reward
of $67,210 for 1 standard lot at 100:1 leverage (not
allowing for roll over interest), and is currently at a
price of 2.0312
John bought the GBP against the USD in May 2002 at 1.4461.
He got the timing right and is currently showing a profit
of 5,851 pips or for 1 single standard lot at 100:1
leverage, $58,510 (not allowing for roll over interest).
Currencies tend to trend rather well over time, but they do
not move in a straight line. They have periods when they
are trending, periods when they retrace, periods when they
consolidate and periods when they resume the trend.
Currencies can also reverse the trend and establish a new
trend in the opposite direction, but we are looking at the
GBP/USD which at the time of writing is still in the same
direction of trend that it has been in since 2002.
Mary unfortunately got the timing wrong. She bought the
GBP/USD on July 24th 2007 at 2.0650 and is currently down
338 pips or minus $3,380 (not allowing for roll over
interest).
Joe also got his timing wrong when on March 31st 2006 he
sold the GBP/USD at 1.8248 and is currently showing a loss
of over $20,000.
Finally, we look at Susan's trade. She sold the GBP
yesterday at 2.0473 and is currently in profit by 161 pips.
So what is the lesson here? Despite what people may say,
trading the Forex market is not as simple as deciding "Will
it go up? or Will it go down?" because as you can see from
the example above, even if you are right - you can still
make a loss if you get the timing wrong.
One of the important aspects of trading is being on "the
right side of the market". You could say that in some
respects, like life in general, "timing is everything".
----------------------------------------------------
Martin Bottomley is a full time professional forex trader,
forex tutor, acknowledged author and co-developer of forex
trading software including The Amazing Stealth Forex
Trading system. He is featured in the forthcoming book
"Millionaire Traders" You will find more information at:
http://www.stealthforex.com
