How to get revenge on the market ? - Things You Need To Know Before Action !

Revenge trading, or "tantrum trading" as it is often referred to, is a very dangerous phenomenon to occur in the Forex market. If you've never heard of this term before, we will start from the very beginning.

Basically, revenge trading takes place after you have suffered from a large financial loss as a result of a trade-gone-wrong. Remember, every trader, including you and I, are human. We make mistakes, and we cannot be perfect the whole time. Therefore, it is absolutely inevitable that at some point in our trading careers, we will suffer an account set back (possibly in the order of a few hundred or a few thousand dollars).

When a loss is made, our own personal sentiment towards the Forex market can change. We might be angry, emotional, or just downright outraged that a trade we thought was so perfect - has now turned out to be a total loser.

If you catch yourself with any of those above personality traits, it is definitely time to take a break from Forex. If not, the following things can happen.

GETTING REVENGE ON THE MARKET.

Let's face it. The Forex market doesn't have a personality. It doesn't care if you win or lose. It couldn't care less whether you earned $1,000,000 in a single year from trading currencies, or lost $500,000 and your home.

Therefore, the idea of revenge trading is completely flawed. When you place a revenge trade, you take on the attitude of a novice investor. The following can therefore result:

Trades can be placed simply for the sake of placing a trade.
Trades can be placed with absolutely no logic behind them.
Stops and limits can be wildly misplaced.

Proper risk management goes out the window.

The outcome of a revenge trade is often not positive. Many people find that their situation worsens as a result of the rogue, thoughtless trade. Hence - it's better to focus your energy on earning profits back in a reliable, thoughtful way, rather than simply on the flip of a coin.

IF YOU'RE IN THE REVENGE TRADING MOOD

If you suddenly find yourself feeling bitter and angry towards the Forex market, a good idea is to step back and take a break. Yes - this might sound counterproductive. After all, you probably just want to earn the losses back as soon as possible.

However, until you have calmed down and can genuinely think logically, trading should be put on the backburner, and a totally different activity should be taken up.

HOW THE OTC STRUCTURE AFFECTS SELF-DIRECTED TRADERS

Limited access to interbank market

Individual retail traders, most of whom trade in much smaller size compared to those of banks, generally trade through forex brokers instead of directly accessing the interbank market. This aspect of OTC shifts the odds of success against individual traders, especially if the forex broker acts as a market maker. Since traders have to deal directly with their brokers, the latter will usually hold the opposite side of the transactions. If a trader is bullish on say, the USD/JPY, he or she will go long by buying a specific quantity of USD/JPY from the market maker, who will then effectively be short USD/JPY by selling to the trader. Because of the inherent conflict of interest that exists, this arrangement does not sit well with many individual traders as they fear that the market maker will trade against them, and that is not an uncommon practice in the market making industry.

NO INFORMATION ON VOLUME

Since buy and sell transactions are not cleared by a central system, there is no way of knowing the total volume of trade. Lack of volume data can pose a challenge to stocks or futures traders who have made the switch to currencies as they may have become used to checking volume.

NO SINGULAR EXCHANGE RATE AT ANY ONE TIME

Exchange rates do differ from place to place, screen to screen, depending on which parties are offering what. Cash transactions take place between countless parties at any one time, and there is no exchange which records all these transactions.For example, while the exchange rate of EUR/USD may show 1.2500/1.2503 on Broker X, the EUR/USD exchange rate on Broker Y may be 1.2505/1.2508 at the same time. There isn’t a universal absolute exchange rate of any currency pair at any given time. Some independent traders are not even aware of this peculiar aspect of OTC dealings. Since there can be a few different prices for a currency pair at any one time, you may not be able to see what is the best available price if you trade through only one market maker. Generally, though, the rates provided by market makers to retail traders are quite close to the pricing quoted in the interbank market.

VARYING SPREADS

Spreads on currency pairs vary from broker to broker, with some market makers setting fixed spreads, while ECNs will have varying (usually tighter) spreads in each currency pair, depending on market liquidity. Spreads and/or commissions should preferably be calculated in advance before each trade so that you can decide where your breakeven price will be after taking into account all these business costs.

NO STANDARD DATA

Exchange rates differ from one market maker to another because there is no consensus specified by a centralised market. Different market makers have different rates at the same time although usually not differing by more than a few pips. A trader would have to accept what is being quoted by his broker unless he compares prices with other brokers. Price charts from different price feed vendors will also look slightly different as they each have their own data source. Although, in general, the currency prices are quite similar.

THE FOREX TRADING DAY

Also, being a 24-hour market, boundaries of a trading day are blurred. Traders from around the world are in various time zones. Traders from, say, Singapore would display a different timing from their US counterparts – who tend to display EST (Eastern Standard Timing) on their price charts. As a result, many traders display

GMT (Greenwich Mean Time) on their charts, so that a trading “day” commences and ends according to GMT.

SUMMARY

The OTC nature of the forex market can be a bane to serious forex traders, who long for price and execution transparency – something which is standard for stock and futures markets.While the trading arena has had a boost from the CME-Reuters joint venture of a central forex exchange, it remains to be seen if that can benefit independent traders. Trade manipulation by some market-making brokers is something that is difficult for traders to prove, and something that is easy for the culprits to dismiss.

However, despite the limitations that come with the OTC territory, spot forex trading can be extremely financially rewarding for those who are aware of the limitations.