The advice you hear the most from other forex traders is to develop your own trading strategy. Plan it well and trade according to it. Be disciplined and follow the trading plan religiously. You spend months polishing up your strategy in hopes that now you have cracked the code of forex market.
The truth is, forex market is dynamic and elastic. Forex market does not follow anyone’s rules and guidelines, especially not your detailed and strict trading plan. In order to be successful, you have to become dynamic and elastic yourself. In other words, instead of trying to mechanize it, you have to FEEL it.
Think about it. If automated mathematical EA was a perfect solution, there wouldn’t be a need for traders at all. EAs do not react right to news and sudden market moves. If you rely on EAs, an unexpected turn in price can wipe your account clean within seconds. I guess, no matter how advanced the technology is, there is no substitute to human touch, even in forex.
When you trade manually, you follow the basic principles and, at the same time, you are aware of the news and the possible market swings. The instincts play an important part in trading. You trade your plan when it feels right.
Now, here is another thought – what makes the market move? Imbalance of supply and demand? Economic factors and financial news? Political fluctuation and instability? Greed and fear? Market psychology and traders perceptions?
People move the market. Millions of forex traders just like you are in front of their computers starring at the same charts, buying and selling, analyzing, seeing the same patterns and making decisions. The traders’ decisions are based on emotions, trading trends, technical trading and/or intuitive techniques etc. By traders I mean both independent traders and huge financial institutions such as banks, since they are also controlled by people! In the center of it all stands the ultimate winner – a broker. Around the broker, some traders win, others lose.
So how does EA mixes in all this? Why are there so many so called “Holy Grail” trading strategies? With EA traders try to predict. Even when the market may seem random, it is still driven by people who expect the market to repeat itself. And this is the true reason why it does.
On one hand, manual trading can be more profitable, since a forex trader can read the market continually with manual trading and therefore spot a fundamental event which may change the direction of the price despite the technical analysis factors.
On the other hand, there is a psychological disadvantage of manual trading - a trader may close a trade as soon the money seems to decrease (retracement) just to see the price turn around again. Therefore, set and forget technique may be less profitable, but it is sure easier on your nerves.
· The percentage of traders who actually follow a trading strategy is slim since it is important to bend the rules once in a while and follow the instincts.
· The percentage of successful traders who use common sense, their knowledge and their intuition to make a decision is low since many beginners in forex trading are dropping out after couple of unsuccessful tries to hit the jackpot!