Chocolate Flavored Heating Oil

In this article I’m going to talk about something you’ve probably never heard of before. It might give you a different viewpoint on trading the Forex.

The reason I’m doing this is to open the minds of Retail Forex traders in order that they can have a greater insight into something that could be the very crux of why they’re struggling.

I call it BAFTS.

BAFTS is a disorder that can become ‘chronically account threatening’ if not adequately treated.

BAFTS stands for Befuddled Acquired Fuzzy Technicals Syndrome.

Almost every trader gets BAFTS at one time or another. For some traders, regretfully it never leaves them… often times they just dry up and disappear. (OK, that’s just a little hyperbole)

I believe that BAFTS is a primary cause that leads to failure for those attempting to achieve success in Forex trading – in addition to the frequently intentional and sometimes non intentional proliferation of misinformation and propaganda that permeates the Forex Market.

Where did BAFTS come from?

Prior to 1998 when the Spot Retail Forex was non- existent, Stocks & Commodities were the two most popular trading venues of the small capital investor.

Note however that both Stocks and Commodities are One Symbol Trading Instruments – (one symbol per trading instrument).

Examples of Stocks & Commodities and their respective single trading symbols:

When trading Stocks or Commodities you either buy or sell only one symbol at a time.

The Forex is vastly different whereby you have two symbols in each trading Instrument - (AUD/JPY), (EUR/CHF), (USD/CHF)... and rather than buying or selling just one symbol, you have to sell one symbol while simultaneously buying another.

Further to this, you can pick almost any technical indicator out there and chances are that it was devised for Stock & Commodities trading and Not for Spot Forex trading.

Since the inception of Spot Forex back in 1998 there was an assumption that almost all technical analysis tools used to trade Stocks & Commodities would be equally applicable to the Forex…but the Forex is a vastly different market than Stocks & Commodities.

Why is the Forex vastly different and what has BAFTS got to do with this?

Simply because when the Retail Forex began there was nothing else to use for technical analysis except the indicators already being used in Stocks and Commodities trading.

Let’s compare Stocks & Commodities to Forex

In Commodities you can buy Cocoa (CC) - a One Symbol Instrument (CC).

But…what if you had no choice when buying Cocoa (CC) other than to sell Heating Oil (HO) at the same time?

Your trading symbol would be CC/HO - (Buy CC / Sell HO) - Substantially more complicated than simply buying Cocoa on its own fundamental/technical merits isn’t it?

What if the price of Heating Oil is about to strengthen while the price of Cocoa strengthens?

Ultimately you would get chocolate favored heating oil – in other words you would end up with little or no profit to show for your investment.

Here’s another similarity, this time with stocks. You want to sell IBM (IBM)

What if you had no choice but to buy Exxon Mobile (XOM) while selling IBM (IBM)? Your trading symbol would be IBM/XOM - (Sell IBM / Buy XOM) - Substantially more complicated than selling IBM on its own fundamental/technical merits.

What if Exxon were to weaken even though your analysis on selling IBM was correct? Disappointing. What if you were off the mark and IBM strengthened while Exxon weakened? Disaster.

This is precisely analogous to Forex Trading.

The thing is that most Forex traders use the same technical indicators that have been used for many years in trading Stock & Commodities – but these are two remotely different markets!

Why is this important to understand?

Given that trading with one sided instruments such as Stocks & Commodities is not easy…and given that some of the best traders of Stocks & Commodities consider 67% a good success rate…Can you imagine how much more difficult it would be if the same Stocks & Commodities traders had no choice other than to sell one instrument while buying another?

Suddenly you’re dealing with two symbols rather than one. You have at least twice as many factors to consider prior to executing your position and so you encounter at least twice as much risk – and even more so due to leverage.

Why you should be aware of BAFTS…

What is the effect of using technical indictors that were designed for one symbol trading in a two symbol trading market?

Using the same technical indictors as Stock & Commodities and having to deal with strength vs. weakness of two trading instruments rather than one, by extension the 67% success ratio for a good trader is cut in half, to 33%...and, in addition to that you need to consider leverage.

I’m not trying to sell anyone on Stocks & Commodities trading…but is it any wonder why so many Stocks& Commodities traders are absolutely frightened of the Forex?

However, this is the Forex and this is what makes the Forex so much more sophisticated than Commodities & Stock or any other form of trading. The struggling trader can interchange the word 'sophisticated’ with any of these; challenging, difficult, confusing...well, you know what I mean.

Using a plethora of technical indicators that have virtually nothing to do with the complexities of Forex is almost like trying to fix a Lexus with used Chevrolet parts.

My own encounter with BAFTS…

More than a decade ago I got severally whacked for USD 50K when trading my first live Forex account. It was a lesson I’ll never forget. Afterwards I went out a bought $350 worth of books about technical indicators because I was determined to get all of my money back. I read these books and applied all I’d learned into trading demo accounts. Some of the information was marginally helpful but none of it gave me the consistent results I was looking for.

I still have the books but they’re sealed in cardboard box, being stored and collecting dust. When I get around to it, I’ll put them in a paper recycling bin.

Where did I find the answers? On my own - through years and years of long days and nights and mind racking, exhausting but fiercely determined research.

I’ve been through just about every dead end you can think of and I know how it feels for others who’ve been there and feel that sense of helplessness…if you’re one of those, I hope this will help you find the right direction.

1000 Pip Club – Teaching What You Need To Know