Over the past two weeks, the financial market has taught currency traders a valuable lesson. The lesson being that there is a distinct difference between traders and investors.
- Investors look long-term. They think big picture. They have learned patience and how to survive bumps on the road to success.
- Traders look short-term. They live in the moment. They prefer to ride the market’s wave and hope to catch the big one through increased involvement.
This distinction is evident in the EUR/USD pair. Investors realize that the Euro, as a currency, is in a very difficult position and will mostly likely be for a long time to come. That said, if you look at a chart for the EUR/USD like the one below, the last few days have led to a reasonable rally for the Euro on the back of some micro fundamentals. This exemplifies the difference between investors and traders.
While most analysts would agree that there is an eminent default due in Greece (and that countries like Portugal and Spain may not be far behind), the Euro has enjoyed a 400+ PIP increase primarily because the markets have come to the conclusion that a Greek default won’t be because of it not settling its bond issues. Combine that with the recent announcement by the ECB that it will once again open the vaults to their member banks to increase liquidity and for the short-term.
Many traders are seeing this as a solid step in the right direction.Many investors see this as a mere tidbit of good news. Because the fact that the default will happen, the largest economy in Europe (Germany) is now reporting a contracting economy and borrowing costs have risen because of the S&P downgrades.
This contradiction is the primary reason that most currency traders see more failure than success. They cannot identify their role and fight the temptation to change sides when the market shows a trading opportunity.
The key here is to pick one and master it. Investor. Or, trader. Remember, no matter who you are, the market will go to the most obvious places in the least obvious ways. Simply decide who you are and stick with it.
Not sure who are you? Join me for a free Forex webinar to learn more about how you can identify your trading personality.
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