The first thing I did when I thought about writing an article about a punter was to find out what the term meant, especially in relation to forex trading (the theme of my article). On the web, I searched for the term punt, but came up with a myriad of definitions. Searching for ‘punter’ was more successful, and the definition I was looking for turned out to be British. The term ‘punter’ describes one who stakes a bet against another person, or bookmaker.
Having discovered what a punter is, I needed to know what a punter is forex trading was. I had not come across any sort of formal definition. Traditionally, a punter refers to someone who trades on instinct, often against market trends. This follows the British definition for ‘punter’ that I had found, which implies an attitude more akin to gambling than trading.
Even after many years in forex trading, every now and then I find myself wanting to take a punt, but I am too disciplined to do so. This is the reason that I wanted to write the article. A reason for my desire maybe related to my early career as a bank trader. This was in the days before banks of screens covered the trading floor, and we had to rely on instinct to make trades. Alternatively, perhaps it is the development of electronic trading that makes it easy to be pulled into trading by constantly watching a price rise and fall on a screen. Whatever the reason, I know that no matter how good your instinct are, punting is unlikely to be method for long term trading success.
When trading simply on instinct, one often gets early profits when you are right, but the losses are often too late when you are wrong. These types of trades are not based on risk/reward strategies, which have defined targets and stop points. These trades are based on using gut instinct to hope that you have timed the trade to coincide with the top or bottom of the market.
Today (Oct 20, 2009) there was an event that prompted me to write an article about punting. The Bank of Canada made its monetary policy decision - there was no surprise that they decided to keep rate unchanged. This announcement caused the USD/CAD to firm after the previous day where a weak US dollar had caused a sharp fall. Trading was in the region of 1.0310 before the decision, but afterwards, as the price started to firm, punters were looking to sell at every pause. This was also my instinct. However, discipline told me to hold off and look at a chart. I soon abandoned the idea of selling. The USD/CAD price hovered at various levels through the day, sucking the punters into trades. It finally peaked at around 1.0525. Punters may have been lucky and grabbed a few pips by fading moves and quickly buying back, but the price action offered a poor risk/reward strategy. Losses far outshone the gains, unless entry was timed right.
Neither punting, nor any other form of forex trading, are a guaranteed method for long term success. It has been said before, and it is worth reiterating, traders who treat currency trading as though they are gambling in a casino, will get the same results in the long term as though they were gambling in a casino. If forex trading is treated as a business, with strong analyses, risk/reward ratio strategies and good money management, there is a far greater chance of success.
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Tags: bonds, business, currency, finance, foreign exchange, forex, forex signals, investing, stocks