The Pros and Cons of Naked Forex Trading
Forex trading is known to be one of the most profitable yet dangerous forms of stock investing. The foreign exchange market trades trillions of dollars per day, yet many traders burn out due to the high-pressure stakes that come from the market’s extreme volatility. You cannot control a stock in this game of high speed chess; you can only make an educated guess that will hopefully maximize your profits and minimize your losses.
In Forex trading a strategy is sometimes used known as “naked trading.” In short, you trade in the Forex market without using any indicators. Indicators are used to analyze the past behavior of a currency pair’s price action to predict the direction that the pair will take in the future. Over time, traders find the few key indicators that give them the best results and they stick with them. This is how they are able to create their own unique trading strategy that keeps them profitable.
In naked trading, indicators are not used with the exception of special circumstances where a risky situation arises. Naked trading relies on price movements and an intuitive feeling for where the currency pair is going to move.
Is this strategy superior to the traditional methods used in Forex trading? It depends!
Proponents of naked trading argue that using indicators in trading is no different from relying on training wheels when you learn to ride a bike. At some point, you have to take the training wheels off and learn how to balance the bike on your own. Naked trading allows you to gain a feel for the market and aids you in predicting when a currency pair will make a significant movement in its position.
Thanks to the absence of numerous technical indicators, traders will be able to redirect their focus towards gaining experience and fine-tuning their timing. Beginners can get wrapped up in analyzing trends at the expense of missing potential price movements that are happening in front of their eyes. Overall, naked trading is arguably simpler and analysis is no longer a complex endeavor.
On the flipside, many argue that naked trading is an advanced form of trading. It takes a lot of experience and several trial and error episodes before you make any kind of consistent profit. There tends to be a high rate of “survivorship bias” where the one successful trader loudly proclaims the benefits of naked trading and the other 99 traders fail to profit from this strategy.
Naked trading is not inherently bad but it seems to require expert-level guidance and the correct knowledge in order to succeed. What really matters at the end of the day is finding a trading strategy that works for you, naked or not, and sticking with it every single day.
What are your thoughts on naked trading? Yea or nay? Let us know on social!
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