When I thought writing about a punter I thought it was a
good idea to check out other definitions since the one I am talking about is
sort of a slang version used in forex trading. I first looked up the word punt,
and found once source that listed 33 definitions. I then looked up punter and
got several definitions, including a kicker in American football, which I
already knew. I then came across a British definition for punter that defines
it as a person who gambles or bets against a bookmaker or the house. This was
the definition I was looking for.
What is a punter in forex trading? There is no formal
definition that I have seen and it usually refers to someone who trades from
his gut and most times seems to be against the market. This is in line with the
British definition cited above, more like gambling than trading.
The reason I decided to write about punting is that after
decades of trading in the forex market, I still find myself occasionally
punting or itching to punt, only discipline holding me back. Maybe it is
because of my background as a bank trader, where I started out before there
were screens when we had to trade more on instinct and gut feel than anything
else. Or perhaps it is the introduction of electronic trading, which makes it
easy to be lured into trading by watching the price action on a screen.
Whatever the case, punting is not a long range prescription for success but
rather a road to ruin, no matter how good your instincts might be.
Trading on gut feel alone usually results in taking
profits too soon when you are right and cutting losses too late when you are
wrong. One reason is because these types of trades are not well thought out in
terms of risk/reward with defined stops and profit targets. Rather they are
more often than not based on gut feel and hope you have timed it right and
picked a top or bottom.
One event that encouraged me to write this article was
today‚Äôs (Oct 20, 2009) price action in USD/CAD after the bank of Canada
announced its monetary policy decision. It is a good example of what lures in a
punter to trade. While there were no surprises in the Ban of Canada decision to
keep rates unchanged, USD/Cad firmed following the announcement. It had closed
at 1.0298 the previous day after falling sharply in line with a generally
weaker US dollar. Prior to the Bank of Canada decision, it was trading around
1.0310. After the decision, USD/CAD started to firm and the average punter
would look to sell it at every pause. I know because that was my instinct as
well until I looked at a chart and abandoned the idea. Well, USD/CAD paused at
various levels, sucking in the punter and then continued to march higher as
weak short positions were squeezed until finally peaking around 1.0525. Even if
the punter was lucky to grab a few pips by fading the moves and then buying USD/CAD
back quickly, the price action, as illustrated above, offered a poor
risk/reward with losses far outstripping gains if the entry was timed wrong.
The point is punting in forex trading or any other type
of trading is not a prescription for long term success. I have said this many
times and it is worth repeating here: Those who treat forex trading as if they
were in a casino (i.e. gamble) will see the same long-term results as when they
go to a casino. If you treat forex trading like a business, employing solid
analysis, good risk/reward trades and prudent money management, you have a
better chance of success.
Jay Meisler is a co-founder of Global-View.com, the
leading forex discussion site for more than a decade and where traders from
around the globe come for the latest breaking news, flows, rumors and trading
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