Why I don't trade the Rand...by Timon Rossolimos
A very common question I've been getting asked lately is, why I'm not taking advantage of this weakening rand.
One specific question I got from T.M is.
"With the rand on a downward spiral, one would have expected tips from Forex Trader to cash in on the movement?"
Now, I'm sure many of you are wondering exactly the same thing...
Why don't I trade the Rand?
Let me explain!
There are three main reasons why I don't trade the Rand!
Reason #1: Volatility (too much movement)
The first problem is the Rand is less commonly traded compared to the Major Currency pairs. The problem with having less people trade the rand is that, the volatility is sometimes very high which means you'll see quite a lot of jumping around in price, which can stop you out of your trade as volatility surges.
This could see you taking loss after loss as the price kicks back and forth...
Reason #2: Higher spreads (Unnecessary costs for you)
With less people trading the rand compared to the other majors, generally this means there's higher spreads as well. Spreads are the difference between the bid and offer prices which are the costs you pay to your bank or broker.
When trading the rand, the spread can often amount to as much as 100 pips, compared to the EUR/USD with a spread of less than three pips. So why trade the rand if it means more unnecessary costs for you to pay?
Everyone is an absolute EXPERT in hindsight!
Looking at the movement in the Rand I'm sure you've also wondered why you didn't make a buck on it…The problem is, it's very easy to be an expert in hindsight. But the truth of the matter is, we cannot predict these things with a high level of certainty.
The lack of investor confidence, mining strikes and violence are all things that could affect the currency, but they're not things we can predict at all. And just as quickly as these things can send the rand crashing, news in other places in the world can see it recover again…
The fact is, I don't like to speculate. I stick to my trusted system that is based on trading nine currency pairs with five patterns that give me profits more often than losses.
Due to the characteristics of the rand being illiquid with high trading costs and volatile movements, it's not part of these nine currency pairs I trade.
But I won't lose sleep about that. I'm happy with the profit opportunities I get as it is. I'll leave the rand to traders that are happy with its unpredictable volatility.
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Wisdom yields Wealth'
Editor, Trading Tips