For some traders, learning to trade on the Forex is like learning how to build a car from scratch, without an instruction manual. Many of you have acquired quality parts, such as breaks, wheels, motors, seats, and steering wheels, yet as you attempt to put them together, you are not coming close to building that perfect little car you envisioned.
To become a successful trader, you need the right parts, with the right manual, to put all the parts together and have your car work properly. After all, a part such as a $2.00 gasket can bring your car to a screeching halt. Just look at what happened to the space shuttle Challenger.
I will never forget the day it happened. At the time, I owned a business that took photographs for NASA of all the work being done on the space shuttle at the Kennedy Space Center. We took pictures of all the different phases, from construction, to liftoff, to landing, and then had a company in Japan print laser photographs of the images for resale to the public. There were just as many employees who worked on the shuttle seeking these quality laser photoprints as there were tourists around the world wanting them. In fact, importing and exporting them is what introduced me to the exchange difference in currencies, which is how I became familiar with currency trading.
By 1986, laser photoprints had caught on and our company was offered licensee rights for many national parks around the United States, as well as for tourist parks such as Disney, SeaWorld, and Universal Studios. Through our importing, we exchanged hundreds of thousands of U.S. dollars once or twice a week for Japanese yen. At the time, I really knew very little about currency trading, but I did recognize the constant fluctuation of the currencies as I was exchanging them. I wasn’t trading the yen against the U.S. dollar to make money, but I saw that prices fluctuated up and down. So I watched the price movement to make sure I got the best deal at the time of the exchange; meaning, I was always waiting for the best time to make an exchange, enabling me to get as many yen as possible for my U.S. dollars.
In the late 1980s, I almost went bankrupt—not from mismanagement of my company, as the company was growing by leaps and bounds, but from the yen strengthening from 280 yen against the U.S. dollar to 150 yen to the U.S. dollar in less than 90 days. My cost of production doubled over a period of 90 days as the Japanese yen kept numerically falling and falling.
The yen was increasing in value against the U.S. dollar as it dropped in price until it stabilized around 140 to 150 yen to the dollar. That is why products made from Japanese firms such as Sony and Sanyo doubled in price back in the late 1980s. That shift in economy opened the doors of opportunity for many U.S. manufacturers to now compete with the Japanese. It also forced the Japanese to start manufacturing their products here in the United States.
It is amazing how one person’s loss becomes another person’s windfall. I was going bankrupt, losing millions of dollars, while successful currency traders were making millions by shorting the market.
Had I taken the time to educate myself about currency trading and trends back then, using a simple piece of trading software like what we use at MTI, I could have been making $130,000 to $1,300,000 from a relatively small investment in the currency market, instead of losing millions as the U.S. and Japanese economies shifted.
I was unable to find a chart of the yen falling 13,000 pips back in the 1980s, however, I did find an example of a yen chart falling 3,100 pips in three months, between August 1998 and October 1998.
Looking at the chart of Figure 6-1, trading 10 lots or shorting the market with 10 lots by investing $10,000, brought a return to the trader of $300,000 in three months. Can you see how the inner trend line crossed over from the north to the south of the outer trend line, signaling a sell position for a long-term trader?