Through my searches, I did not find a formal definition for the word ‘punter’ in forex trading. In line with the general definition for ‘punter’ that I had found, a punter in forex trading is someone who treats trading more like gambling – they trade using instinct and often appear to go against the market.
I occasionally find myself wanting to punt, even after decades of forex trading. I can come up with two competing ideas as to why this might be. Firstly, I started my career as a bank trader in the days before price action could be tracked on screens. We had to trade mainly on instinct. Secondly, with the advent of electronic trading, prices can now be watched in huge detail, and one can easily be drawn into trading based on watching prices rise and fall. Whatever the reason for the desire to punt, I am too disciplined to do so. I know that long term success cannot be gained from punting, no matter how good you think your instincts are.
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.
The price action of the USD/CAD rate today (Oct 20, 2009) was one of the reasons that I decided to write an article about punting. The decision by the Bank of Canada to hold rates was not a surprise, but caused the USD/CAD to firm. The rate fell sharply in line with an overall weak US dollar the previous day, closing at 1.0298. Before the Bank of Canada’s decision, trading was around 1.0310. Market punters looked to sell at every pause. I abandoned the idea after looking at the charts, despite my instinct telling me to sell. After pausing at various levels, many punters were drawn in, but it continued to rise higher, peaking at a final price of 1.0525. Some punters may have made a few pips by fading moves and quickly buying back USD/CAD, but generally losses far outstripped gains if entry into the market was not timed right. The risk/reward ratio was very poor.
No form of forex trading is a blueprint for long term success, but approaching it as a punter is less likely to bring the rewards of treating it as a business. Punting is like gambling in a casino, and will bring the same long term rewards – i.e. the house always wins and the punter comes away with a loss. If forex trading is approached with solid analysis, risk/reward ratios and good money management, i.e. treating it as a business, you have a much better chance of success.
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