A Forex Trader's Journey: An Interview With Ed Ponsi

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A Forex Trader's Journey: An Interview With Ed Ponsi
Ed Ponsi
Source: CNBC.com
This is the first part of an interview with Ed Ponsi, a managing Director of Barchetta Capital Management LLC and a NFA registered Commodity Trading Advisor. Ed has created a range of educational courses for forex traders, including seminars, books and DVDs. You can find out more on his website: https://www.fxeducator.com/index.php

Why do you trade forex? What attracted you to the currency trading market rather than other markets (stocks, options, futures, etc)?

I do trade other markets in addition to forex; for example, I'm heavily involved with stocks and options. Each has its unique advantages. In forex, I see great advantages in the news-driven nature of the market as well as its tendency form strong trends. Plus, I'm a news hound, I'm always curious about what is going on in the world. That's a good quality to have if you want to trade forex.

How did you start trading forex? What were the big mistakes you made and important lessons you learned when you started trading?

I was working on a stock trading desk in New York City when one of my co-workers suggested that forex would suit my trading style, which was geared toward trend trading. He was right, but at first I didn't understand the underlying fundamentals. It took a while to synthesize the various elements of technical analysis, fundamental analysis, and risk management into a cohesive unit, but it was worth the time and effort.

I was fortunate that I already had a trading background in the stock market before getting involved in forex, so I'd already gained considerable experience before I placed my first currency trade.

How much capital did you start trading with?

My initial experience with forex was with a $50,000 demo account, and I wanted my live trading experience to mirror that as closely as possible. The demo account was very useful in that it was a reasonably accurate representation of live trading. I felt most comfortable trading $50,000 in a live account because I was so used to the demo version, and I wanted to duplicate that experience. I'd even withdraw funds to keep it at 50K. I did that for about the first year; by then I felt really comfortable and the amount of money didn't matter as much.

I'd encourage traders who are getting started to begin small, start with an amount that won't hurt too badly if you lose. The important thing in the beginning is learning, not winning. You don't want beginner's luck, anyone can be lucky for a while. I'd rather be good than lucky, because luck runs out eventually.

What is different about your trading now compared to when you first started?

I was 100% technically driven when I started trading forex. That had worked well for me in the stock market, so I simply applied what I already knew to fx trading. The great thing about technical analysis is that if you can understand how to read and interpret the charts, you can transfer that ability across asset classes. But I learned that I could make even more money if I understood the underlying fundamentals that were driving the technicals.

What type of trader are you now? Fundamental? Technical? News Trader?

I can honestly say all of the above. I use fundamentals all the time now, but I use them in conjunction with my technical trading. Generally, if there is a strong technical trend in the market, it is being driven beneath the surface by a fundamental factor. So, you could say that technicals and fundamentals are two different sides of the same coin.

I also use techniques that deal with the market's reactions to news items. I had explored that type of trading in the stock market, but the 24-hour nature of the forex market really opened up the possibilities of news trading in ways I hadn't considered. Forex is a news traders' paradise, you can literally trade nothing but news if you want to.

Did you develop your own trading system?

I developed a whole series of trading systems, because I found that I would be faced with a variety of scenarios. There is no one system that is appropriate for every scenario, just as there is no one tool that is appropriate for every occasion. I needed a toolbox that would allow me to be prepared for any situation; long term trending, short term trending, non-trending, news, special situations and so on.

So I developed a series of trading systems that were designed to handle every situation I could imagine. My favorite systems are of the trend-following variety. It's funny, sometimes you can't find a trend trade anywhere, and other times you have more opportunities than you could possible handle. Trending is my preferred method, but if the market is moving sideways, or if there are other factors at work, you have to be prepared for those situations too.

How often do you trade? What time frame?

I don't place a trade unless I really feel that I have an edge, an advantage. I've found that when I force my trades, they tend to go wrong, so I don't force them anymore. I might place a lot of trades one week, and very few the next. I only take what the market gives me. I trade many different systems using all of the different time frames, anywhere from 5 minutes to a daily chart.

Do you have any indicators, releases or other information sources you depend on?

I only use things that are available to everyone else. Every time I'm placing a trade, I'm looking at a variety of factors; what is the trend, what is the central bank of a particular country saying, what events are on the horizon, what is the cost of carry, and so on. The tricky part is what to believe and what to ignore. I might ask myself, "do I want to give more weight to a particular indicator, or to a news release? What's more important right now, the chart or economy?" Sometimes they match, sometimes not so much. And the answer to that question is always changing.

Do you focus on specific currency pairs?

No, I really believe you have to go where the opportunity is. For example, if you specialize in one pair, and that pair is being 100% driven by central bankers for both currencies, then you're just gambling since there is no way to know what to expect next. You can't read minds. Lately, I prefer to trade two risk-on currencies against one another - for instance, EUR/AUD - rather than trade one risk-on vs. one risk off. EUR/USD is a good example of a binary currency pair completely driven by central banks at this time.

The second part of Ed's interview covers his advice to new forex traders. You can also check out Ed's website to learn more about him and the services he offers: https://www.fxeducator.com/index.php

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