One comment we hear a lot as traders is, "Oh, you trade Forex? Isn't that risky?" Unlike a fear of snakes or spiders, most of the fear people feel concerning the Forex markets stems from either a lack of information or a misunderstanding; however, instead of exercising a fear of risk you can try exercising risk as a tool to help you in your trading.
In this article we are going to discuss non-directional markets, their sources as well as what to do with them. First, however, we need to define them.
So what is a non-directional market?
Imagine you're trading the EUR/USD. After you perform some market analysis, you belive that the currency pair is going to strengthen so you go long on the EUR/USD. Another day, you might believe that it is going to drop, so you would short the currency pair. These would be an example of directional trading because the trader is taking a fairly confident stance on which direction the trend is going to go. In non-directional markets, you'll notice that the trend doesn't take a clear stance; rather, it moves sideways.
Eastern Europe and the old Soviet bloc during the early 90’s is a perfect example of what happens with extreme fluctuation in currency valuation.
Risk management is essential to profitable trading. No matter how good your trading strategy is you're going to experience losses. As Forex traders, we know that we don't need to fear taking a loss. However, if you don't manage a losing trade then you're going to find yourself in trouble pretty quickly.