What is "Chasing Nickles Around Dollar Bills"?
Chasing nickles around dollar bills is a slang term for when a foreign exchange (FX) trader pursues a trend in the currency market. Traders chase nickles when they chase after the price of a currency during fads or enter a trade when a trend is near its end.
The term may also apply to a company's management focus on trimming small, trivial costs instead of cutting more severe and significant costs.
- Chasing nickles around a dollar is a metaphor for losing sight of what's important and focusing too intently on minor details.
- In foreign exchange trading, this often means chasing trends or trending news events instead of sticking to a disciplined plan.
- In business, chasing nickles around a dollar means focusing too much on cost-cutting and not enough on investing in the business.
How "Chasing Nickles Around Dollar Bills" Works
Trading on the forex marketplace can inspire a number of emotional reactions including elation, fear, greed, loss, and panic. As a trader, it is crucial that emotion is kept out of the decision to buy or sell any particular currency. "Chasing the nickles around dollar bills" is a metaphor to describe this kind of irrational market behavior.
Foreign exchange market efficiencies make it challenging for traders using chase-the-market strategies to realize substantial gains. For these reasons, chasing the market is typically a futile endeavor unless the trader has considerable amounts of capital for investment. This limitation gives institutional investors an advantage as they trade with funds from massive pooled-fund portfolios.
Day traders with portfolios of $25,000 or more may be able to chase market profits, but overall, the efficiency of the market’s pricing of currency pairs, and other securities for that matter, makes pursuing short-term gains less attractive.
Real Life Examples of Chasing Nickles Around Dollar Bills: Fads and Trends
Trading is dangerous as a rule. Enter the deal too early or too late and you could find yourself with significant losses. Trading a fad usually occurs when breaking news, the outbreak of a war, or a natural catastrophe causes a considerable move in the exchange rate of a currency pair. These moves are generally unsustainable.
Trend trading is a strategy that attempts to capture gains through the analysis of a currency's momentum in a particular direction. Traders may enter a long position when the currency trends upward or take a short position when it is trending lower. They assume that the movement will continue to move along its current direction.
Using technical analysis, a trader examines the prices of specified currencies over time. In most cases, they will recognize repeated patterns, which they then use to predict the market's direction and if the trend is beginning, ending, or a phantom trend. If a move is usually 20 pips, and when you see the trade it has achieved 15 pips, the trend is nearing its end.
Following new developments and trends may present profitable opportunities. However, waiting too long to chase established trends is where traders may find trouble. Trading based heavily on a market-chasing strategy rather than careful forex analysis can also be problematic and typically unprofitable.
Conversely, traders may place trades against a trend or fad. A countertrend strategy is a speculation method that attempts to make small gains by trading against the current trend through the use of use momentum indicators, reversal patterns and trading ranges to determine the best areas to execute trades.
Other Uses of "Chasing Nickles Around Dollars": Business
Businesses are said to chase nickles when they undertake unimportant budget-cutting in the name of fiscal responsibility.
This issue is often a concern of small business owners, who can get caught up in trimming costs and lose sight of more meaningful changes that may be apparent to an outside observer.
For example, the costs of investing in training or technology upgrades can be costly, but the potential improvements in efficiency and service are worth more in the long run to the business owner.
The phrase encourages taking the long view and understanding that short-term financial pain should result in long-term financial gain and resource allocation.