Forex Article: Do You Predict or Anticipate? | GoLearnForex

Forex Article: Do You Predict or Anticipate?

Written by article default Wednesday, 02 December 2009 11:04

I am not one to attempt to predict the future because it is simply an impossible task. Nobody walking the face of the earth knows exactly what is going to happen tomorrow and the sooner I accepted that very fact, my personal trading results took a big turn for the better. Anyone reading this article may find these comments rather strange coming from a professional trader and educator since my job revolves around speculating market direction and outcomes! However, prediction can be a dangerous game. Human nature dictates that we always want to be right and traders can get pulled easily into the trap of looking for trades to make money, as opposed to trading for genuine technical reasons.

Throughout the ongoing Extended Learning Track(XLT) program, I take a different approach teaching students how to be objective and unemotional in their trading, much of which I have discussed in previous articles. I like to deter them from thinking that they have to be right all the time. If one continually attempts to predict market directions and outcomes, they will soon lose sight of what consistent technical analysis is really all about: High Probability, Low Risk speculation, not being right each and every time. In the real world of trading, even "High Probability" does not equate to "Guaranteed Success" and I encourage all of my students to learn to take a loss and enjoy them – they are simply part of the business.

However, this is not to say that I don't encourage my students to formulate a forward-thinking approach to their market analysis as I firmly believe it is important to be aware of all of the possibilities of price and direction. It's almost like preparing yourself for things that could happen, even if they don't happen. It is never fun to be thrown a curveball, so I keep an open mind at all times and attempt to be mindful of all the things that could happen. You see when I look for a trade in the Forex market, I am not looking for something that is unlikely to make me money, as I only look for trades which offer minimum risk, high potential rewards and stack the odds in my favor. But as I said before, this criteria alone does not mean that the trade will work out. I need something more – I need to anticipate all of the possible outcomes.

I describe technical analysis as being more like detective work than anything else. To me, a price chart is a roadmap of subtle clues. This roadmap shows us the events of the past and the events of the present. If I look closely enough, these charts will actually show me the footprints of all the buyers and sellers in the market and what happened at the key market turning points. We can tell if Supply was greater than Demand, suggesting that prices will fall if they come to this area again or vice versa. We can get hints on how a market is trending, showing weakness, telling me to sell or showing me strength to buy. When we know how to interpret this activity on a chart, we have a very powerful tool to work with because we can objectively analyze the events of the past and the present, to give us clues as to what could happen in the future. Sure, nothing is set in stone, but when going back to my previous analogy of detective work, I like to help my students think of themselves as just gathering clues to aid them in their decision-making process. Just like any lawyer fighting their case in court, the more quality evidence they have amassed to support their case, the more likely chance they have of winning that case when they await the verdict of the jury. Needless to say though, that even some of the best fought and well presented cases still don't get the nod of approval, but like anything, that's just the way it goes...nobody really knows what's about to happen next in any aspect of their life, just like a seasoned lawyer knows they can't win every case and how a professional football player knows they can't win every game. They anticipate all potential outcomes yet still play to win with the odds stacked in their favor. Ask yourself, should trading be any different?

A clear line in the sand can be drawn between the activities of Prediction and Interpretation and it can be a useful exercise for any new trader to clearly observe and embrace this idea as part of their trading plan. To me, attempting to predict what is about to happen next in the Forex market sounds almost ignorant, as I know from my own experiences that even the best laid plans can fail. Yet if I approach my activities in the markets from a point of view that I am trying to simply deduce and interpret all likely events, then I am much less likely to fall foul of my emotions. My XLT students and I understand completely that "High Probability" does not mean "Certainty" in the organized chaos of the global Forex markets. We objectively analyze, we limit our risk, place our stops and targets and then finally let fate do its thing, all the while knowing that the market may not behave as we would like it to, but may actually behave in a manner in which we anticipated it may well do. This is not an easy concept to get your head around but definitely worth acknowledging. Remember if you have all bases covered, what got you in and got you out for a small loss may actually get you back in for a bigger win a little later.