Trade What You See, Not What You Think

‘The Euro has to go down, Greece, Spain and Portugal are all broke, Italy’s following them, it just has to go down…’

Amateur traders trade with emotion, professional traders trade with trading strategies.

Trading fundamentals in Forex is a surefire way to go bankrupt. You need to think of Forex as a illogical, slow market place, it is not as reactive to fundamentals as Stock markets, or Bond markets. It’s almost like you need to hit it with a 2 x 4 to the head, before it realizes what’s going on. Remember that Forex is the biggest marketplace, so it takes the longest to change direction.

At the end of 2010, the Euro was supposed to be the big short and go down going into 2011. Guess what…4 months it went long, straight up. Similarly, at the end of last year, 2011, going into 2012, every man and his dog was short euro right? Wrong, because it went straight up for 3 months.

The important lesson here, is that you must ‘trade what you see, and not what you think’. Price action doesn’t’t lie, the verdict is still out on the media. If the market is moving up, look to be a buyer. If the market is moving down, look to be a seller.

Trading what you think, means that you are trading an idea, guessing where the market is likely to move next. The last time I checked, guesswork was never the most profitable way to trade any market.

Firstly we need to know, what is the difference between trading what we see, and trading what we think? Trading what you think, comes down to external distractions, such as current news events, which way your mates are trading, which country is going bust this week, or what you read in the newspaper last Friday.

Trading what we see, all comes down to looking at a chart, looking at the price action, and trading in the direction the market is moving. Price action will tell you more often that not, where that market is likely to move next. Trading with the trend, only enhances our probability of success.

Can we quantify a…

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