This week I was speaking to a friend of mine that is also learning how to trade, and we were having a discussion about various fundamental factors influencing the market right now, and also where we see the markets heading in the near future.
We came to the conclusion that certain currencies should start to show signs of strength over the next few months. Later on he explained to me which trades he was looking at taking. To my surprise he was basing most of that decision on the previous conversation that we had, and not price action or technical analysis. From what I could see in the price action the market was almost certainly not going the way that we had talked about, and it made me realise that he was perhaps basing his trades on what he thought the market should be doing, rather than what it actually was doing.
I mentioned this to him and he said that I was right, and that he hadn’t consiously set out to do that, but looking at it objectively he was trying to trade what he thought rather than what he saw. Needless to say that those trades of his didn’t work out, but fortunately he didn’t take them!
This illustrated to me how easy it is to unconsiously fall into this very dangerous trap in your trading style and how much we all need to keep these lessons reinforced in our mind. Have fallen victim to this tendancy? How did you force yourself out of it, or are you still struggling?
Great point Jarratt. Perhaps this isn’t perfectly correlated, but on a similar note, I was taught you don’t want to “call the turn”. You want to avoid getting into the habit of trying to predict where the market will reverse and enter ahead of it. Instead, “trade the turn” – wait for there to be some proof that you are correct.
Yes Mark, In fact that’s exactly what i teach!