Tuesday, October 26, 2010

FOREX Traders: The Need to Be Objective

It is difficult for FOREX traders to realize that the currency market is extremely unpredictable. As new traders spend some time trying to learn the mechanics of foreign exchange trade and focus their time and energy on trying to find a method for predicting movements, they naturally expect some rules governing the movement of the market. This not being the case, many traders find themselves at a disadvantage.

While FOREX traders have a number of tools at their disposal that allow them to judge when it is right to open or close a position, many prefer to rely mostly on one tool. So, having opened a position, they watch their favorite indicator and, to a large extent, base their trading decisions solely on it, thereby ignoring the others.

This works well until that indicator starts telling them something different from what the others are. Traders caught in an open position where their favorite tool is telling them to hold will often do so, despite the fact that other tools are telling them to close and get off the market. These traders end up losing money.

The basic problem, of course, is that the trader is not looking at the market as is, but through the lense of his or her own expectations about it and further using his or her favorite indicator to reinforce those ideas instead of looking at the bigger picture. Therefore, encouraged by the fact that his or her chosen indicator is forecasting the profit he or she wants, the trader is focusing more on money than on the market.

If the FOREX market was predictable, it would collapse because each trader would profit at all times. There are many tools that can help traders predict the direction of the market, and they usually do an efficient job. However, even in the hands of the most experienced traders, the best tools occasionally fail to predict the market’s movements correctly.

Losing in trade because of predicting the market incorrectly is an innate part of FOREX trading, and traders need to accept it. Besides, they need to learn to avoid getting in a position where they do not have many choices.

For this, the trader needs to accept the fact that the foreign exchange market pretty much has a mind of its own, and traders have to follow its movements instead of trying to make it go in the direction they want it to.

Search Amazon.com for FOREX Traders

No comments:

Post a Comment