I’ve always wondered what’s behind this human need of knowing the future. We see this in all areas of life, but in trading, I think it causes most of us a great deal of damage, specially in our trading accounts.
Is it even possible to forecast a major pair?
Alan Greenspan doesn’t think so (he mentions this in his new book, and let me tell you, he was a hell of a forecaster, he could forecast the trend of almost anything, but currency pairs). And to tell you the truth, I don’t think so either. You know currency pairs (and other instruments) move based on expectations, what traders: like you and me, investors, banks, companies, even tourists think about the “right” value of the currency pair. So, in order to be able to forecast the value of a given currency pair, we need to know what all of them think about that currency pair, you think this is possible? Mmm…
When we think we know the direction of a currency pair, we tend to marry that “view” of the market, so we start opening position is that direction, when the market goes against us, we think “sweet, I’m going to get even a better price”, at some point, taking a loss becomes unbearable and we hope the market comes back to our entry point so we can get out (and sometimes it does hit our entry point but we keep that trade, hoping it will turn around).
What if, instead of thinking where the market is heading, we just follow the market, if it moves up, we look for a long opportunity, if it moves down, we look for short opportunities… Wouldn’t trading be easier this way? It would…
Think about it, and feel free to post your comments.
Hey, let me tell you something… WE DO NOT NEED TO KNOW THE FUTURE TO PRFIT FROM THE MARKETS. This is a fact…
Cheers,
RL
