The Unpredictability of the Forex Market

Filed under: Learn Forex Trading |

Screen shot 2013-02-06 at 10.21.21In my live trade update today (the one on the USD/CHF), I touched upon the unpredictability of the forex markets, and I would like to go into that topic in a little more detail right now.

 

What you really have to remember when trading the forex markets is that you cannot be right every time. Losing trades are very much a part of the game, and should be seen as the cost of doing business. All that we can do as traders is to try and tip the odds in our favour a little bit. This is a bit like being the house at a casino. The casino knows that they have an edge that will play out over a long series of bets and make them profitable; and this is similar to what we have to do as traders. We have to find a system or trading methodology with a slight edge, and then we have to let that edge play out over a long series of trades.

 

Sometimes, you will see a trade that looks like a certainty. However, as you will no doubt find out, there are no certainties in the forex market, and when a setup looks strong, this merely means that the odds of success have been raised. However, anything from a news event, to corporate traders taking out stops, could happen and move the market in a direction that you did not anticipate. Therefore, a solid system of money management must be practised at all times – even when a setup looks like a certainty.

 

Trading forex is a game of probabilities, and you must look at trades as such. If you have a better probability of winning than losing, even if this is a slight edge, then over the long term, you will come out on top. The only question is, can you ride the waves of your equity curve without losing your nerve?

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