As forex traders you’re constantly encouraged to concentrate on facts and data. You know the FX markets rise and fall, in relation to the economic calendar releases and any data which is subsequently attached to the releases. You also know that geo political/economic events, will overpower most underlying fundamental analysis and metrics. In order to survive and eventually thrive in this market place, you have to develop quick learning characteristics, regarding the impact breaking news events and calendar releases will have. You also need to become highly proficient at translating technical analysis.
At every turn your fellow traders, on various forums and through
social media channels and any tutors you may subscribe to, will (quite rightly)
discourage you from making any knee jerk decisions. You should use both
fundamental and technical analysis, to arrive at your decision making, whilst
ensuring you’re constantly on message to breaking and changing news events.
When you take a trade you’re not guessing, you’re not taking a punt, you weigh
up all the available evidence and take a judicious decision, based on all the
evidence you’ve accumulated.
That accumulation of evidence, from various sources, should also
extend to your experience. You will have undoubtedly looked at charts for
thousands of hours, trying to figure out the puzzle of FX trading. Continually
asking yourself the simple question, time after time; “why did price go up or
down, at that particular moment?” During that period of investigation you’ll
figure out the reasons why and you’ll also develop a form of intuition. You’ll
unconsciously develop a skill, which is incredibly difficult to quantify,
enabling you to immediately look at the price action on a certain time frame
and reach a conclusion. By processing the thousands of hours of chart watching
and analysis you’ve clocked up, you’ll be able to intuitively decide, which
direction price has more chance of moving in.
This intuitive response shouldn’t be ignored, it’s also partly the
reason why many experienced traders begin to remove clutter from their charts;
taking them back to a vanilla appearance, in order to concentrate on price
action primarily. Perhaps with the addition of: one single indicator, moving
averages and pivot points. Your intuition and experience has in some ways,
replaced the previous painstaking analysis, you may have previously relied on.
Psychologists point to certain experiments proving how intuition can
replace your decision making, based on your experience. One involves, the
tasing of three jams by adults. Experts have already determined the best jam,
through a general consensus. Non expert tasters are then invited to quickly
taste the jams and make decisions. They’re asked not to dwell, but to make
quick snap decisions. Their snap decisions generally lead to the choice of jam
3 as their outstanding favourite. Jam 3 is also the experts’ choice.
When the experiment was repeated using different participants, they
were asked to take as much time as they wanted and to weigh up (in detail) all
the variances; taste, texture, feel, the aroma of the jams etc. Far more of the
participants didn’t choose the experts’ choice.
Now you could disagree with the experts’ choice, but that’s not the
point, when the participants took more time and tried to weigh up all the
options, they altered their view considerably and the results varied randomly.
The psychologists conclusion is that we often overthink decision making when we
would intuitively arrive at the ‘right’ decision.
After several decades of experience, you have accumulated thousands
of hours of taste, maybe 60,000+ hours if you’ve lived forty years. Therefore,
when it comes time to decide which is the sweetest, best tasting jam, you don’t
need to read what’s on the jar, or be seduced by advertising or marketing, or
be confused by complicated descriptions. Instead, you simply and effectively
use your tens of hours of intelligence and experience to arrive at a decision,
the same decision as the experts. Your unconscious instinct, but in some ways
conscious decision making, helps you arrive at your decision making.
The relevance to our trading decision making is obvious; after
thousands of hours of chart analysis we can, for example, look at a 1hr time
frame of EUR/USD and immediately determine what price action is revealing. Our
intuition has become fused with our experience and expertise, at both
fundamental and technical analysis. In an instant we can look at candlestick
formations, take into consideration the patterns we’ve seen many time before
and determine what price will probably do next.