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.
« Friday ends the week with several high impact calendar events, which could impact on the value of several major FX pairs. Sterling holds close to four month lows, as confusion increases regarding govt. direction, WTI oil slumps, whilst USA market equities recoup some weekly losses. »