“In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word – Nobody! Thus the successful trader does not base moves on what supposedly will happen, but reacts instead to what does happen”. – Linda Raschke. *
One of the cruelest aspects of trading comes with the realization that, despite what we may have previously thought, none of us can predict the future. We can’t, with any high degree of certainty, predict where a: currency pair, individual stock, index, or commodity will move in the next: minute, hour, day or month. We can only make a reasonable and realistic prediction, based on the evidence and information we have access to, primarily both the fundamental and technical analysis we place our faith in.
Not only do we have to develop a new range of skills, in order to translate these two tenets of analysis into a coherent plan of action, to be implemented on our chosen time frame, we do so in the knowledge that we have no real conception regarding how our plan will unfold. We can’t even make a realistic prediction, in terms of probability, on a likely outcome. Despite all our efforts and all the intel at our fingertips, our trades generally amount to no more than a coin toss, a 50:50 chance of success.
The randomness of the forex market move
Trying to face up to this cruel reality and deal with its consequences, is undoubtedly one of the most daunting aspects we have to accept as traders. Novice and intermediate level traders, can remain convinced for some time that there are codes available to profit from the market, when in fact just about any strategy can profit, if we find a way to make that 50:50 coin toss strategy work in our favor. How we work with that uncertainty and how we adapt our trading plan to cope with the harsh truth, will ultimately define us as traders. Being comfortable with the randomness of market movements and finding a method to profit from them, is the real challenge we face, which is a far and distant cry, from the solutions we believed we’d discover at the outset.
Before we go any further the word “random” requires more context and explanation, as it’s often misunderstood and misinterpreted. In trading terms, it doesn’t suggest a skittish pattern of behavior on our charts, randomness equates too unpredictably. We have to develop the humility and awareness to recognize that we don’t know what a leading political figure will say today, or what impact a high impact economic calendar release will have on the market, or if price of our chosen security might react to the 200 SMA plotted on a daily chart, or a key round number, if that’s where significant orders are clustered.
However, there is an element of predictability in our randomness, as we know that if the FOMC unexpectedly surprises the markets by raising the USA interest rate by a full percent, then the USD will rise, by how much and how quickly is impossible to predict, there’s our randomness.
Becoming comfortable with unpredictability and randomness and accepting that it’s a fundamental aspect of forex trading, is a Rubicon we have to cross. We can begin to confront this potential dilemma by concentrating on the aspects of our trading that we can control; risk per trade, the broker we choose, the leverage we employ, the high probability set ups we search for. We can never control the random nature of our markets, but we can tame the impact it has on our trading, by concentrating on what’s under our control. In doing so we’re then working with the unpredictable nature of markets, as opposed to regarding it as a hindrance, or threat.
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Linda Bradford Raschke is an American commodities and futures trader. She is President of LBRGroup, Inc., a registered CTA (Commodity Trading Advisor) and money management firm, and President of LBR Asset Management, a CPO (Commodity Pool Operator).
