ForexSpirit

There is a constant challenge that must be confronted each and every day by a trader. How do I make the decision to buy or sell now when I don’t know what the future may bring?

Throughout our years of early formation, in school and in university, we have always been taught that if you can’t quite figure something out then you should gather more information before proceeding. It is therefore almost natural that we always want more information before we feel comfortable in being able to make a decision.

It probably seems beyond obvious that this is the case. I know that I have felt that way while looking to solve academic or even real world problems.

For traders this sort of approach becomes an albatross around your neck. The thing that the trader can’t quite figure out is the future. What is going to happen next? Going by the old way of solving a problem we should just gather some more information to see if things become any clearer. It’s as though picking up that extra little piece of information is suddenly going to clear away all the doubt and confusion. We are confronted by the future which embodies uncertainty; the uncertaining of not knowing what the outcome is going to be. On one level we can readily admit the futility of what we are attempting to do. Gathering one more piece of information is hardly going to allow us to gaze into the future. There’s no crystal ball that dispells all those doubts and uncertainties.

So while we can admit the impossiblity of this approach, our actions can betray us. It is something I can readily admit to doing on far too frequent a basis. If you find yourself doing the same thing then you can start by not beating yourself up about it. Acknowledge what you are doing, admit that the future is not yours to know, and move on with following your trading plan.

There is a delicious irony in the fact that no amount of extra information can solve our penchant for knowing the future until, of course, such time as what we were uncertain about resolves itself into reality and becomes obvious to us with hindsight.

It is as if information and price are inversely correlated. Every extra piece of information costs you an opportunity to get in at a certain price because the acquisition of that knowledge involves a time lag due to your inaction.

For such a simple concept it can be incredibly difficult to re-align your mind to deal with this issue on a consistent basis. We can hesitate in making a definitive decision (which in itself is really a decision too) due to, what is in essense, our lack of trust in what we know at that point in time. We feel that what we know is not sufficient to make a valid decision. While of course what we know will never be enough in an absolute sense.

We have all hesitated before making a trade. Some of those trades we have taken while others we did not. Can you pinpoint the reasons why you hesitated?

The next time such a moment of hestitation engulfs you make a note of why you are hesitating.

We have to come to live with the certainty of living in an uncertain world. You must embrace the fact that you can never have the degree of absolute certainty that we all would like.

The best that you can do is to breate in deeply and live life to the full in the present. Work to put together a system that you can trust in sufficiently to match your personality and psychological make-up. Develop an edge that allows you to extract profits from the market without needing to know what the future holds each and every moment.

This is one of the main reasons why I don’t enter my trades based off the crossing of two lines. To me, technical indicators became useless when I realised that they provided no additional information about what is happening in the market or what may happen. They were crutches that I didn’t need. I could trade just fine without them.

Beginner traders can be mesmerised by trading indicators. They can often have a bewildering array of indicators on their charts which can take so long to check to see if a valid signal has been given that the market has left them behind. This leads to the often quoted ‘trading paralysis by indicator analysis’. If you are looking for certainty in your trading indicators you won’t find it. You must come to believe at your core being that trading a game of uncertainties. You must come to terms with the stark reality that you will never be able to make these uncertainties any less certain. You must not put your trust in the technical indicators you use to help you ascertain more certainty by unveiling the changing conditions in the market.

After having used them for many years I have reached a stage where I no longer use technical indicators to provide precise trading signals. If anything, I will now only use indicators as clues or hints to future price action. The act of trading is far more art than science, and the way that I use technical indicators now reflects this. Don’t become a prisoner of your favourite indicators whereby you lose the ability to think for yourself. Indicators are a derivative product of price. Make sure that you are listening to what the market is saying rather than only having ears for your indicators.

Risk, uncertainty and unexpected global events are all a part of trading. It is hard for most traders to accept these facts. They spend far too much time searching for a way to eliminate all these risk factors. More often than not, these are the same traders who are easily mesmorised by the illusions of easy money that can be made in trading by the peddlers of trading methods you find in glossy magazines and at trade shows. Don’t fall for them. Make yourself stand on your own two feet. Follow your own path to success by accepting the disorder, randomness and chaos of the markets. Accept that anything can happen next and then develop a trading strategy that allows you to cope with the reality of these uncertainties.