Why You Should Stop Predicting Forex Price Action

Updated from its original posting on 2014-03-14

Enough experience in the forex market can delude some traders into believing that they can fully predict price action. After all, if you have years of screen time under your belt and you’ve put in the 10,000 hours in developing your analytical skills, it can be tempting to assume that you know the markets inside out.

This kind of assumption is dangerous because it can eventually turn into what I’d like to call the “trader god complex”, wherein one has an unshakeable belief in his or her infallibility in predicting future price movements. This is typically manifested when a forex trader is overconfident with his ideas that he refuses to acknowledge the possibility of error.forex prediction

But, as anyone who has had his fair share of losing trades (and that’s practically every trader out there!) can attest, uncertainty is part of the forex market’s character. Nobody – not even the biggest financial hotshots who have access to loads of economic information – can come up with 100% accurate predictions for price action. Insisting that you have some special ability to forecast exactly how a currency pair will behave can ultimately lead to your downfall as a trader.

Of course this is different from getting a good feel of market behavior through constant deliberate practice. What this process aims to achieve is the ability to actively learn and improve throughout your trading career. This entails being able to accept your losses, admit your mistakes, re-evaluate your forex trade strategy, and make the necessary changes. In fact, the goal of deliberate practice is the total opposite of thinking that you are an all-knowing and all-powerful trader!

Focus instead on being able to adjust to market uncertainty. But how can you be able to make adjustments if you refuse to accept that it’s impossible to completely predict market behavior?!

As I mentioned in one of my previous articles, it is normal for traders to develop biases for currencies. After all, it’s precisely these biases that guide us in looking for profitable trade setups, right?

Doing your homework in analyzing the markets and staying updated on economic events should help you figure out if the current environment supports your bias or not. Just make sure that you stay flexible with your biases to prevent it from turning into a prediction, which is no longer open to confirmation or negation from market factors.