Updated from its original posting on 2013-11-29
Have you ever been in a situation where you had a strong hunch that a currency pair will behave a certain way but you didn’t feel gutsy enough to play that trade? And when price did move the way you predicted, did you feel disappointed that you didn’t trust your gut feel?
Every experienced trader has probably found himself in this pickle at some point in his trading career and has wondered whether trading based on these kinds of hunches would be profitable or not. After all, much has been said against relying purely on one’s emotions or taking trades based on guesswork.
Well, let me go out on a limb here and say that you should trust your trading gut.
Of course this doesn’t mean that you should throw all fundamental and technical analysis out the window and simply rely on where you feel the markets will go. You may as well grab a Magic 8 ball and shake it for answers when coming up with a trade idea!
As discussed in my article on The Art of Feeling the Market, your trading intuition is something that has been developed over time and through the course of your trading experience. If you’ve spent enough screen time and conducted proper deliberate practice, you are able to get a feel of how markets behave at certain times, enabling you to get a better idea of how price will move later on.
More often than not though, traders would feel a little uncomfortable about entering a trade based mostly on gut feel. If this is the case for you, then you can start by keeping track of your trading hunches and whether or not your gut was spot on. This can help you develop trust in your trading intuition, allowing you to have enough confidence to actually make profits off it later on.
You could also consider taking a small position based on where you feel price will go. Just always remember to practice proper risk management and have an exit plan in case it doesn’t head in the direction you predicted.