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.
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!
Instead of making predictions, learn to develop biases. The former represents expectation of a certain (and usually specific) outcome while the latter is more flexible as it’s open to confirmation or negation from the markets.
Once you accept that it’s IMPOSSIBLE to completely predict market behavior, you’ll have an easier time making adjustments to your strategies. Focus on managing your risk well and controlling what you can. This includes researching potential catalysts and price reaction probabilities and monitoring your position size, stops, and holding period.
At the end of the day, you have to remember that the market is boss. It couldn’t care less about where you think price will go. In order to become consistently profitable, you must learn to trade what you see and not what you think.