Seasoned forex traders usually say that the only thing certain in the markets is uncertainty. Currency trading truly is the most challenging market to successfully tame since any wild beast that’s awake 24 hours a day can be a wee bit irrational and cranky. With the slightest agitation, that beast can unpredictably go from docile to volatile and back again in an instant.
Even though the global economy seems to be moving on from the aftermath of the oil price slump lately, the ongoing Greek debt impasse still leaves a lot of uncertainty on the table. Aside from that, the prospect of tightening from some central banks could also pose risks. How can you prevent these from crippling your trade decisions?
In my experience, battling uncertainty and getting past my fears requires two simple things: acceptance and preparation.
The first step is acceptance. You have to come to terms with the reality that, unless you can see into the future, you won’t be able to predict every market move or your mech system won’t be able to factor in every variable possible. Yes, you WILL have losing trades, and if you can’t internalize the principle that no matter what you do you’ll never know everything that’s around the corner, then you will continue to be blind to what’s really going on and be unable to adapt to the ever changing conditions.
Now, everyone is different, so the catalyst for a paradigm shift to acceptance may come at different moments for each of us, but you can bet that it usually doesn’t come until after a lot of trades and experience. If you have it in your mind that your analytical skills are so good or that you’ll find that perfect mathematical formula to building a flawless forex trading record, guess again!
The second step of reducing the risk of the unknown is to be prepared. After all, serious business requires serious planning. For example, would a doctor just say, “Well, I think you have a bad heart. I’ll just cut open and poke around a bit to see what I can find. Just lay back, relax and don’t worry. I’ve done this a million times…”? If the doc likes lawsuits, then he may suggest that plan of action. But the reality is that even a doctor with many years of experience would conduct many tests, and then if necessary, prepare a team of highly skilled professionals to perform open heart surgery and be ready for any unforeseen complications that may arise.
Like surgery, forex trading is serious business. And while unpredictable factors will always be present, uncertainty can be significantly reduced through proper preparation. Taking the time to study and control what you can (e.g., being aware of sentiment and upcoming news, considering all possible market reactions, controlling your max loss with stops) reduces much of the uncertainty, because you have identified and planned for the “worst case” scenario. And if you already know the outcome of your trade regardless if the market goes up, down or sideways, then how can you be afraid?
Is it really THAT simple?
Acceptance and preparation sound like no-brainer solutions to overcoming the emotions created by facing the unknown, but it’s way easier said than done. The former may go against a belief system already deeply internalized in all of us: there is a logical reason for everything. Therefore we think, “If I work hard and find the reasons that moved the market, I can use it as an edge.” As I’m sure you’ve already experienced, the markets can be illogical and stay illogical longer than you can stay solvent.
The second solution, preparation, just flat out requires work. Like a chef waking up at 4 am to prep for a long day in the restaurant, you just have to put in the chart time, economic reading, and/or system research and testing to be prepared for whatever the market will throw at you–day in and day out.
But don’t worry, if you survive in this game long enough, uncertainty will be overcome through sheer experience. Just keep your head up when you take a hit, focus on developing good trading habits (not profits), and soon enough you’ll be saying, “Uncertainty? What uncertainty?”