Most occurrences in life come with some form of explanation, which at minimum gives us a vague understanding as to why something happened. This is most commonly referred to as cause and effect, where the outcome of an event can be traced back to a specific cause, or reason why something happened.
But the Forex market is different. It doesn’t need a reason to do what it does.
Sure, a central bank can influence price or a large player can move a less liquid currency pair, but unless we (retail traders) know about it, these movements appear as random events.
Defining support and resistance levels can help to determine possible turning points, but even the best level can lie. Just as the best price action signal won’t always play out in your favor, regardless of how much confluence it has to offer.
This can all seem a bit daunting for the average Forex trader. And in some ways it is, at least until you come to terms with the idea that the market doesn’t owe you an explanation for breaking a key level. Just as it doesn’t owe an explanation for rallying 800 pips for no apparent reason.
It all becomes much clearer as soon as you understand your role in the market, including what you can and cannot do.
Your Role as a Forex TraderIt’s too easy to get wrapped up in the day to day activities of the Forex market and forget about the role you play as a trader.
To put it succinctly, your role is to identify and execute highly favorable trade setups. Do that the majority of the time, and with the right mindset and money management skills you will come out ahead.
Your job is not to try and predict the future. This is where I see a lot of traders get themselves in trouble. Instead of playing the odds, they are trying to invent a crystal ball that will predict the future and give them a 100% win rate, or something very close to it.
It just isn’t necessary, nor is it possible.
There’s no need to try to know what’s going to happen next in the market. Yet that’s what so many traders attempt to do, which is what contributes to the idea that the market owes them an explanation when a trade goes wrong.
You Don't Know What You Don't KnowThere is no way to know what’s going to happen next in any market. No matter the indicators you use or strategy you come up with, you will always be at the mercy of the market.
All technical analysis, even price action, is based on past performance. This means that the best we can do as traders is to come up with scenarios based on key levels, patterns and signals. In other words, try to put the odds in our favor.
This may sound basic or even obvious, but it’s important to keep in mind. By knowing that the best you can do is play the odds, you don’t expect anything from the market. You don’t get frustrated or upset if you lose and you certainly don’t expect justification for a move against your position.
That isn’t to say you can’t analyze your losing trades to see what you might have done wrong. Because you certainly can. But don’t get caught up in looking for answers. You’re far better off spending that time finding the next favorable setup.
In ClosingI wanted to keep this article short and to the point to illustrate the importance of focusing on your role as a trader and then allowing the market to do what it does.
The inspiration for this topic came from some of the emails I receive from traders on a weekly basis. The emails I’m referring to are the ones where someone is asking for an explanation as to why they just lost money on a trade.
However I suppose the real tragedy is not in the question itself, but rather the way it’s asked, which is usually with disappointment and even anger towards the market. As if the market owes them an explanation for taking their money.
The market doesn’t need a reason to do what it does, especially when it comes to the Forex market. It isn’t called the wild west of trading for nothing.
The best thing you can do as a technical trader is to plan for all possible outcomes for each setup. That way, instead of blaming the market for an unexpected moving against you and setting off in search of an answer, you can react according to your plan and move on.
