When it comes to taking a trade, do you preempt, or react? I’d argue with quite a lot of conviction that almost all successful traders of any instrument, but in this case the Forex market, let the market make the first move and then react to what it’s doing rather than waste energy and time on trying to predict where it’s going to go.
Hopefully, by the end of this post you’re going to understand why it’s important to be reactive rather than predictive, and let the market make the first move.
Who’s holding what cards?
It’s often said that trading and poker have many similarities, and a key objective of any good poker champ is to not reveal their cards to an opponent. This is because the more info that you give your opponent, the easier it can be for them to sus out your strategy, enabling them to strategize against you.
So, what about if the opposite occurs? Despite your suspicions, the Forex market ALWAYS shows its hand. How? Through the tried and tested price patterns that we’ve discussed previously.
For a Bigger Picture, Zoom Out
Most of you know that I’m a major advocate of trading the longer timeframes, a major reason I do this is because they don’t allow ‘noise’ to distort the bigger picture. When you zoom out on a daily chart to take in a little more chart history, you’ll begin to see a simpler picture of the overall trend, as well as a clearer picture of price patterns that can be traded.
Practice Perfect Patience
It can be a tough task at first if you’re unfamiliar with letting the market make the first move, but it really is as simple as staying patient. How does this patience look in the context of allowing the market to reveal its cards first?
Maintaining patience is no more complicated than waiting for the confirmation of a price pattern, such as our 50% pinbar setup, or a break of an ascending triangle. It doesn’t matter what the strategy is, the key is that these price patterns are indicative of the cards up the market’s sleeve.
Consider the chart below. It first shows the market showing its hand, and then making the first moved through the appearance of a confirmed breakout.
Despite the fact that this trade worked out anyway, you can see the importance of watching and waiting for the market to reveal its intentions. As you can see, it’s a two stage process. The market is beginning to give out clues as to its next move through the formation of a potential pattern, in this case an ascending triangle. Following this, we’re seeing a very clear example of the market making the first move by confirming the breakout of this pattern.
Now, I guess some could argue that the mere fact that we’re watching for a particular pattern could be considered predictive, however the trade we’re taking is reactive, purely because we’re waiting for our price pattern to be confirmed.
It’s important to act as though you’re on the defensive, after all, you are. Your primary job Forex trading is to protect your capital at all costs. Making money is your secondary job as a trader, which is why you need to ensure that the market makes the first move.
Source: Vantage FX Blog