Trade what you see, not what you think
As a forex trader, you have probably read that you need to control your emotions and focus on logic and objectivity instead of giving into the impulses of greed, hope, and fear. However, it is one thing to know you should not trade emotionally and another thing all together to actually know HOW to NOT trade emotionally and how to implement this knowledge.
The human brain is primed to work against us in the markets due to the primitive “fight or flight” brain mechanisms that have guided our existence as a species for thousands of years. Unfortunately, these same mechanisms actually inhibit most traders from achieving their full potential in the market. So in order to become a consistently profitable trader it is necessary to devise a plan using our more logical and objective frontal lobe section of the brain, which is the newest area of the human brain and allows us to plan, reason, and comprehend complicated ideas.
By learning to trade what we see, and not what we think, we can make sure that we are operating on logic and objectivity instead of emotion. Trading only obvious price action trading setups that have already formed, and that are not just ideas or “possible” setups, provides us with a type of “check and balance” to make sure that we are not trading from emotion. The following points will provide you with some insight and solid tips so that you more clearly understand why you need to trade what you see and NOT what you think and how to make sure you follow through with it.
• Stop trying to out-smart or predict what the market will do next.
Trying to guess what the market will do next with no real rational or trade setup is exactly the same as gambling your money away in a slot machine or on the roulette wheel. Yet, every day beginning traders as well as unsuccessful experienced traders commit this exact emotional trading error. Rather than looking at the price chart and checking it against their forex trading plan to see if any price action setups are present, many traders simply “manifest” some idea about what price “should” do.
When you trade off anything other than an obvious and visible price action setup, or in accordance with whatever your pre-defined trading strategy says, you are simply operating on emotion and feeling rather than objective analysis of price movement. Many traders trade emotionally after a losing trade or after a winning trade because they give into the revenge feeling that a losing trade elicits or the greed that a winning trade often elicits. It is at these exact moments when traders stop trading off what they see on the chart and begin trading off what they “think” or feel, and it is also these moments that separate consistently profitable traders from unsuccessful amateurs.
• Don’t get attached to any one trade.
It is important to understand that just because you “think” something will happen in the market does not mean it will. Similarly, even if you do find a very obvious and “perfect” looking setup, you should always remember that the forex market is a dynamic and constantly ebbing and flowing arena where anything can happen at any time, so don’t bet the farm just because you think you have spotted a “sure-thing”, there is no such thing in the forex market.
Rather than allowing yourself to become emotionally attached to any trade or any idea about what the market might do, you need to learn to trade detached from your trades.