Expectation of Rationalization: Your Biggest Enemy

So I’m looking at the EUR/USD one day and see a lot of indicators pointing to a movement south. There’s all the EU problems, recent news that isn’t favorable, decent US news and several technical indicators on various charts showing the down move is here. And then the currency pair proceeds to go up 100 pips.

I’m reminded of something John Maynard Keynes once said, which I keep in my head at all times. “Markets can remain irrational a lot longer than you and I can remain solvent.”

In the case above, there wasn’t a logical reason why the EUR/USD should of went up (at least not that I could see). Yet it did just that.

I bring this up, because I know a lot of those new to currency trading will get absolutely hammered by trying to rationalize trades. In fact, the expectation of rationalization can keep you in a bad trade for a long, long time.

Don’t get sucked into this. Instead, just realize that if something is going up or down, it’s going up or down. For all you know, you’re right, but you’re early. And this is another problem.

There’s no reward for being early. Who cares if you’re right. All being early means is that you’re going to lose money.

In closing, let me just caution newer traders against predictions. In this game, you don’t need to predict. The market tends to show you where it’s going. And you certainly don’t need to be at the start of a move to profit.

Let me give you a quick example. The EUR/USD was around 1.2340 for the opening of the London session. Was it going up or down? It was going higher for the hour prior to open. Why guess? Instead, I just watched. Within minutes the EUR/USD started declining. At around 1.2315 I shorted it and watched it decline through 1.2300 on to 1.2270s. You don’t need to guess, predict and get in before “the action” to make money in Forex.