Why Forex Traders must Embrace the Road Map

Occasionally you will see a post referring to my prediction of potential big price movements. I did this with the USD strength (here), the Gold weakness (here), the Aussie weakness (here) and the Yen weakness (here). As an analyst and writer it makes sense to provide our readers with a heads-up of potential major trends in the future. But the information itself does not generate profits – only trading can.

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REACT; DON’T PREDICT

Forex traders want to let the market move wherever it wants to, then they should base their reaction (plan) on that price action. Never do we want to solely trade a prediction and ‘hope’ that the market confirms our analysis. This sets up Forex traders with tons of emotions and quickly imbalances their execution of a(ny) plan. We have to accept the fact that we, as traders, cannot ‘control’ the market, which means that we are always unsure about our trade developing (but we don’t have to be unsure about our trade!).

The best way to generate consistent Forex profits is by setting up a trading plan and following that plan. End of story -regardless of whether your entry and exit plan is built on a discretionary or non-discretionary method.

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ROAD MAP READERS

Forex traders are more like road map readers: they are trying to find the quickest and safest way on the map from point A to point B. The graph is a trader’s compass and candles, patterns, trends, support and resistance are clues that traders find along the way. The way we use those clues depends on our plan. There is no need and time for second guessing and second doubting.

Of course, all of our readers do not share a common trading plan, but let us take an example of the AUDUSD. As a discretionary trader, I have biased for shorts because of the strong downtrend and bearish momentum prior to the diamond chart pattern consolidation.

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AUDUSD CHARTS

The trend itself is not sufficient to justify a short – especially if price itself is reacting bullishly. I might want price to go down or think it ‘certainly’ will, but this does not justify taking a trade and hoping for the best. As a road map reader (discretionary one in this article), I am waiting for confirmation clues that price is indeed turning back into a bearish mode or already in it. And until those confirmations are seen on the chart, I need to stay disciplined and patient so I can avoid unneeded pain or losses by jumping in the market too early.

There are many different types of confirmation clues such as break or bounce of trend lines, extremes in oscillators, divergence, price action, chart patterns, candle sticks and just plain candles. In this case I will be waiting for false bullish break out and wait for a 4-hour or daily rejection candle stick or candlestick pattern as price moves up. The other signal could be the bearish break of the consolidation.

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Do you agree with the map reader philosophy? If yes, why? If not, why not? Share your views with the WET community! What tools and indicators do you use to keep your focus on map reading?

Thanks for sharing and Happy Hunting!

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Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

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