Much of the time when you read about trading, many use metaphors that refer to competition or war. You will often hear phrases like, “the forex arena”, “bulls battling the bears”, “you compete with the best and brightest minds in the world”. This is convenient and filled to the brim with conflict (we love drama just watch the news). What the general perception of market speculation tends to ignore is the passive and perhaps less entertaining side of the trading equation: the waiting game.
As newer traders enter the market and begin to “inform” themselves as to the inner workings of their particular instrument, be it equities, options, futures or forex, they begin to learn about things like trends, and fundamental forces. Somehow they start out with the mentality that they have to “catch” the big move to be successful at this. I believe it is this reactionary conditioning that leads to the impulsive behavior of the new and misinformed trader population.
As newer traders, we have all experienced the feelings of frustration after missing an extensive market move in one direction. These frustrations mount and lead to reactions like jumping into the first uptick that shows up after a bearish correction with little or no information to suggest the correction is complete. These frustrations also lead to fixating on the previous “trend” or what has happened in the most recent price history, leading you to continue to project this trend forward because human nature insists on making sense of chaos.
Somewhere along the line, the concept of “they” emerges. You begin saying things like, “They took the market 100 pips after I shorted it”, or “they stopped me out exactly at the bottom”. It seems as though this “they” controls the market, and it is you against “them”. The force that moves prices is the aggregate decision of the majority of participants. If there are a great deal more buyers than sellers, price goes up, and vice versa. If there is no majority, guess where price goes? Nowhere.
I like to think of the speculative process of trading to be more like the patient act of fishing. I don’t fish, but here is what I understand about it: You wake up very early and go to a spot on a lake where there tends to be a high frequency of fish. You put your line in the water and you WAIT. A fish may come along and grab your bait without getting caught by your hook. Ok no problem, it’s a small loss. You can afford to give bait away all day long. Eventually what happens though? You catch a nice big fish.
Trading is less about fighting someone and more about recognizing a condition that offers the most potential for the least amount of risk. Once recognized, you then have to have the patience to wait for it to appear. This doesn’t mean you will always win, but it means you found a way to improve your chances of winning compared to a random outcome.
Trading is more about having good “visual” listening skills than it is about imposing your own ideas and opinions. From a discretionary standpoint, it is more about understanding the market’s organics imperfections than it is about being an exact science. It’s about employing a passive approach that emphasizes waiting to act on unique conditions (fishing in the right spot) than about reacting to obvious and most likely obsolete information (fighting the forex battle against the “them”.) The market speaks it’s own language. Learn it and don’t speak, just listen and it’s intentions become much clearer.
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Marc Principato, CMT
*No Relevant Positions
One Comment on “Forex Trading: Less Fighting More Fishing”
Yes, metaphors help. Who doesn’t enjoy a good story. But as you say with an emphasis on the them, the battle/war stories, they can also perhaps hinder. I’d definitely rather fish than go to war. Warren Buffet says it’s about swinging the bat at only the best pitches. More matter of fact, his partner Charlie Munger said “We look for opportunities where the chance of making money is higher than the chance of losing it. And when we find such an opportunity, we take it. This doesn’t sound very scientific but it’s pretty much the best we can do”.