Not to be confused with impulsive, emotive trading, trusting your instincts in forex trading requires so much more than simply placing a trade because you inherently feel like you should. In fact, it demands a calculated decision-making process born from experience, strategy and a solid understanding of risk versus reward.
In this blog post, therefore, we’re talking about the value of trusting your gut feelings, helping you to put this method into practise by understanding what to consider and when to utilise this skill – proving its credibility as one of the best forex strategies out there.
What does it mean?
A valid question before considering adding this weapon to your arsenal is ‘what exactly are your trading instincts and what do they all mean’? Simply put, your trading instincts are the hunches you feel prior to placing a trade and are commonly felt by more experienced traders when they refer to their ability to ‘feel’ the market, based on an anticipation and intuition of an event that might be about to occur.
Typically, this capability to understand the market is bred from experience within the forex industry and something that many traders execute regularly. However, this isn’t something that can just be taught, and is a skill developed from keeping trading journals, consulting a forex calendar and experience of both successes and failures alike.
Have you encountered this before?
Before simply trusting your gut, it’s important to ask yourself why you feel this way. Have you seen this situation before and was it a success? In instances such as these, it’s important to consult your trading journal – checking your notes for similar events, how you dealt with them in the past and what you learned from them.
When it comes to a forex trader’s instinct, it’s only after you’ve invested enough time and mastered your strategy that you’ll have a clear idea on what to do in certain situations. For example, a tennis match where the opponents have never played each other is likely to end differently compared to one where each opponent is aware of the others’ strengths and weaknesses, allowing each player to play differently and utilise their knowledge of this as a result. As with tennis, forex trading requires you to understand a certain situation and, if you’ve encountered this before, adapt and react accordingly.
Consider risk vs reward
Most importantly, it’s vital that you learn to align your gut instinct with your mind, as if you’re unable to do this your decision to act on a trade won’t be made freely, leaving you feeling nervous and stressed as a result. When making these judgements, it’s crucial that you consult a checklist, only accepting your instinct once you can confirm you’ve made a measured, thought-through decision.
Checklists will help train your gut reaction due to strategically helping you weigh up risk versus reward and allowing you to confront the forex market from the same angle time and again.
More often than they might care to admit, forex traders feel uncomfortable about entering a trade solely based on an instinctive feeling. However, so long as you thoroughly evaluate the situation before acting on your gut feeling, you can rest assured that decision has been made in an informed and considered manner. For more insights into how to learn forex trading, register online for one of our forex trading courses and put yourself in the best stead for becoming the best trader you can be.