Don’t Predict. React.

Most of the forex markets dallied lethargically in a small trading range this week. They were humdrum, uneventful, and almost seemed disinterested in an of themselves.

All the while, you can bet that even in these most uneventful conditions, most traders lost money.

This is understandable. It is a well known precept that the markets are difficult to predict. This is in fact the “hard problem” of the world’s trading markets . . . They are unpredictable. So the trader is ever beset with the knowledge that if he could only predict the markets, then he would be a successful trader – and it would seem this is not so easy to do.

So perhaps we should find a way to trade where we are not predicting so much as reacting. We don’t ask ourselves where price will go, we ask ourselves what we should do once it gets there. Instead of saying, “Price is about to go up 10 points, so I should probably buy and set my stop a few points below my entry because I could be wrong,” say, “What should I do if price goes up 10 points, and what should I do if it doesn’t?” In doing this, you are simply allowing the market to give you more information about what it truly wants – or needs – to do. In other words, you don’t predict what it’ll say, you let it tell you, and act on what it says.

And when has it had its say? After 10 points? 20? No, you let it tell you that as well.

So whilst many traders “talked over the markets”, made their own guess on whatever message the markets carried, and hoped for the move that might never come, FX Velocity quietly and patiently posted three more modest wins in an otherwise boring week.

The markets were quiet. And we listened.

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