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Using Intuition in Forex Trading
Filed Under (Forex Trading, Trading Pyschology) by umikun on 08-04-2009
I have asked a few traders on how they determined the direction of the Forex market, and they would reply; “Intuition”. They depend on their gut feelings for the direction of the market and using their instincts to make their Forex trading decision. This has lead me to do a research on using intuition in Forex trading, and I have concluded the followings;
Intuition or discretionary traders used their instincts to make their trading decisions. For example; they might go ahead to place a trade despite larger stop loss is required for the current market conditions. Sometimes, they might even avoid place a trade when they sense that something is not right about the market, even when all their entry requirements are met.
While they may use their instinct in Forex trading, however, they need to differentiate their feelings of greed and fear (the 2 demons in traders). Why? It is because they need to know the reasons clearly why they enter or exit a trade, if they are not sure or very firm on the reasons, there is a possibility that their action is based on their emotions. Intuition in Forex trading requires experience and is not suitable for those who are just starting in Forex trading. The followings are ways to find out if you are using your emotions to trade instead of intuition;
1) Cold sweats
2) Heart beat fasten
3) Can’t sleep holding a position
4) Fatigue
5) Quick tempered
For those who are just starting in Forex trading, I would like to encourage using system trading. A system trading is defined as a set of specific rules and parameters that determines the entry and exit points. Some of the most commonly used indicators in system trading are Moving Average, Stochastic, Oscillators, and Bollinger Bands, etc. There are several advantages of using system trading;
1) Eliminate your emotions
2) Easy to learn
3) Can be automated by computer software
One thing to bear in mind when using system trading is that you are not allow to change the set of rules or enter and exit using your emotions. Only professional traders with years of experience overwrite their system sometimes. Another point to take note is that the system you used for Forex trading need to be time tested and be profitable in the long run. Thus it can be a time consuming job to develop a system in Forex trading from scratch.
This article on Using Intuition in Forex Trading is brought to you by www.onlinetradingfx.com
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