Unlike most markets, one of the unique characteristics of the Forex market is that buying & selling are valued the same. Because currencies are paired together you’re never actually “selling” a currency, rather you’re buying one against the other. This is also one of the reasons that the Forex market tends to consolidate a lot more than other markets, making it very difficult to navigate at times.
In times of consolidation, the market doesn’t typically give clear sign in which direction you should pursue. Seasoned traders view this as a signal to stay out until the clear signal occurs, but because many newer traders feel as if they “have to trade” at all times, they will sometimes (purposely or subconsciously) create reasons to get involved or overthink to the point where they miss the opportunities that they should be involved in. This is called paralysis analysis.
The solution to this problem is having a rules-based trading plan and a set routine for how to perform analysis. The routine that I personally follow & teach is called Identify, Predict, Decide, Execute (IPDE). Following this routine allows me to focus on the act of performing analysis instead of just looking for trading opportunities. This may not seem like a big deal but when looking for trading ideas we’re often blinded by some type of confirmation bias, either self-produced or from an outside source such as the news, tv, social media or perhaps even your trading buddies. However, when focusing on just performing analysis what we’re doing is allowing the price chart to create that confirmation bias for us, ensuring that we’re involving ourselves on the right side of the market.
A rules-based trading plan is just that. A rules-based way that tells us, what to look for, where and when to enter & where and when to exit. For this, I like to use an IF/THEN syntax which essentially sets up my process in the same style as a flow chart, where subjectivity is taken out of my hands and I’m simply looking for yes or no answers.
I can’t promise you a 100% win rate by implementing these 2 tactics, but what I can promise you is a lot more consistency in your trading and the formula to success in trading is Consistent Analysis + Consistent Execution = Consistent Results.
For more on this topic please check out the video below.
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