Forex and Mind Tricks

As any trader who's been around the FX block will tell you, the mind is capable of producing terrible distortions of reality, and simply accepting them as real, thus producing bad trades. The fact is, anyone who has had a terrifying nightmare can attest to the same fact. Even after you wake up, and you're shaking and sweating and you're heart is racing...even after you've realized it is just a dream...even after you try to describe it to someone else and it makes no sense...it still produces fear when you envision the images in your minds' eye. Why is that? Because our mind cannot tell the difference between something that is real, and something that we only vividly imagine. Our minds are perfectly capable of accepting alternate realities and making room for them in our present reality.

Such was the case with me in our last blog entry. I usually have a rule about not writing late at night. Last night I broke that, and now I remember why it is a rule. I described for you a situation of relational markets between the franc euro and dollar. And because I was using an inverted chart, my mind accepted an altered view of reality as being true. I said to you that the franc was getting pounded by the dollar, although actually the opposite is true. The dollar has fallen against the franc. Now as the dollar index is at a swing low stochastically speaking, I would look for a rebound against the franc which should dutifully help the US dollar to appreciate against the pound and euro.

But it is not true that the dollar has done that yet. It is the franc that has hit the USD. But simply looking at a variant chart I was re-interpreting the information and it fit right within my paradigm. So we have for ourselves today 2 important lessons.

1. Trading while tired almost always produces disastrous results. (Same holds true for writing.)

2. Always double check. And use caution. I reminded a friend today of something my father used to say, "It's never the new guys at the reptile farm who get bitten by the snakes. They are always the most careful. But the guys who have been around awhile, they are the ones who are statistically the most at risk."

The FX market is like a big snake just waiting to strike the minute you let down your guard. So it pays to be careful.

Now even though my analysis was inverted, my "worldview" is still correct. We have seen resultant weakness in the sterling as it moved down to its sideways channel low earlier today. This has provided support for 8 days running, and we are getting a bounce off of it again right now. But a close below the 1.5080 level should give us the rest of a great short trade.

Trade Cautiously!

Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com