What Would Happen Next to the EURUSD?

“It is not so important to be right, but how to make money when you are right.” – Ivan Hoff

I remember what happened at one interesting trading conference I attended about five months ago. It was an interesting conference indeed. At one stage, the moderator showed us a EURUSD chart (whose dominant trend was bullish, but the short-term trend was bearish) and asked us this question:

Where do you think the price will go next?
There was silence in the hall. Predicting the future is a great challenge; plus it’s senseless to talk about the future price action with an utmost certainty. A few traders stood up and tried to give their opinions. I later stood up, took the microphone and said that two things could happen at that juncture: the price could turn in favour of the dominant trend which would continue OR the short-term bearish correction could actually be the beginning of a strong bearish outlook. Was I wrong?

One man quickly got up to announce that I was wrong. He said that the price MUST turn upwards since the dominant trend was bullish. I kept quiet. Can you see how traders showcase the mindset that can endanger their career?

This was a bone of contention; some seriously thought the pullback would end up blending with the overall trend. But the reality was that it could be the beginning of another long term reverse trend.

Being opinionated is a not a good thing in trading. Those who have enjoyed lasting success in the markets know how to admit their errors, get out of losing trades and look for the next signals which may be profitable. However, opinionated traders never admit their mistakes and often take the decision to run their loss for as long as the market goes contrary to them. An opinionated trader may even be confident enough to open a very large position (like 20% or 40% risk), believing that the price MUST go in their favour. The person may even refuse to put a stop for disaster prevention.
Was the man right? Yes, he was right, but the short-term correction took the price downwards by up to 500 pips before the price went in the direction of the dominant bias. In some cases, the market could even go down by over 1,500 pips within the next few weeks before any meaningful reversal, if that would happen at all. Can you see how people make decisions that have adverse effects on their portfolios?

Was I also right? Yes. I gave two possibilities of the price direction – either up or down. In order to benefit from this expectation or ensure that an adverse movement doesn’t affect my portfolio, I truncate my loss when I’m wrong and give my gain some leeway when I’m right. I’m not opinionated: I know what to do whenever I’m proven right or wrong.

Being Bearish or Bullish Makes No Difference
It’s common for many a trader to say “I’m bearish/bullish on this market.” That doesn’t make any difference. What would happen when a swing trader goes short in a market because they hear a scalper announcing being bearish? When a position trader says they are bullish, do you think an intraday trader can make a ‘fool-proof’ long trade?

I look at a EURUSD chart and I say I’m bearish, but you look at it and say you’re bullish. A chart is a chart, plus both the bear and the bull can make money in the same market. When a dominantly bearish market rallies by over 600 pips, the bull can make some gains. In the same market, the bear can also make some gain when the price pulls back in the direction of the dominant bias in which the buying or selling is prevalent – what makes the difference are the timing methods and trading styles.
Being bullish or bearish makes no difference. What makes a difference is your respect for the realities taking place in the markets. A confirmation of a reversal wouldn’t happen overnight; it takes days or sometimes, weeks. The transition from a downtrend to an uptrend doesn’t happen in a flash; instead there would be a gradual thinning out of the downtrend which then translates into an uptrend, causing lower highs amidst consolidation and swing lows. No matter how significant a counter-trend bullish or bearish engulfing candle pattern is, it doesn’t mean the trend is over, unless the next series of candles continue to hold onto the reversal long enough. Otherwise, the significant bearish or bullish engulfing pattern may be a spike which gives traders an excellent opportunity to enter the market on a good bargain.

Conclusion
The FX markets are among the most liquid trading markets in the world, and therefore, when a strongly trending instrument assumes an established bias, it may go on longer than anticipated. In the face of this fact, a reversal in the context of the established bias may either be transitory or be a start of a protracted movement in the opposite direction. Rather than being opinionated about a direction, you’ll help yourself by aborting your losers and riding your winners – the only way to face the vagaries of the markets victoriously.

This fact is summed up in the quote below:

“I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out. If they are going for me, I keep them.” – Paul Tudor Jones

This article was taken from the book “Unlock Your Potential with the Realities of Trading.” 

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