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How The Forex Market is Smarter Than You

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And why you shouldn’t care.forex market guy with numbers on his face

The Forex market as a whole is smarter than all of us, at least when it comes to trading. The good news is that it doesn’t matter. You don’t need to outsmart the market to enjoy consistent profits. It just isn’t necessary.

Why then do so many traders attempt it? Why do they feel it necessary to prove something, only to feel disappointed when a trade goes against them? We’re going to discuss all of that and more in this article.

The teachings below can catapult you into the 5% of profitable traders if you have the discipline to apply them.


The Forex Market isn't Emotional


The Forex market is an interconnected web of global institutions and was created for the sole purpose of trading currencies. This “web” is fueled by computer networks that are both faster and smarter than us.

Faster, yes. But how are they smarter than us, you ask? Because they don’t get emotional. They don’t act on greed or fear and they are never “wrong”. They simply process data as it comes in as efficiently as possible, never trying to guess what might happen next.

There’s something to be said for that level of neutrality. In fact, that kind of neutrality is what separates the consistently profitable Forex traders from those who struggle.

But in order to become consistently profitable, you have to know which way the market is going to move, right?

Wrong.

In fact it’s this kind of thinking that gets many traders in trouble. You see, profiting on any one trade isn’t about knowing which way the market is going to move. It’s about determining the probability of a move by using key levels and price action strategies.

But what keeps most traders from profiting consistently is far more subtle and much more damaging.


Leave Your Emotions at the Door


Human beings are not great traders by design. We are emotional creatures, not a computer network that makes cold, calculated decisions. This is why only a very small percentage of traders ever see consistent profits.

If a trade goes against you, it isn’t the market’s fault. The market isn’t out to get you. It’s simply doing its job processing data.

So why take it personally? It’s illogical to think this way, yet this is how most traders think.

Illogical? Yes, but surprising? No.

Remember that we’re emotional by design, which means it takes consistent self-reflection to acknowledge when we’re thinking illogically. It takes an even greater deal of self-reflection to change the way we think, but it can be done.

Every person has it in them to be a great trader. But I would be remiss to say that every trader has what it takes to be great. I consider those two separate. You may have the stuff of greatness buried deep down inside, but to bring it to the surface takes time and a healthy dose of persistence.


Your Ego


ego black and white

Before we even start talking about egos, I need to make it explicitly clear that this is all about your success as a trader. It’s easy to think that trading is all about technical prowess and dismiss the most important, and challenging aspect – the mental game.

Every human being has an ego. Big or small, we all have them. An ego is a false identity, it’s the persona you create for yourself and it will often act on your behalf with little to no effort on your part. As vital as this can be to your success as a trader, it can also be detrimental if not properly groomed and controlled.

Your ego is what will get you into trouble when it comes to trying to outsmart the market. It’s that little voice that says, “I know what the market is going to do”. It’s what causes you to risk more than you should on a trade because it insists that it’s a “sure thing”.

As we all know, the only sure thing when it comes to trading Forex is that the market will move up and down. Aside from that, there’s no such thing as a sure thing.

So how do you eliminate these egotistical thoughts from your trading? Well, you will never eliminate them. Unless of course you plan to undergo a bionic brain transplant sometime in the near future.

The good news, however, is that there are some ways to help control these self-defeating thoughts and actions. The better news is that all of the remedies are easy to apply because they’re all right in front of us.

But more on that later.


Understanding Your Ego


Understanding your ego is all about learning why you think what you think and do what you do. Do you close losing trades too early out of fear? Are you constantly risking too much money on trades due to greed? Do you often stray from your trading plan? If so, why?

All of these thoughts and actions are caused by your ego. It’s the “dark side” of yourself that causes you to feel pain, fear and greed. It’s the invisible, self-sabotaging side of you that can only be conquered once you fully understand its actions and its motives.

So where does this self-sabotaging you come from? It’s born with you. There isn’t a single person on earth who lacks an ego. However there are varying degrees of ego that cause individuals to act and react in certain ways.

Let’s go back to the topic at hand – trying to outsmart the market. In other words, attempting to know what the market is going to do next. What’s the best way to develop an understanding of how your ego affects a bad habit such as this?

It’s actually quite easy. Do you get upset when a trade goes against you? Do you classify trades as “right” and “wrong”? If so, your ego is getting the best of you. You were so convinced that you had the market beat on that last trade, that when things didn’t go your way it was as if the market was out to get you. You therefore took it personally.

There is no right and wrong when trading Forex. There’s only probabilities and outcomes. Sure, if you decide to sell and the market rallies, you may say that your position was on the wrong side of the market. But it doesn’t necessarily mean that your analysis was wrong.

This may seem like semantics, deciding what to call losing and winning trades. But remember that we’re working on your mental game right now. So it isn’t just about what you call winning and losing trades, it’s how you identify with them mentally.


Egos and Goals


We subconsciously choose between our ego and our goals every day. Think about it, if your goal is to become a consistently profitable trader, why then do you get upset when the market moves against your position?

You may try to convince yourself that you’re upset because it’s a setback to reaching your goal. But any successful trader knows that his/her goals are never dependent nor judged by a single trade.

So why then do you get upset? Because your perspective on the losing trade was that you were wrong. As a result of being wrong, your ego has now planted a shadow of a doubt in your mind about your abilities as a trader.

On top of that, you were so convinced that the setup was a slam dunk that you decided to risk 4% instead of the usual 2%. You were so sure that you had the market figured out this time. So when it went against your position, it triggered an emotional response, temporarily shattering your confidence in your abilities.

Does this sound familiar? I bet it does. And that’s okay. There’s a certain path that every successful trader has had to navigate to get where they are. That path is littered with obstacles and challenges that you have to overcome. Keeping your ego in check is one of them.


Becoming a Better Trader


There are of course two sides to the coin when it comes to becoming a better trader. There’s the technical side and then there’s the mental game. We’re going to cover a little of both.

Let’s start with the most misunderstood of the two.

The Mental Game

In order to subdue your ego from your trading and ultimately stop trying to outsmart the market, you need to first understand your ego using the tactics discussed above. Ask yourself those questions. Once you have a good understanding of how your ego is getting in the way and what signs to look for, you can then start to address it.

Knowing that there’s no need to outsmart the market is the first step in the right direction. Next comes an understanding that there is no right or wrong, only probabilities and outcomes.

Now this next part will be a “work in progress” for many.

You need to develop an understanding that the market is simply a vehicle for extracting money. It’s robotic – without emotion or feeling and it doesn’t care whether you make money or lose money.

When was the last time getting upset about losing money served your goal of becoming consistently profitable? Did the market refund some of that money because it felt bad for you?

That sounds harsh, and to be honest it is. It’s exactly why the majority of traders never see consistent profits. We’re all emotional creatures trying to consistently extract money from an often unpredictable, inanimate object that could care less about our feelings. That is by no means an easy task. But the challenge is what keeps us hungry and coming back for more.

When it comes to the mental game, there is only one battle. It isn’t a battle between you and the market. It’s a battle between you and your ego. The sooner you accept this truth, the sooner you will be on your way to conquering the egotistical thoughts and actions that are holding you back.

The Technical Side

The best traders in the world all have two things in common – respect and a healthy dose of humility. Respect for the market and its ability to outsmart even the best analysts, and the humility to acknowledge that the market is smarter than all of us, and that’s okay.

All we’re looking for is a small piece of the pie. We don’t need to concern ourselves with being right or getting upset when the market moves against us. It isn’t personal. The market doesn’t care and neither should we.

So what’s the best way to stop trying to outsmart the market? Good question, and one that is surprisingly easy to answer.

The best way is to develop a more neutral mindset by allowing the market to make the first move. Have you ever heard the saying, “he who speaks first, losses”? It’s a common saying in negotiation tactics. Put simply, it means whoever speaks first will be at an instant disadvantage.

So don’t be the first one to make a move. Let the market make the first move and then react accordingly. That’s the true essence of a price action trader.

This can be accomplished by waiting for a clear price action signal or through the use of a breakout strategy. It takes patience and discipline, but both of these attributes are necessary to become a consistently profitable trader.

Here’s a great example of allowing the market to make the first move.

forex 4 hour chartWe had two options. The first was to blindly buy at support, hoping for another rally. The second option was to wait patiently to see what the market would do. When it didn’t produce a bullish price action signal, and instead broke support, we had a clear signal to enter short.

The trader who tries to outsmart the market would have blindly bought at support without first waiting for a bullish price action signal. Remember, let the market make the first move. Buying at option 1 in the chart above without a bullish pin bar of some sort means that you’re making the first move, putting yourself at an instant disadvantage.

Always let the market make the first move and show its hand. All you have to do then is react accordingly.


Summary


I truly hope this article has helped you to understand how your ego can interfere with your trading. My hope was to cover various topics on the subject to illustrate why it isn’t necessary to try to outsmart the market.

If you aren’t getting the results you desire as a trader, it may be time to weigh your ego against your trading account. In other words, decide which is more important – feeding your ego by trying to be “right”, or making consistent profits. I trust you’ll join me in choosing the latter.

In closing, here are some of the key points from the lesson.

  • There’s no need to try and outsmart the Forex market in order to become consistently profitable
  • Finding consistent profits isn’t about knowing which way a market is going to move, it’s about determining the probability of a move
  • An ego is a false identity, it’s the persona you create for yourself
  • There’s no right and wrong when trading Forex, there’s only probabilities and outcomes
  • The mental game has just one battle, the battle between you and your ego
  • The best way to subdue your ego from the technical side of trading is to develop a more neutral mindset
  • Always let the market make the first move and then react accordingly


Your Turn


Is your ego affecting your trading? If so, do you think this article has helped you to identify certain aspects of your trading that may need improvement?

Leave your question or comment below. I always enjoy hearing from other traders.

Leave a Comment:

16 comments
Simon Morsley says

Hi Justin and all,

I think that’s a brilliant piece of work you’ve achieved here Justin! Well done and thank you!

Its the hardest thing to relax ones ego as its an inherant survival mechanism that goes way back to the basic question of life…”Do I take flight or fight”? When we lose, hopefully one would try to think it as a lesson, as in..”should’ve stayed in the cave today” . When we win the “I’m bullet proof” easy going relaxing life after the battle we’re we find ourselves surrounded by the walls of our caves, gives us unfortunately a false sense of security…we no longer live in caves nor are we about to be eaten or bitten by tigers or bears or in the case of Australia; snakes!

The world of tigers and snakes today take on a different form and in the forex market its as you say, all revolves around fear and greed….of which originates from the emotional complexities that the $ brings into our daily lives. Over time we’ve lost the natural instinct to run or fight the animal for most of us aren’t even remotely close to any animal apart from the “pooch”…we’ve lost that ability and most of us don’t really understand the $ and how it works and plays in our lives either, let alone succeeding to make it!

Being $ wise doesn’t come naturally. So given this respect we have to be able to be open to the lessons from our peers (thankyou Justin) and allow ourselves to go back to school and stay there until we can be just as cold and calculative as the forex machine reflects..otherwise we’re “goners” as they say in Aussie…or “doomed” as the eternal pessimist suggests in this pantomime of life. “The Worlds but a Stage” they say so….I’m certainly not coming in left stage not knowing my lines!! I know its all easy to write about but we must learn to un-learn, start again with an open mind, a questioning mind and one that possesses objectivity.

COLD, HARD and CALCULATING….this is what we must be….RUTHLESS to SUBJECTION, RUMOR or FLIPPANCY…..every decsision MUST BE BASED ON A VALID REASON.

I look at trading the forex market like I fly aeroplanes….Must have a flight plan (B O R I N G!), must check, check and double check the check to see if the aircraft and myself(!) is airworthy…Thinking all the time what ifs….SAFETY SAFETY SAFETY then fly ( the easy and fun part) then park it, wash it, hanger it blah blah blah….all boring stuff….except the part when your effortlessly turning, climbing, descending, singing away to yourself in total bliss way above the surly bonds of life…just as it is a good trade…..same stuff!

Well this turned out longer than I expected but I hope you enjoyed my take on it.

Oh and one more thing…always be grateful for our winnings. Humbly thank our God/Goddess or just ourselves for being so clever and give some away to those who may be more unfortunate than ourselves and who don’t have this glorious opportunity as we do to be as successful as we want to be. Allow ourselves the permission to be successful and be grateful for it!….We all deserve it and its totally our right to be successful no matter how low our egos may think of ourselves at times.

Blue skies and tailwinds to us all and have a very safe and happy Christmas, cheers

Si

Reply
    Justin Bennett says

    Hi Simon,

    Thanks so much for your comment. Truer words have never been spoken. I especially like the comparison between flying and trading; great comparison!

    Merry Christmas and Happy New Year my friend.

    Cheers,

    Justin

    Reply
    Justin Bennett says

    Hi Simon,

    Thanks so much for your comment. Truer words have never been spoken. I especially like the comparison between flying and trading; great analogy!

    Merry Christmas and Happy New Year my friend.

    Cheers,

    Justin

    Reply
[email protected]!l says

Namaste JN 🙂
Thanks for sharing this article….. TRUELY appreciated…

Reply
    Justin Bennett says

    You’re very welcome. My pleasure.

    Justin

    Reply
[email protected]!l says

what do u think if we want to go short in retest of support instead of option 2

Reply
    Justin Bennett says

    Absolutely. Either a close below the former support level or a retest as new resistance would work.

    Cheers,

    Justin

    Reply
Rami Ibrahim says

I LOVED IT !!!!!!!!!!!!
I just loved every single word that you put in this article.

Thank you so much Justin for sharing,
and please enjoy your holidays and weekend.

Rami 😉

Reply
    Justin Bennett says

    Pleased to hear that, Rami.

    Reply
Den says

Excellent post !!!

Reply
Anbarasu says

yes its mine mistakes often

Reply
Roy says

Class article. Hit home some good points.

Reply
Andrea says

Hi Justin, I always appreciate your articles and study them carefully.
At the end of this article you wrote:
“Buying at option 1 in the chart above without a bullish pin bar of some sort means that you’re making the first move, putting yourself at an instant disadvantage.”
Sorry Justin, but in the chart above, I clearly see a bullish pin bar at support. So i would buy at option 1.
Could I have an explanation, please.
Thank you

Reply
Awi says

Noted with thanks JN!!

Reply
Andrea Carminati says

Hi Justin,
in the chart above I clearly see a bullish pin bar on the channel support! I would have bought at support.
Why did you write “Buying at option 1 in the chart above without a bullish pin bar of some sort means that you’re making the first move, putting yourself at an instant disadvantage” ?

Reply
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