Since forex trading shares similarities to warfare, it makes sense to consider a military strategist's approach in learning about and dealing with market forces. Dr. Brett Steenbarger, one of my favorite trading psychologists, suggests drawing from the experience of Colonel John R. Boyd in order to understand how to think during combat.
As a U.S. Air Force fighter pilot, Colonel John R. Boyd was known for his ability to outmaneuver rival pilots pursuing him within 40 seconds, earning him the nickname "Forty Second Boyd." He is also famous for his framework on human decision-making called the OODA loop, which stands for observe, orient, decide, and act.
In a nutshell, the OODA loop breaks down how human beings typically react to an event. According to Boyd, this response can be broken down into a sequence. The first part involves observation where data is collected using the senses. The second part is all about orientation where observations are used to create a mental perspective of the current situation. Next comes decision-making wherein one decides on a course of action and last is the action itself.
So how can we apply Boyd's philosophy to trading?
First, we must understand that more than greed and fear, we must always be on the lookout for the feeling of confusion and uncertainty.
Try to recall the last time the market caught you by surprise. I bet that long before felt afraid that your trade could actually go against you, you were confused and probably asked yourself, "What the heck is happening?" By the time you've already oriented yourself with the situation and finally determined what you're going to do, the market has probably made its move and left you helpless.
It has been said that "Defense is the essence of every war." If this is so, a successful trader should be able to cover his bases and figure out what to do, should the market throw a bomb of uncertainty (which happens all the time).
You don't have a fancy weapon such as an advertised trading system that is supposedly guaranteed to make you profitable. As I have told you before, you just have to deliberately practice. Just like a soldier performs heroic acts and weathers harsh conditions, you need to train to be efficient under pressure. Here are three practical tips to help your training:
1. Thinking about the what-ifs. It's true that you can never really predict any event exactly as how it would unfold. But being on your toes for X-factors can keep you from being confused and feeling uncertain should anything surprising happen.
2. Study market behavior. A successful trader cares less in predicting what the market would do. He cares, however, about what the market has done under similar conditions. Observe and familiarize yourself with market tendencies. This could help you orient yourself as well as act quickly under any situation.
3. Ask for help. Our resources can only draw us a limited map of the forex market. Don't be afraid to ask others for advice. A fresh pair of eyes may just be what you need to get an edge over the market.
Always keep in mind that trading rewards those who are mentally prepared to come up with strategic decisions in the face of uncertainty. Successful traders are those who can properly observe market conditions, rapidly orient themselves, carefully come up with strategic decisions, and efficiently carry out their course of action.
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Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.
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