What makes a prediction different from a trading bias?
A prediction is a statement about how you think things will be in the future. When you make a prediction, you are saying that you think a certain thing will happen.
Saying that a currency pair will trade at a certain price at a certain time is an example of a prediction in the forex market.
- A bias, on the other hand, is a tendency or point of view.
- When you have a bias, you think that a certain kind of behavior is more likely to happen than other kinds.
- Being bullish or bearish on a currency is a type of bias in trading.
- You may have noticed that the main difference between trading predictions and trading biases is that biases can be confirmed or disproved by the markets.
- If you want to be a trader, you can’t just make a lot of predictions.
It’s normal to have a strong opinion about a currency, especially when technical and fundamental factors back up your view. Before making a trade based on your biases, it is important to figure out if the market’s behavior backs them up.
Mark Douglas says in The Disciplined Trader, “If you think it will have a clear bullish or bearish effect on the market, don’t trust your opinion until the market itself confirms it.”
Mike Bellafiore says in his book One Good Trade, “Even if you develop the right bias about the direction of the market, you still need the trading skills to capture those moves.”
“Wasting your time on predictions is a waste of energy and time that could have been used to improve your skills, which is what will really make a difference.”
It could be bad for a trader to make a guess about how a currency will trade without taking market behavior or changes in the market environment into account.
If you keep trying to show that your prediction is right, but the market doesn’t agree, you’re likely to keep losing.
John Maynard Keynes, an economist, said it best: “The markets can stay crazy longer than you can stay solvent.”
At the end of the day, you have to keep in mind that the market is BOSS. It doesn’t care what you think will happen to the price. The market will go in any direction it wants.
One mistake that many new traders make is to think that successful trading is all about making predictions and that their opinions or trades can change the markets.
They might lose trades and miss opportunities to make pips when price action moves in the opposite direction because they can’t or won’t react to changes in the market environment.
As a forex trader, you must always keep an open mind and be able to change your mind.
If you only look at the market signals that back up your own predictions, you might miss both short-term moves and long-term trends.
“Trade what the market is doing, not what you want it to do in your nihilistic dreams,” says Dr. Brett Steenbarger, a well-known trading psychologist.
Don’t forget that the business is called trading, not predicting.
At the end of the day, your trading results won’t be based on how well you predicted things to go, but on how well you were able to adapt to the markets and take advantage of price action.
“If you don't find a way to make money while you sleep, you will work until you die.”
- Warren Buffett
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