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Forex Is No Guessing Game
Wednesday, January 03, 2007

I've had a bad habit in the past with guessing.  Isn't every trade basically a guess though? I'm not so sure so let me work though this one.  I think there is a big difference between a guess and an educated guess.  Here is an example of just a plain guess, one that I've made many times before:

The scenario is that there is a big economic release happening within the next couple of minutes such as the ISM today.   I may say to myself, "I think the GBP/USD is going to go up."  Since the temptation to get some big pips is too much, I'll go long.  I actually did this today but I bailed at break even before the release because I knew it was a bad habit I had to break.  I'm glad I did because the GBP/USD broke down big time.  I think this type of trade is a flat out guess.  The economic numbers haven't been released and I'm just going long for the hell of it.  

If after the economic release, there was upward momentum and I decided to go long, then I would probably classify this as an educated guess.  I'm waiting for some price action to occur before I make a decision in this case.  An educated guess doesn't guarantee me a winning trade.  I could actually lose on the educated guess and win on the flat out guess.  But I think the odds are more in my favor if I choose to trade based on an educated guess.

So bad habits crept up on me in the new year but thankfully I was able to squash it with no damage.  Though the temptation existed to trade before the release, I've found that when I've just flat out guessed in the past, I usually lost.   

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