It’s been a really educational day looking at EURUSD on forex! (I love learning lessons that aren’t expensive – lol)
So started looking at EURUSD this morning where there had been a couple of bounces off 14,300 so was waiting for an opportunity to go long as the up-trend resumed. All looking rosy and the price bibbled about flirting with 14305… so I essentially had a positive long strategy which had a high probability of success potentially and a minimal downside. It’s all super. See the black arrow on the chart
What I completely failed to consider was a short strategy. This shows up an alarming lack of mental flexibility on my part by not considering what to do if the price didn’t go in the direction I’d previously considered… Definitely not a way I want to continue to operate in the future.
Even on the short side i.e. price dropping below 14,300 this would still have been a trade with a limited risk and high probability.
This type of behaviour derives from what’s called ‘perceptual bias’ which is simply explained as looking for evidence to back up a previously formed opinion. If someone points out that there are a large number of red cars on the road you’ll suddenly start seeing loads of red cars everywhere… So the answer would be to always consider both sides of the coin, both long and short – right?
What’s really galling is that there’s a lovely bearish engulfing candle at the point where the price failed to get back to 14,340 and dropped through the deck ;) but to quote Jack Welch ‘Fail Often, Fail Fast, Fail Cheap’