Forex Trading Is a Game of Anticipation, Not Reaction

Everyone wants to get the most possible money for their time spent at work, and trading is no different; we want to make the most money possible given the finite amount of time we have to interact with the market each day. Sadly, most traders lose money because they don’t understand how to properly use their time in the market. How can you get the most out of your time analyzing and trading the market?

For many traders, it seems natural to assume that being in the market as often as possible is what gives them the best chance of making money. However, today I am going to challenge this widespread belief and I’m going to show you that you don’t need to react to every little bar or pattern that “might” be an entry signal. Instead, you need to get “in-tune” with the overall market structure and dynamics and learn to anticipate high-probability trading scenarios…this is how you get the most money out of your time in the market. Abraham Lincoln said - “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” Many traders just wake up each day and go looking for an entry signal in a very random and haphazard manner. Instead, when you sit down at your computer to analyze the market, you should already have a good idea of where you are looking for signals and what markets are “hot” right now…you should be anticipating signals in confluent areas and levels in the market based on previous analysis you’ve already done. For example, in the chart below, we have analyzed the market and found the most confluent area to look for a signal, now we just need to wait in ambush; patiently waiting for a signal to form in the area or level we are watching. We have anticipated a trade scenario by analyzing the chart dynamics, determining market bias and finding the key areas in the market, as well as recent price action events.

In this USDJPY chart below, we would have been anticipating a price action buy signal to form after a pullback to support given that the trend was up. Note that we may have had to wait for one or two weeks for this signal, but it led to a large move higher and a continuation of the trend, so it was well worth the wait. Many traders were probably getting chopped up on the low time frame charts instead of waiting for this signal to form, and lost money as a result, instead they could have just been preserving risk capital and observing the market each day, patiently waiting for a buy signal from support

It’s critical to understand the roles that anticipation and reaction play in trading the market. Anticipation can generally be thought of as a higher-level brain function, for it’s the ability to anticipate future events that truly does separate us from other species. Reactions are much more primitive and common amongst all animals; a monkey will react to its environment, but most of us know that it doesn’t really anticipate some event one week out into the future.

In my experience, most struggling traders are too busy reacting to the market to have enough time to catch their breath and make a plan to anticipate what it might do next. It may sound harsh or cruel, but being the frank person that I am, I am going to give it to you straight; traders who only react to the market are behaving more animalistic, and hence they lose money. Professional traders anticipate, they control themselves rather than allowing the market to control them. Note on anticipating trades: The market will not ALWAYS do what you want it to or what you anticipate it might do. It won’t always move into the high-probability / confluent zones that you highlight on your chart but sometimes it will, and when it does you’ll be ready and confident, and that is the point. The point of anticipating trades is that you have a plan of action for how you will react if XYZ happens…this is a much more professional way to conduct yourself in the market than simply “running and gunning” with no logic or method behind your trades.

WHY you should learn to anticipate trades ? Think about your iPhone or iPad for a minute. It’s common knowledge that Apple has become the most valuable company in the United States, but what you might not know is that Apple’s founder, Steve Jobs, was a very anticipatory person. Mr. Jobs anticipated what people would want and like, and the Apple electronics that so many of us love and now seem to “need”, are the result of this anticipation. In reality, all good ideas are not just “instant" ideas require time, planning, thinking and anticipation. As traders, we can take the fact that anticipation is a key ingredient in almost every big business or personal success story and apply it to our trading. To put it simply, we need to plan, anticipate and then pull the trigger once market conditions meet our anticipated criteria.