Killing the Sacred Cows of Forex Trading

Some Common Indicators and Drawing Tools, that you may be using that are probably responsible for more losses than wins

The world of Forex is full of Losers, Fakers, Takers, and Trainers, who masquerade as “Profitable Gurus” when in truth, the majority of them seem knowledgeable but have no clue what they’re doing.

And all you have to do is sit in on one of their live streams, YouTube videos, or Zoom trainings to find out that they don’t know what they’re talking about. They may even seem like authorities by the way they conduct themselves and teach but true institutional pros don’t trade like them and it’s all in the “indicators” and strategies they teach. You can usually separate the amateurs from the pros this way and I’ll explain why in a second. But first, storytime.

The Sunk Cost Fallacy

There was a hard-working and industrious man who would pass this beautiful hill on his way to and from work. And with each passing, he would take a look at that hill which overlooked the valley and think to himself, “wouldn’t it be wonderful to build my dream home there?” It had the perfect views, easy access to water, and a great location for access to necessities within 20 minutes.

So for years, he worked hard, saved up the money, figured out who owned that land, and then the day came, he bought that piece of land. He began his 2-year odyssey of building his home. He spent hundreds of thousands of dollars on the property, the materials, the transportation, the labor, and hundreds of hours more of his own time.

Finally, he’d finished the home and began to live in it. After a few short months, an earthquake came and shook the foundations of the home, making his piece of property and home unsafe to live in. One structural engineer told him that not only was it unsafe to live there but that if another earthquake happened, the home itself would collapse on him.

He didn’t heed the engineer’s advice and continued to live in the home until one day, another earthquake came and the home collapsed, killing the man inside. Why did the man stay in the home? The same reason that the elderly usually choose to stay in their homes during tsunamis and earthquakes and fires all of the time. Sunk Cost Fallacy. They have too much invested in it. Or at least they believe they do.

One article online described it like this:

Individuals commit the sunk cost fallacy when they continue a behavior or endeavor as a result of previously invested resources (time, money, or effort)… Similarly, a person may have a $20 ticket to a concert and then drive for hours through a blizzard, just because she feels that she has to attend due to having made the initial investment. If the costs outweigh the benefits, the extra costs incurred (inconvenience, time, or even money) are held in a different mental account than the one associated with the ticket transaction.

To put it another way, People become attached to things that no longer serve them even though the cons outweigh the pros. When you toss a ton of time and money into something, naturally you have a hard time letting it go and I would even argue, even more, likely to defend it.

Think about it, maybe you’ve won in the past using your methods, maybe you’ve put in a lot of time understanding those tools or indicators, and maybe you’ve even been right a time or two or 100. But that doesn’t mean it’s the best method to trade by. Just because something works here and there doesn’t make it efficient. And in forex, just because you’ve won a trade or two doesn’t make it profitable

If you were doing something wrong. wouldn’t you like to know? If you were doing something right but wanted to maximize your results, wouldn’t you like to know? If there was a better way, wouldn’t you like to know? If you could earn more money as the Pros or institutions do wouldn’t you like to know? If you did AND became more profitable, wouldn’t that be amazing?

So changing your swing at the markets is the only way you become better and earn more money, NO MATTER how well you think your methods work. Did you notice

How Tiger Woods Switching Up His Golf Swing Can Make You A Better Trader

We all know the story of Tiger. His rise to fame as one of the greatest golfers of all time and his massive fall and public disgrace for being a “ladies man” all while being married.

But we can learn from Tiger in a way that will make us better traders and that’s being willing to improve even if you’re already good. This requires us to changes things up or even to stop using things we think to work well if we can find something that works better.

To remind you of Tiger’s record,

• 82 PGA Tour wins, tied for most all-time with Sam Snead
• 15 major championships, second all-time to Jack Nicklaus
• Only player ever to win four consecutive majors
• Lowest scoring average in PGA Tour history
• Scoring average of 67.79 in 2000 the lowest single-season average in Tour history
• PGA Tour Player of the Year a record 10 times

And he did this ALL while changing his swing 5 times. I don’t think people realize how difficult that is. Most pro golfers change their swing once during their career and it’s usually in the beginning when they go from college to pro because they have access to some of the best swing coaches in the world. But for Tiger, simply changing his swing once wasn’t good enough, because he wasn’t after being an “average” pro player. He wanted to be the best in history. One reporter described him like this,

“Was Woods just a great athlete determined to continually improve himself, or did his quest for improvement become something of an obsession for perfection in a game where perfection is simply unattainable?”

Still, changing up your swing 5 times, 4 of which were at the height of his career, sounds a bit excessive right? Wrong. Not only was Tiger seeking perfection, after trying his “new swing” for a while he would feel something was missing, something was off and he knew he could improve. That’s when he would fire his old swing coach and hire a new one. Talk about job security. And when he hired his new coach, he would immerse himself, even though it’s hard to break old habits in form and swing to develop new ones. From the way, he held his club, to his stance and pivot, such minor changes that would feel unnatural and awkward but could potentially make tremendous leaps in his game.

Which brings me top my point: When Tiger played with his new swing long enough and wasn’t getting the results he wanted, he knew something was wrong, so he hit the drawing boards all over again and changed up his swing.

Which brings me to my first question: WHAT are you committed to most? Are you committed to getting better? Even if what you’re doing already works? Or are you a victim to the sunk cost fallacy?

The goal of any good Forex Trader is to earn the MOST amount of money in the LEAST amount of time. That’s how you shorten time-frames. That’s how you move from the little league to the big leagues. So let’s dive into 3 of the most overused “sacred cows” of Forex Trading and explain why they are good to know but not good to rely on heavily in your trading.

Sacred Cow 1: Relative Strength Index (RSI)

This is not a good tool for Forex. Overbought and Oversold are not real in Forex trading. There is no such thing in Foreign Currency Trading. This was a tool developed for stocks in 1978 and many professional stock traders don’t even use it. Think about it from a logical standpoint. How can currencies with trillions of dollars exchanging hands be overbought or oversold? With stocks, this makes sense because you’re trading stock. With currencies, this does not apply.

To cut it dry, cut out the RSI tool as an indicator in your trading. It will give you lots of false signals and put you in harm’s way more often than not.

Sacred Cow 2: Trend lines

The coolest thing ever happened to me when I first started trading was learning how to draw a proper trend line. I would draw it, the price would respect it by getting rejected or bouncing off of it and I would take a few pips of profit. But then what would happen, more often than I would like to admit, is that price would obliterate my lines and completely ignore them to stop me out before moving back in the other direction.

So what if I told you there was no “proper trend line?” That these trend lines are more just like lines that provide you temporary safety and security in your trading but will get you into a lot of trouble when the big banks move the prices thousands of pips in any one direction ignoring the pretty little lines you’ve drawn neatly on your charts.

First, what is a “proper trend line?” Because there are so many damn lines you could draw on your chart that it’s unimaginable. Then you would have to argue that it would be from the “top of the highest high to the next lower high, or from bottom to bottom. Those are easy to see through and here’s the issue, so does every other Forex trader. Now if most other traders, see those trends and trade by them, then it’s obvious the institutional money does too. Guess what they do? They let you have few small wins or losses based on the trend so you gain confidence in it and then they will wreck you by hitting your stops and then move back down in the same direction.

So your trend typically ends up costing you more money than you’ll probably ever make from it. Stay away from trends because they’re too uncertain and too unpredictable. Plus, your enemy, the big banks LOVE them and they love when you trade by them because they’ll loot your brokerage account dry.

Sacred Cow 3: Fibonacci

This is another one I believe would piss a lot of folks off and one I’m sure at some point you’ve used in your trading. Far too many Forex trainers use it and teach and far too many amateurs lose too much money trusting the Fibonacci retrace levels.

Why? Well, although I’m sure the Fibonacci tools have their own time and place, just like any other indicator. It’s important to avoid extensively using ALL indicators that are popularly and regularly used by the majority of other traders.

The next argument I have against the consistent use of Fib levels is that they are based on nature. The spirals and math of your body, a flower, the waves, design, and many other things. But just because it points to math in natural things doesn’t mean it correlates to trading markets and it sure as hell doesn’t mean it needs to be heavily relied upon as a point of entry or exits on trades.

So then what’s the solution?

First, don’t rely on tools and indicators that the majority of other spot traders (individuals from their home computers) use. These strategies and methods will get you into trouble and steep losses. Second, just because some indicators or drawing tools paint a good picture at times and seem to be respected, doesn’t make them reliable.

All it takes is one big loss to offset all of your little wins. And third, start to create a trading strategy where you don’t rely on the things above and focus on a strategy that few spot traders use so your on the “less popular” side of a trade which is more likely where the big banks will take the trade. Trade with the big banks, not against them. You have less capital and can’t move the markets as they do. So I hope you enjoyed this post. If you want more, you can click here to register for a live call with our Professional 30+ year veteran Forex Trader Ray and learn more about how to trade like a pro.