Talking Points:
• Using analysis to spot trades and establish positions is the foundation of good trading
• However, like any other utensil, analysis can be misused to allow for discretion and emotion to override a plan
• We look at how easy it is to fall into this trap with a run down of EURUSD and EURGBP through recent weeks
What are the Traits of Successful Traders? See what our studies have found to be the most common pitfalls of retail FX traders. )
Analysis is a useful 'trading tool', but using it incorrectly can do us as much disservice as a proper application can help us. There are many traders - I count myself among them - who have been in a position that moves against them, and then use analysis to 'justify' breaking from the well-thought out plan used to initially enter the trade. What seems like an effort to reevaluate a trade turns into an effort to justify reverting to a more emotionally-based trading approach. This easily down in technicals whereby a once-critical level breaks and the trader looks for the next level to emphasize rather than exiting as originally intended. That said, this is just as common a foible for fundamental analysis. We discuss the misapplication of analysis in today's Strategy Video with a recent review of EURUSD and EURGBP to provide hypothetical examples.
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