Technical or Gut Feeling

Hi Trading Gurus,

I’ve been using EToro and IG demo accounts to try and learn this totally fascinating System of Forex.

I have been reading a lot and researching but have not defined my risk or strategy as yet.
I’m trying to figure interpret the Candlestick graphs and use some technical analysis that I have from my day job. What I have noticed over the past few weeks, is my gut feeling coming into play. Technically I’m sure I’m making the correct decision but my gut feeling is pushing me another way.

Today on one of my demo accounts, I tried to implement technical analysis, with my limited experience, and lost a good part of my trade.

I then opted to go for ‘gut feeling’ looking at the graph and seeing if my instincts are correct.

Three trades later, all three in slight profit.

Fourth trade, took a hit again, but I pulled my losses quickly, to avoid a nasty loss.

Got myself wondering…

Do you rely on technical trading or do you listen to your ‘gut feeling’?

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I never never listen to gut feeling. for me its all in the charts.

I’m going to guess there are two ways your gut feeling could be effective for you, but I assume you get these feelings after looking at charts anyway. Basically there are only two ways to trade off a bullish chart - buy because price has been going up, or sell because price has been going up.

This means trading with the trend or trading reversals. Both work. To generalise, trend-following has a higher win rate but not so dramatic gains per trade: trading reversals has a lower win rate but offers the chance of dramatic very quick gains.

Whichever you’re doing better focus in on it and identify why your gut told you to do what it said.

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This is a very relevant issue and I am sure many of us have often experienced this paradox.

Basically, this question concerns mechanical v. discretionary trading. And I think the key issue here is to avoid just thinking about each specific trade. Every trade is a probability play and our aim is to seek a strategy that provides a so-called positive expectation over a period of trades and time, not just on the next trade.

Many traders will rely on a mechanical approach and take every trade that the strategy presents. They know that some trades will fail but their associated risk/money management parameters will keep the losses smaller than the gains over time (even sometimes with a win/loss ratio less than 50%) and therefore they will net gain.

Other traders believe in following a technical strategy but allow themselves to “oversee” the set ups as they occur and decide whether to go ahead or not. I am also in this category. I always want to evaluate a trade set up according to the overall environment (holidays, Fridays, prior to numbers, elections, and so on) and also whether the presented target/stoploss set up makes it worth the risk. Even when trades are entered, a discretionary trader will monitor its progress and decide if it is working the way it was expected to. If the situation/conditions change during it progress then the target or stop may be tweaked or the trade exited partially or completely, or even increased. These are all factors that are difficult to build into a mechanical system.

One problem with such discretionary trading is that it is almost impossible to back test because you cannot say when or where you would have intervened. Therefore it is difficult to quantify how such a discretionary approach might have under- or over-performed compared with a mechanical approach.

But I don’t think that purely trading on gut feel is wise or likely to be consistent, but that is just my view knowing that my own gut feel would certainly not perform well in any circumstances!!

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Trust technicals not gut feeling. You need to have an edge and then let the law of large numbers take effect

It is the most important thing to do as a trader. If you can’t deal with your losses you can not become successful in this market. You need to make a good plan to deal with the losses.

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I learn many new things from the comments. Thanks all for giving your valuable opinion.

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I truly believe that you learn forex trading more when you demo trade. You get to know the market practically using your education. After you are done with your learning part, you can create your demo account with a broker of your choice and practice your trading according to your financial goals.

@Willied77

Don’t take this the wrong way but don’t confuse brains with a bull market.

Any one can make money on a string of good luck, but at some point the market finds out those who are just trading off gut feeling.

The more experience you gain the better your gut feel will get (after all it’s just a collection of past market patterns coming from your subconscious).

But as a beginner I would not put much faith in it.

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