Well, we have broken to new highs on the Rand – against both the Dollar and the Pound.
Is there any end in sight? Was there any way of knowing?
Well, to answer the former, if you have been looking at the news, it would seem there is no end in sight.
According to news reports, the Rand’s recent abysmal performance has been attributed to bad news on multiple fronts domestically:
- Economically (negative GDP, twin deficits, credit rating downgrade threats)
- Politically (Zuma’s new R4bn jet debacle)
- Socially (students #FeesMustFall protests)
And then, of course, there are global factors, what with China and Eurozone worries, and US Fed rate hike fears.
This news can be all very concerning.
BUT – does it help us in making our exchange decisions?
It is all very well to be given reasons as to why the Rand has moved – once it has already done so.
But that doesn’t assist anyone after the fact.
(Except, of course, to give you an object to vent your frustrations on, because you have missed out (or being caught out) once again!
That is the problem with news – it doesn’t tell us the future, it only gives us a report on the past. And that is one of the reasons why looking at the news in order to get a feel for where the market’s going in future doesn’t work.
But there is something here that is far more insidious and dangerous than that –
News not only doesn’t work in determining direction,
it will almost always result in your making
exactly the wrong decision.
Let me explain.
What news does is fuel our emotions. Our hopes or our fears. And it puts a damper on our rational thinking.
And when we make financial decisions based on our emotions (which by default we will all tend to do – 90% of the time), they are almost always wrong.
That’s why you find yourself failing to exchange because you are confident and hopeful the Rand will go further in your favour.
...Only for it to reverse sharply against you!
And then you wait, hoping it will come back again. But it doesn’t, and fearfully, you watch it go further and further against you. Until, finally, you can take the pain no longer, and you exchange before you suffer any further losses.
...Only to watch the market immediate reverse in your favour!
...Only for it to reverse sharply against you!
And then you wait, hoping it will come back again. But it doesn’t, and fearfully, you watch it go further and further against you. Until, finally, you can take the pain no longer, and you exchange before you suffer any further losses.
...Only to watch the market immediate reverse in your favour!
This is what happens when you are doing what everyone else does, as part of the crowd (the human herd), making emotionally-based decisions which drive the market from one extreme of hope to the other extreme of fear.
Resulting in regretted decisions – almost at every turn.
And what we find at long term market tops and bottoms, is extreme of of these sentiments.
Which of course is evidenced in the news.
This is like a feedback loop, as the news reinforces your feelings. The more prevalent and intense the news (positive or negative), the more this reinforces your own emotions.
And as a result, the more likely you will make a decision just at the wrong time - when market is about to reverse from this extreme of sentiment.
And, what’s more, the more you look for consensus
(try copy what the crowd is doing),
the more likely you will get it wrong.
To get market timing right, you need to do exactly the opposite of what the crowd is doing, and in most cases, exactly the opposite of what your emotions are telling you too.
As Warren Buffet said, “Be fearful when others are greedy, and greedy when others are fearful.”
That’s why I never look at news in order to get an idea of market direction, as it will bring my emotions into play, and skew my rational objective thinking.
So, what’s the answer?
You need a decision-making system
that is rational and objective
What is imperative, especially in times of extreme sentiment, is to have a rational, objective perspective of where the market is positioned and where it is likely to head.
I have found in my 20 years of forex experience that the methodology that gives the greatest clarity in terms of future market direction is the Elliott Wave Principle. This gives us the ability to map out a probable outcome for any market, based on the historical movements of the emotional patterns in that market up to the current point.
As an example, here was our forecast for the Rand vs the Dollar published on 26 October 2015, when the Rand was sitting at 13.5993, where we gave a 75% probability of the market moving above 14.25 the next few weeks.
Click to enlargeAnd here’s a similar outlook we gave for the Rand vs Pound on 22 October 2015, when the Rand was at 20.8755, where we forecast a move above 21.60.
Click to enlargeCan you appreciate what a difference this must make – to have perspective of where the market is expected to head in the future?
And one that is forewarning, objective and rational?
Instead of news, which is reactionary, emotional and often irrational?
Using such a system allows you to negate your emotions in your decision-making process, which is imperative in order to be consistently successful over the long term.
And it also gives you answers to the initial questions in this post (“Is there any end in sight? Was there any way of knowing?”) – ahead of time!
I trust this has given you a fresh view on looking at news for direction, and perhaps explains the hidden reason for some of your frustrating forex/trading experiences to date.
If so, you are now in a better space than probably 95% of persons involved in foreign exchange.
You now know the hidden enemy – your emotions.
And you know what to do to keep him out of your decision-making process.
To your success~
James Paynter
P.S Has this post resonated with you? Have you found yourself in these emotional situations? I would love to hear your own experiences and feedback. Please comment below.
P.P.S. Interested in seeing this work in practice? Try out our forecasting service risk free for 14 days
