Don’t Trade If You Don’t Understand the Chart

It’s common for people who are struggling in the FX to make trades even when they don’t fully understand what’s happening on the charts.

I used to be in the same situation myself.

When I saw people succeeding in short-term trading, like scalping, I would convince myself that I could win too if I just traded more frequently.

This led me to make trades even in situations where I didn’t really understand what was going on.

As a result, I ended up losing, and in an attempt to recover quickly, I made mistakes like:

– Taking large positions for revenge trading.
– Averaging down.
– Overtrading.

This often resulted in more losses.

Do not trade when you feel unsure.

People who struggle to succeed in FX often make entries in uncertain chart situations, which results in losses.

However, for many individuals with over a year of FX experience, they actually possess the capability to succeed in FX.

Nonetheless, the reason many of them still struggle in FX is due to the impatience of wanting to make money quickly.

This impatience leads them to trade in areas they don’t fully understand.

For example, please take a look at the following chart image.

When you look at the chart image above, can you tell which way the trend is going?

If you’ve been trading FX for over a year, you’ll recognize it instantly.

It’s a range-bound market.
Even in a market like this, it is uncertain to conclude the price is moving to upward or downward.

People who aren’t succeeding in FX understand this, but their strong desire to make money quickly drives them to trade despite the uncertainty, often resulting in stop-losses.

If you could immediately identify “range-bound market” when looking at the chart image above, it’s evidence that you have the awareness that trading during trending periods is more likely to be profitable.

So, when you look at a chart and think, “I don’t really understand this,” you don’t need to trade based on that feeling.
You should have more confidence in your own abilities.

Unintentionally trading in uncertain situation is also common.

Even when engaging in short-term trading, primarily focusing on 1-minute or 5-minute charts, many traders unknowingly find themselves trading in uncertain situation.

For example, the chart image below is a 1-minute chart of USD/JPY, and at first glance, it appears to be in a downtrend.

So, you might aim to short on retracements around the yellow circle area below, but afterward, it doesn’t seem to move in either direction and remains in a sideways range.

The reason for this sideways movement can actually be understood when looking at the 1-hour chart.

If you look at the left side of the 1-hour chart where the 1-minute chart’s section begins, you’ll notice a significant drop followed by a substantial rally. This movement is actually causing the congestion on the 1-minute chart.

The reason for this is that after the significant drop followed by a substantial rally, those who emphasize the sharp downward move start thinking, “After such a strong drop, there’s a high probability it will continue to go down,” and they enter short positions.

On the other hand, those who emphasize the significant upward move think, “After returning this strongly, there’s a high chance it will rise from here,” and they enter long positions.

As a result, buying and selling are balanced, causing a consolidation where it doesn’t move significantly in either direction.

When trading on short-term charts, your perspective narrows, and you may find yourself unintentionally trading in places where the movements on longer-term charts become less clear.
This can lead to less favorable results more often.

Trading on clear chart pattern only.

If you’ve been trading FX for over a year, when you look at a chart and feel like you don’t understand it, that’s a sign you shouldn’t trade.

So, it means that you should only trade when you look at a chart and feel it’s “easy to understand.”

For example, the chart below is a 1-hour chart.

When you looked at this chart, what direction did you think the trend was heading? Which way did you find it easier to move, up or down?

If you instantly determined it to be a “downtrend,” then you indeed have the ability to succeed in FX.

The subsequent movement of the chart unfolded as follows.

It is indeed heading lower due to the downtrend.

Trading becomes much more stable, and your win rate and profit potential increase significantly when you wait for patterns where you can easily identify whether it’s “likely to go down” or “likely to go up.”

In my own trading practice, I also avoid trading when I look at a chart and think, “I don’t understand it,” and I only trade in places that are easy to interpret.

For example, in the chart image below (1-hour chart):

Yellow circle: Entry for selling
Light blue circle: Exit

I executed these trades based on this principle.

Both of them are indeed simple and clear retracement sell trades.

The first trade resulted in a stop loss, but the second trade generated substantial profits, resulting in an overall positive outcome.

Even with such straightforward trades, it’s entirely possible to achieve positive results in FX. In fact, trading in clear and understandable patterns can be advantageous because even if you incur stop losses, the profit potential from successful trades is often significant, leading to an overall positive outcome.

So, when you look at a chart and feel like you don’t understand it, there’s no need to force a trade. Instead, focus on trading in clear and straightforward patterns.

Related Post: Simple Strategies Make Better Results in FX! This Is True

The desire for quick earnings is harmful.

I believe many people start in FX with the desire to “make money,” and I was no different.

So, having such desires is not a problem at all.
In fact, having desires can be a driving force for many.

However, the desire to “make money as quickly as possible” is nothing but detrimental.

When you have a sense of urgency, it can lead to hasty trading, making it more likely to trade forcibly in uncertain places.

If you’ve been trading FX for over a year and still not seeing success, the main cause is often this desire to make money quickly.

Just think about it. When you look at your past trades, don’t you find yourself asking, “Why did I enter here?” frequently?

Most of these situations are due to the desire to make money quickly.

Therefore, to become successful in FX, you should let go of the desire to make money quickly.

I, too, used to rush and trade forcefully in an attempt to make money quickly, and it almost always resulted in losses.

From this experience, I learned that waiting patiently for clear and understandable setups is actually the quickest path to success.

Summary

When observing the trading of individuals who aren’t succeeding in FX, many of them tend to trade in places where they say, “I don’t know which way it’s going to move.”

FX involves risk, and as you increase the number of trades, you also increase the risk of losses. So, if you’ve been trading FX for over a year and can make trend judgments, you don’t need to force a trade when you feel “I don’t know.”

You should have more confidence in your abilities.

If you can judge the trend but struggle with entry points or precision, consider reading the following article for reference.
How to Improve Entry Accuracy in All FX Trading Strategies