Trading forex is all about the battle between the bulls and the bears. The two teams of forex players, the bulls and bears, are always going after each other. The bulls want their pair to go up and the bears want their currency pair to go down. Because two currencies are always pitted against each other, that's just not possible at the same time. Each moment has a winner and a loser.
And when you're trading forex, you are actually both bull and bear in the same trading session. You can be loyal to the bullish team and take a trade to the long side, but the minute you close that trade for profit, guess what? You're a bear now because you've just gone short in order to get out of the trade. Some trading platforms make this transparent because to close a trade, you have to put in an order for the same size position going the opposite direction, but most trading platforms these days disguise the mechanics of closing the trade through the simple convenience of having a CLOSE button.
We think about both sides of the battle when we take a trade. For example, if we're in a bear trade we'll ask ourselves, where do we think the bulls are waiting to get in? Will they think that price is going to stall at a big number like 1.3900 and jump in then, or will they wait until a certain clear Fibonacci number is hit? Thinking like the other team helps us to determine our entry and our exit prices.
Many traders actually set pending orders at certain key levels, whether it be price points like whole numbers or key places in a pattern. These are commonly known as "bear traps" or "bull traps" and thinking of them in this way can really be useful to a trader. Just like setting a trap in the wild, think of these key levels filled with orders waiting to be triggered the minute price hits them. If you are trying to navigate a way through the forex wilderness yourself, you'll want to look ahead and know what lies in front of you and where these traps might be located so you don't unwittingly step into them.
Use whatever imagery you can to get this concept into your thinking. The image of trekking through the wilderness is one way of remembering the interplay between both sides. Here's another way - Instead of just looking at your charts as a technician and simply reading patterns or looking for your head and shoulders, or your pennant, or your indicator hitting a specific pivot line, do this instead: Think of forex as a sport. (As an aside, have you ever thought about why the two principal sports teams in Chicago are called the Chicago Bears - National Football League and the Chicago Bulls - National Basketball Association? It's because of the famous Chicago trading pits, well known as the center for trading all kinds of financial instruments.)
When you place a trade, you're on one side of the fight and when you pull the entry trigger, you're either buying or selling to the guy on the other team. Watch what their reaction is. Are they staying on the sidelines and not sending in their blockers or guards? Are they letting you run with the ball? And how far will they let you run? Know ahead of time where your specific goal line is and target that for your exit or a place to protect profit. If they send in their blockers and guards right away to keep you from gaining any yardage, think about how much you're willing to give up before bailing on the trade. Loyalty to your own team counts for nothing in Forex. You might even want to consider jumping over to the other side if you sense that they have more power for the next move.
If you really want to master this way of thinking about trading forex, start a new discipline of making a list before entering a trade. One side of the list is the Bear side and the other is the Bull side. For each trade, list as a bull, "I see the following reasons to go long right now"…. and list your reasons. Do the same for the bear side of the trade. You'll be surprised what you come up with as you defend each side's reasons for taking the trade. And make sure that when you do this, you're not biased for either side.
Trading forex is about being limber on your feet. Too often we get stubborn and refuse to believe that a trade will go all the way to our stop and hand us a loss. Traders find it difficult to think like the other team and consequently they stay with the losers until the bitter end. Being fluid and limber means that you don't mind dumping a loser and joining the other team. By thinking like both sides, it gives you an advantage in the game of Forex and keeps you sharp and focused on the game as it plays out.