The Illusion of Control in Trading

To what extent does anyone of us really control his life?  Nothing is preordained and especially at a time such as this, the unexpected is always on the cards.  We all yearn, well most of us anyway, for certainty; for knowing what will be today, and the day after and so on…but how often does this happen. Think about domestic life and how often those “best laid plans” come metaphorically crashing down. You book a holiday and the kids are ill. You plan a journey and someone somewhere goes on strike and holds you up or prevents you from travelling. As the old joke goes, nobody expects the Spanish Inquisition.

What do we mean by the illusion of control? It literally implies people having far too complacent about their ability to control the eventualities over which they really have no right to say they can master.  It is highly dangerous to imagine that any sensible person would approach the technique of trading on the markets feeling that they know everything that is going to transpire, working on a predetermined plan that is so rigid that it allows no flexibility whatsoever. Thus the immense contrast between a marketplace which is invariably uncertain and unstable and a desire for absolute certainty and reassurance


Chance plays an enormous part in our lives.   A gambler will be convinced that a run on the black must inevitably be followed by a red but in fact the odds are just the same all the time.   Everyone – novices and “old timers” alike – tends to have an inflated opinion about their own abilities, not acknowledging the errors they may have made. This is what is sometimes described as the Monte Carlo Fallacy when if you have experienced an extended losing streak there is absolutely no guarantee that a winner is “overdue”. That is a gambler’s error.If your success average is 60%, even after ten losses in a row, your likely chance of success remains at 60%.


No one can be absolutely sure of what the markets will do at any particular time or what will affect their progress or lack of it.  There are predictables of course such as monthly trade figures or unemployment. There are special events – the unexpected result of an election or a referendum or sadly in today’s climate, yet another bout of terrorism.  The moral of all this for the trader is to play safe. Trade cautiously. Trade using careful rules for your money – always watch your margins and don’t bet the house on one special trade. Don’t try and take your annoyance out on the markets just because they haven’t traded as you expected, you will only end up with bigger losses.


You should also refrain from confusing market intelligence with accuracy of prediction. This doesn’t mean that you shouldn’t be well read and become better informed but there is no evidence whatsoever that a well-informed person is necessarily better at predicting the swings and roundabouts of Forex trading.