EURUSD REVERSAL? Why you should take this with a grain of salt.

Don’t call the short.

Back in October, the EURUSD had created a “head and shoulders” formation that got traders excited and virtually every idea on trading view was short on the pair.

Many professional traders on YouTube were in agreement with this. It seemed like wherever you looked, the consensus was unanimously short for the most traded pair, predicting a fall from the 1.18 level down as far as the 1.13 level. These were bold predictions, yet it seemed that nobody doubted these forecasts.

The pair did indeed fall, but only to the 1.155 level, and it then reversed back up to the 1.18 zone, and continued further up to the 1.2 level. Right now, on forexfactory and tradingview, traders are yet again unanimously short on the pair, with about 3:1 in favor of a fall on forexfactory.

The last time traders were short most of them were wrong. The question is, why are traders so likely to go short the moment new highs are made?

The answer is in trader psychology. Traders usually get it wrong because they let their emotions get the best of them. Emotions like fear of losses drive traders to believe that the market must reverse because it’s inevitable that it can’t keep making new highs. For traders who might already be in a long trade, they may not believe that they deserve more gains, and so they can’t “stick to their guns” and take the first sign of a reversal to heart and close their trade, and many times they miss out on potential gains they could have had if they just held on.

For traders who are looking from the outside, it’s quite similar. They’re likely calling the top because they have this inherent belief that the market must reverse because they have a mindset that does not accept gains, and so they go short because doomsday must be near.

I can understand if traders are short for the very short term, but this is probably not the best strategy if you’re trying to capture the overall trend. You always want to be going with an established trend even if it looks like you could get a short term counter trend trade. However, longer term counter trend trade is simply impossible to predict when the market just spent months establishing a dominant bullish trend.

The reality is that you must put your fears aside and simply trade what you see. You need to be able to sleep through the night without worrying about the boogie monster hiding in your closet, and accept that this is just a mental state that has taken root in your skull.

So, am I bullish? Hell yeah

Although I’m bullish I won’t be taking any trades anytime soon. I’ll wait until I see some nice signals near the support zone. It may actually continue higher before it retraces so if I miss the trade, what the hey, there’s always more trades setting up tomorrow.

Best of luck, traders.