Forex Trading Psychology

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New forex traders always underestimate the importance of trading psychology, and this is without exception, it is impossible to realise how important it is without some experience of the market.

Forex Psychology And The 50/50

I want you to think about this carefully, and it’s not a trick question, but  if we eliminate the spread for the sake of illustration, if you place a trade where you will win £1,000 or lose £1,000  in the forex market, what are the chances for each outcome? Yes it’s 50/50, so given all that is equal, after 12 months of trading you’d expect to be break even if you placed trades on at any time at any point. But in reality that would not be so, if you’ve ever tried this exercise you will be amazed how consistent your losses would be, and you end up thinking that to make a profit all you have to do is put a trade on against what you originally thought, and you tend to end up digging a big hole one way or another. Statistics will show you that you will suffer a certain number of a string of losses, so on the whole in it’s pure self it is not a valid strategy, you could statistically have a string of 10 losing trades, and you probably won’t get very far with a string of losses that long. But the example illustrates that all you have to do in essence is a have a few more winning trades than losses in a month and you are literally quids in.

Eliminating The Psychology Of Forex Trading.

If you trade forex in this way, using compounding so that as your capital grows your profits grow, you will have eliminated a big part of the problem with trading, once you have placed that trade there can only be 2 outcomes, you either lose an amount or you win a similar amount. There is no trade management, your mentality will not affect your trading decisions, since they will  have all been made, once you’ve placed that trade, treat it like a bet, it doesn’t matter what other traders say, you’ve made your decision, that is your strategy, that is the trade you have placed. This way all you have to have is a way of winning more trades than you lose, and this is easy, it’s a case of trading with the trend, and trading with the trend is no big mystery, you just look at the higher timeframes. You look at the higher timeframes to determine the trend, if it’s not clear don’t trade, but most of the time there is a clear trend on the daily chart, where you can’t see one on the hourly, so if you enter on the hourly chart with the trend bias on the daily, you will have an edge on the market, and you will be right most of the time, and you will eventually compound a nice pile of cold hard cash from your forex trading.

 

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