The Key To Succeed With Forex Trading

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Today’s article will address the question: “How much do you want to succeed with Forex trading?” Are you willing to exchange anything for it? Even if it means you have to change your perspective or the way you think about trading.

Most people find it difficult to change and they are also very afraid of it. There are many things related to this such as ego, personal narcissism, laziness/fear of change, etc. But if you are losing money, take it seriously. Change is inevitable if you want to survive in this tough market.

In this article, you and I will discuss why and how you need to change your mindset to succeed in Forex trading. I believe that if you read all the posts in this blog and change yourself with good habits, you will reap the rewards.

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First, you need to change your way of thinking about trading

One of the things that brings a lot of difficult problems to trading orders is that you are too “tied” to them. In fact, you should sing the emotionless song in your head when (intended to) enter a trading order.

You should not expect any trading order that it will win, or lose. You can be very confident in your trading method (actually having an exceptionally high win rate). However, you cannot be 100% sure that the order that you have placed will be profitable or at a loss. Because in trading, there is still a random ratio of winning and losing orders, regardless of your trading method.

Don’t misunderstand. I am not saying that an order will have an X% number of winning rate. I am talking about a long enough series of transactions. In this case, you can expect to win X% of the time. (X = 60 for example). A lot of traders get confused when they think that the order they just entered will win, or the order that they have entered will have a 60% win rate. In fact, this is not so simple.

I want you to think of a glass jar with 100 marbles. 40 of them are red representing losing orders, the remaining 60 green ones representing winning orders. You might think that we have a win-lose rate of 60%-40%, right?

Now shake the jar, close your eyes, and put your hand in to get a random marble. You can’t tell if you’re going to get a green or red one, can you? Although green marbles are more, now you probably do not have much expectation that you will get it. Everything is randomly allocated.

Here is another example

Let’s say you’re playing a coin toss game and 4 times in a row it faces down. So the next toss, you expect that it will face up. Do you believe that will happen and bring victory to you?

Not sure yet! If you continue to toss the coin for the 5th time, the tails/heads ratio is still 50/50. This ratio is constant no matter how many times you do it. Psychologists call this model the “Gambler’s fallacy” (also known as the Monte Carlo fallacy). And according to a study published earlier this month in PNAS, our brains often make this mistake.

This is what (I recommend) you should think about trading. Even if you expect you to have a 60% win rate, you need to know that the winning and losing orders are distributed randomly. It’s always like that.

Once you realize that every transaction has an equal chance of winning, you will no longer put much emotion into it (hope, fear, etc.). You become more indifferent in trading, and from which, your decisions will be more correct and more reasonable.

Sometimes people email me, saying that they are “interested” in these candles or those candles. They expect those signs to lead them to victory. I think you should not be so “interested”. Don’t put any emotions into trades, any trades.

When you start eliminating emotions and things “tied” to trading, you will do the right things. You will manage the risk better. You will not incorrectly “shut down” the current order (cut losses or take profits early). 

Try probabilistic thinking to avoid bad emotions

During trading, you see a similar candlestick setup that has helped you earn money last time. You expect this to come again (most likely you will increase the trading volume). By this way of thinking, you are putting yourself at risk of frustration and emotional “hurt”.

You forget that any order will follow a random win-lose ratio, which has nothing to do with previous orders. Although the candlestick setup is 99% like the one of the last time you won, the result for the order you are going to place will still be random.

No matter how confident you are in your method, no matter how good your past performance is, don’t allow yourself to be affected by the results of last orders. This is the most important key to succeed in Forex trading.

One order does not affect or has any connection with the others. If you lose this order, the following order might be a win (or loss). And if the next order wins, then the following order may be a losing (or winning) order. If you have a 60% win rate, remember that this ratio is based on a series of orders (not just 5 or 10 orders). You are quite likely to have 5-10 consecutive losing orders.

Your goal is not to let yourself get affected emotionally when trading in the market. Trading is not really just winning or losing. Try probabilistic thinking. If you have time, you should learn more about Poker. This is a game quite similar to trading, and a great supplement to trading. Win, earn money, take it as normal. Lose, cost money, feel okay.

How to get rid of trading mistakes and start making money with the Forex market?

Dead accounts are the results of a series of non-stop trading mistakes. You are too “passionate” with an order having candlestick setup which brings about a “high” win rate. You double, triple your risks, in the hope of earning really fast and a lot.

Unfortunately, you lose that order. You get disappointed and depressed. You go crazy and angry when losing money. Then, you aggressively try to take revenge and jump into the market with an even higher level of risk to recover the loss and “teach” the market a lesson. So on, until your balance evaporates, very fast.

These can be completely avoided, when you change the way you think about trading. By thinking properly about probability, you can overcome one of the most dangerous mistakes that cost traders money. That is the expectation.

Remember the time you traded on a demo account, you probably did it well, like most other traders. So why? It’s because you have the right “way of thinking”. You have no expectations because the amount of money dancing in front of you is virtual numbers. You also don’t care much if you lose or win. If you can do this with real accounts, I think you will make money and succeed with Forex trading in the long run.

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