Forex trading requires long-term strategic planning to be consistently successful, although it may seem that investing in currency trading is an “easy–peasy” kind of business. Hey, what’s not to understand here? Open an account, transfer few thousand bucks and start trading with 1:200 leverage for quicker profits.
I can already imagine the eyes of such “trader” after 2 weeks of this kind of “investing”. I would be hugely surprised, if you have not lost it all by that time. I presume, the second step after such unsuccessful venture would most probably be digging into forex trading studies, lessons, online courses, market analysis and the like. It would, surely, be a wise step, as everything you are or will be into requires analysis and study, even the simplest car driving or cell phone usage.
However, currency trading is far more complex than driving a car or even the Ferrari. Even after months of hard and accurate study and practice you cannot be sure of future success and profit. Why is that? It is because your biggest enemy in forex investment is you. Let me repeat that for deeper emphasis: the greatest and biggest enemy in currency trading market is you! It’s not banks or corporations manipulating the market, news and rating agencies (S&P, Moody’s) which can and are strongly influencing the stock and forex markets. It’s not interventions (they occur rather seldom), it may not even be your trading plan, which could fail you in one week and surprise you in the next.
It’s your emotions that you have to deal with and they could easily disrupt your trading style and strategy. Just think for a minute: you can have a profitable system, which proves to be bringing consistent returns in the long term, but a few losing trades in a row make you feel uncomfortable and doubtful about your trading strategy. As fear of losing again starts growing and shading your common sense, you may start acting irrationally, not according to your trading plan.
The results wouldn’t, of course, be very enjoyable, to say the least. After a few lost trades, you might be scared and keep from a successful trade, fitting the strategy profile. All this is due to the negative emotional recency bias. After a lost opportunity and wrong trades the only one to blame for this chaotic trading is you. Instead of dwelling on previous loses, even few in a row, you must remember your successful trades and the whole long term trading statistics. This would keep you stuck to your trading strategy, which, in turn, would prevent you from losing more.
If your strategy is bringing consistent profits for 6 months, just 1 or 2 losing days don’t mean anything. Obviously, the biggest mistake would be leaving your trading method and starting placing trades against your plan, just out of emotional discomfort.
The opposite of this kind of trading is winning a few trades in a row. After that I would suggest taking a break, because a sudden emotional euphoria might lead to taking uncalculated leverage and huge risk. The recent successful trading brings a sudden self confidence and a feeling of happiness and invincibility. However, sudden loses might just inspire to take even more trades in disbelief that one’s “luck” is suddenly ending. This would only speed up the account capital meltdown.
The best cure for both scenarios is to remember that you are using a long term strategy which works and brings profits only when a sum of large number of trades is taken into account. Taking a break and analyzing your mistakes and statistics of your past trading in your real of forex demo account would leverage your emotions and keep you on a proper forex investing track.
{ 0 comments }