Many traders enter into a tailspin of emotional trading and losing money after they hit a string of winners. The reason this happens is because they feel confident and euphoric and forget about the real danger of the market and that ANY TRADE CAN LOSE. The key to remember here is that trading is a long-term game of probabilities, if you have a high-probability trading edge, you will eventually make money over the long-term assuming you follow your trading edge with discipline. But, even if your edge is 70% successful over time, you could still hit 30 losing trades in a row out of 100….so keep this fact in mind and always remember you never know WHICH trade will be a loser and WHICH will be a winner.
You need to become an organized trader. If there is something that is the “glue” that holds all of the points I’ve discussed in this part together, it is being an organized trader. By organized, I mean having a trading plan and a trading journal and actually using both of them consistently. You need to think of Forex trading like a business instead of like a trip to the casino. Be calm and calculating in all your interactions with the market and you should have no problem keeping the emotional trading demons at bay.
One unique aspect of this international market is that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney—across almost every time zone. This means that when the trading day in the U.S. ends, the forex market begins anew in Tokyo and Hong Kong. As such, the forex market can be extremely active any time of the day, with price quotes changing constantly.
You need to become an organized trader. If there is something that is the “glue” that holds all of the points I’ve discussed in this part together, it is being an organized trader. By organized, I mean having a trading plan and a trading journal and actually using both of them consistently. You need to think of Forex trading like a business instead of like a trip to the casino. Be calm and calculating in all your interactions with the market and you should have no problem keeping the emotional trading demons at bay.
When you trade forex, you actually borrow the first currency in a pair to buy or sell a second currency. With a market of $ 5 trillion per day, liquidity is so great that liquidity providers — mostly large banks — allow you to trade with leverage. To trade with leverage, you simply set aside the necessary margin for your transaction size. For example, if you trade with a 200: 1 leverage, you can trade £ 2,000 in the market, leaving only 10 pounds on margin on your trading account. For a leverage of 50: 1, the same transaction size still requires a margin of around £ 40. This gives you a lot more options while
Challenge: Banks, brokers, and dealers in the forex markets allow a high amount of leverage, which means that traders can control large positions with relatively little money of their own. Leverage in the range of 100:1 is a high ratio but not uncommon in forex. A trader must understand the use of leverage and the risks that leverage introduces in an account. Extreme amounts of leverage have led to many dealers becoming insolvent unexpectedly.
However, this can steer you away from a carefully planned trading strategy. Even worse, it could cause you to make rash decisions, with the hope of turning that losing trade around, causing you to lose much more money than you would have if you had just left it to play out. Instead of focusing on the long term plan, your mind wants to focus on making the best out of this short term losing position.
The problem is that this is where traders are most likely to succumb to overconfidence bias. It's not uncommon for traders to complete a winning streak and then believe that they can't get anything wrong in the future. To believe this is of course unwise, and is only going to end in failure. Make sure you always analyse your trading sessions and look at your wins and losses in detail.
×