If you’ve been around forex for sometime, you must have heard the popular saying “95% of traders don’t make money in the forex market and are most likely to blow their trading account within the first 6 months of trading”. If you ask me, I would say that this statistics is very alarming.
If you take a survey of this unsuccessful traders, you will realize that many of them fail not because they aren’t knowledgeable enough, on the contrary many of them know quite a great deal about the market behaviour yet they still fail to bank those pips month after month instead,their account keeps shrinking and shrinking until one day, they get a margin call. “Game Over”.
One major trait any trader must possess if he/she is to make any money out of the forex market is to have the mindset of a successful trader. “It’s that simple” but it does not come that easily, you have to work on deliberately becoming a succesful trader. Now how do you do that? Well, that’s what you are about to learn so Relax.
After a lot of reading, researching and my own personal experience, I was able to come up with 3 steps you must follow on your journey towards acquiring the mindset of a successful trader.
1. Never trade with money you cannot afford to loose.
Straight forward enough, isn’t it yet a lot of us still fall into this same trap over and over again.
Many people who trade forex today get into it for the wrong reasons most because of the enormous wealth it could bring them. After reading some hyped up sales letter of some dumb guy selling some dump black box system they claim can turn you to an over night millionaire, they buy into this scam and probably fund their account with money meant for feeding, school fees, accomodation or even for paying bills hoping to make it back in hundreds of folds, what then happens to such traders? They start trading on their emotions entering trades they should not be entering and missing the trades they should be entering. It will not be too long before such traders end up blowing their trading account.
If you have not understood what I have said so far, understand this “Trading based on emotion is the no 1 killer of of any trading account” this is so because of the traders fear of loosing, forgetting that forex trading is nothing but a game of probabilities and all it takes to win is having the odds tilted slightly in your favour.
2. You have to be willing to accept the risk
Not accepting the risk is another reason traders fail seriously in the market you see, It is not just enough to place a stop loss. Placing a stop is the first part, But do you really see yourself as a risk taker? do you realize that there are chances that your trade could be a looser? One thing you must know if you must succeed in forex trading is that any thing can happen at any time. You don’t need to know what is going to happen next to make money because once you have a system that wins over 60% of the time you know will always turn out profitable end of the month.
You must recognize the edge your trading system gives you and learn to use it to your own advantage and not against you. Don’t be afraid to take risk because without taking risk, there can be no reward.
3 Think In Terms Of Pips Instead Of Money
This is another point I’m going to be stressing on. It is very easy to let your emotions cloud your judgement whenever you think of the money you have at stake. So here’s a piece of advice I think might help you, think of whatever you are risking as pips not money. This can help remove emotion clouding your judgement that is preventing you from thinking rationally. The primary cause of emotion you experience while trading is fear. Once you are able to overcome it and realize that you don’t have to know what is going to happen next to win and also that every moment in the market is unique, nothing can stop you from consistently pulling out profits for the market. Those principles are the same principles the Casino houses operate on, and so they always win in the long run, thats where you get the saying”the house always wins" from.
Be the Casino and not the gambler.
so I guess we have gotten to the end of my post. I seriously hope you have learnt something new today, Thank you for reading.
Saturday, October 17, 2009
Tuesday, October 13, 2009
Putting All Odds On Your Side.
Successful forex trading is all about putting all odds on your side before entering the market. In other words, for you to become a successful trader who consistently make profit out of the forex market, you need to have all odds on your side otherwise you will only end up gambling all your money away.
Today you are going to learn four winning principles you must know and practice to be able to bank those pips month after month.
(1). You must have a system that wins at least 60% of the time.
Just as you may already have heard, there is no holy grail in trading. You don’t need to win every trade to be a successful trader. So having a winning rate of just 60% is enough which means out of every 10 trades you take, you will only need to win 6 of them to make profits at the end of the month.
(2). You must have a good risk/reward ratio of at least 1:1.5
This is another point I’m going to emphasize on as it is one of the factors responsible for your winning or loosing in forex trading. You often find some traders setting a stop loss of maybe 100 pips and maybe take profit of just 50 pips. If you ask them, they will most likely tell you that they are giving the pair enough room to move around, but what they are doing actually is short changing themselves. Let’s look at an example: Trader A took 5 trades with a stoploss of 200 pips and take profit of 100, now assuming he won his first two trades and lost his last 3. What will be his p/l
Total trade = 5
Wins = 200
Loss = 600
p/l = – (600 – 200) = –400 pips
We are just trying to look at the worst case scenario here because in forex trading, you have to be prepared for anything which is what makes the market even more interesting. So don’t get scared ok? Smile.
Now let’s take a look at trader B who also places five trades out of which the first 2 were winners but the last 3 loosers. The only difference there is: He is risking 100 pips to make 200 pips in other words, the sl = 100 TP = 200. let’s look at the p/l
Wins = 400 pips
Looses = 300 pips
Profit = (400 – 100) = 100 pips
As you can see from our calculation above, Trader B still ended up with profit at the end of the month despite the three losses he made. Personally, I would not go for anything less than 1:1.5 risk/reward this is very important.
(3) Adhere to strict management rules.
If there was ever a holy grail in forex trading, it will be adhering to strict money management As this factor will determine how long you are going to remain in the game.
Give two traders the same trading systems for a month, 1 could double his account while the other depicts his, If you carefully investigate what happened, you are most likely to find out that strict money management made all the difference for the guy who succeeded.
Never risk more than 3% of your account on a single trade. Some people say 2% but I believe stretching 2 3% is ok as long as you have a system that wins 60% of the time.
(4). Adhere firmly to the three rules above and be consistent.
I believe this point is self explanatory. Try not to break any of the rules above and be consistent with them,don't be greedy and I promise, you will always end up with profit every month. Try not to break the rules because if you do, the market will punish you. That will be all for my post today.
Thanks for reading and keep banking those pips.
Today you are going to learn four winning principles you must know and practice to be able to bank those pips month after month.
(1). You must have a system that wins at least 60% of the time.
Just as you may already have heard, there is no holy grail in trading. You don’t need to win every trade to be a successful trader. So having a winning rate of just 60% is enough which means out of every 10 trades you take, you will only need to win 6 of them to make profits at the end of the month.
(2). You must have a good risk/reward ratio of at least 1:1.5
This is another point I’m going to emphasize on as it is one of the factors responsible for your winning or loosing in forex trading. You often find some traders setting a stop loss of maybe 100 pips and maybe take profit of just 50 pips. If you ask them, they will most likely tell you that they are giving the pair enough room to move around, but what they are doing actually is short changing themselves. Let’s look at an example: Trader A took 5 trades with a stoploss of 200 pips and take profit of 100, now assuming he won his first two trades and lost his last 3. What will be his p/l
Total trade = 5
Wins = 200
Loss = 600
p/l = – (600 – 200) = –400 pips
We are just trying to look at the worst case scenario here because in forex trading, you have to be prepared for anything which is what makes the market even more interesting. So don’t get scared ok? Smile.
Now let’s take a look at trader B who also places five trades out of which the first 2 were winners but the last 3 loosers. The only difference there is: He is risking 100 pips to make 200 pips in other words, the sl = 100 TP = 200. let’s look at the p/l
Wins = 400 pips
Looses = 300 pips
Profit = (400 – 100) = 100 pips
As you can see from our calculation above, Trader B still ended up with profit at the end of the month despite the three losses he made. Personally, I would not go for anything less than 1:1.5 risk/reward this is very important.
(3) Adhere to strict management rules.
If there was ever a holy grail in forex trading, it will be adhering to strict money management As this factor will determine how long you are going to remain in the game.
Give two traders the same trading systems for a month, 1 could double his account while the other depicts his, If you carefully investigate what happened, you are most likely to find out that strict money management made all the difference for the guy who succeeded.
Never risk more than 3% of your account on a single trade. Some people say 2% but I believe stretching 2 3% is ok as long as you have a system that wins 60% of the time.
(4). Adhere firmly to the three rules above and be consistent.
I believe this point is self explanatory. Try not to break any of the rules above and be consistent with them,don't be greedy and I promise, you will always end up with profit every month. Try not to break the rules because if you do, the market will punish you. That will be all for my post today.
Thanks for reading and keep banking those pips.
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