For the last one decade, I began a journey, a journey that has taught me a thing or two in forex trading.
I won’t say it has been easy, but if you read through carefully, you may never need to go through what I have been through to make it in forex. In most cases, most newbies begin with a similar set of mind. A few learn in the process and perfect to be professional forex traders. The rest get stuck too long; some will think it’s a problem with their brokers while others will keep looking for the “holy grail” trading system.
They keep losing money every time, but until you know the underlying factors and improve on them; forex trading is not your thing. When I started off, I put all the emphasis on the trading system and opened a forex trading account UK. Every day I tried to come up with a trading system that would rake in profits while I sat and watched. I will tell you this; it won’t work!! The market is so vast and dynamic to be trapped by a trading system. Everything is changing, and the changes need to be considered. Through the hard and long way, I came to understand that it’s more about the trader and less about the trading system.
Put it more precise; it is 20% the trading system and 80% your psychology. Unless and until you develop and cultivate the right trading psychology, forex is not your thing. More important than the trading system, you need to understand the part played by your mind in successful trading. The process of learning the right psychology for trading will require that you unlearn some things to gain the right thinking of a stock/ forex trader. Being a successful trader expect you to be in control of your mind. What most unsuccessful traders go through is a vicious cycle that keeps them stuck at one stage for too long.
Every time their account is blown they will go back to the drawing board, research on a new broker and trading system, again the account is blown, and they remain in the same cycle only to end up giving up. In this article, am not promising to give you the magic bullet that will propel you to success, nor do I promise you a quick fix. What you will get at the end, is a set of principles that if practiced consistently will yield great success in this field.
Strategies are only 20% of trading; you need to work on the 80% which is psychological
This rule was borrowed from the Pareto principle. The rule has come to work in forex perfectly. According to Investopedia, the Pareto rule otherwise known as the 80/20 rule attributes 80% of output to 20% of the input. This principle is used to show the relationship that exists between input and output. In forex trading, this principle has come to be appreciated.
Most successful traders apply this principle consciously or unconsciously in their daily trading. If you practice it, it will become part of you; it will be so natural that you will not even realize that you are working on a set of principles. The principle works both ways, 20% of the traders gain 80% of all forex earnings. In this section I want us to focus on the law that it’s 20% system and 80% psychology and your money management skills. Don’t get me wrong, having a good trading system is good. Analyzing those charts and indicators is also good, but you need to focus more on your discipline.
If you analyze your past trades, you may notice this principle at work. If you take a pen and a paper, then begin investigating each trade you lost in the past, you may come up with a fascinating pattern. One day, when I was still struggling to understand where I was going wrong in forex, I sat down with a pen and a paper. I decided to analyze my three months trading. I had traded 26 times with 23 of the trades being lost. I noted that a substantial chunk of my deals went wrong for a number of reasons:
- Firstly, ending deals prematurely trying to prevent the worst from happening.
- Secondly, opening a deal when it’s too late only for the trend to reverse and blow up my account.
- Trying to revenge and gain back whatever I had lost only for me to lose more.
- Trying to force a signal that in actual sense has not formed.
- Trading system was followed but still counted losses.