Friday, November 24, 2017

Forex Trading Is All About Probability And Not Luck

July 7, 2010 by  
Filed under Fx Tips

When I first started trading forex, I always blame it to luck when I get stopped out and I thought that the market is going against me. In fact, this is what happens to most new traders in the market which causes them to give up on trading. But if you asked an experience trader about losing, he will tell you it is all about probabilities.

Having the luck mentality is not healthy to your trading and you should start to re-adjust your mindset. In order to make money trading forex, you need to create a situation where your probability of winning is high and this is where your trading strategy comes into play.

The reason why I often tell new traders to practice on a demo account is because this is where they can fine tune their forex trading plan to give them an edge over the market. What I mean by an edge over the market is not saying that they will win 100% of the time as losing is simply part of the game. Having an edge over the market means that you have a higher than 50% winning probability.

I have received some emails from readers of this blog asking me how to fine tune their trading strategy as they often heard me telling them to practice on their demo account. What you need to do when you are in demo trading is to improve on your entry and reduce the number of false signals that could occur in your trading. Lastly, you need to have a systematic exit strategy so that you know when to take out your position to grab the profit before the market reverse and take everything back.

When you are formulating your exit strategy, you should try to create one with higher risk reward ratio. If you were to ask me “what is the secret of success of those professional traders”, I will tell you that it is the risk management. This is the part which most new traders tend to overlook and that is why they have difficulties in keeping their account.

Have you ever experienced this before?

You spend a few days winning several trades but you lost them all in one single trade.

This is because you are trading with very low risk reward ratio and therefore your one loss is equivalent to your few wins. Having a good risk reward ratio will ensure you that your one win can allow you to have several losses and this is where you are going to grow your account.

Once you have a good risk reward ratio strategy, even if you are trading with 50 to 60% winning percentage, you are still profitable in the long run. As a trader, we should not be too short sighted. Most traders tend to give up their strategy when they encounter two to three consecutive losses. If you were to see your trading account in the long term and not day by day basis, you will find that you are always profitable at the end of the month.

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