Money Advice Guide

Some of the greatest philosophers, priests, scientists and sportsman have said that winning is not an art, it all in the mind! So if you are planning to invest in Forex trading then you need to be mentally prepared. It is one of the best mind games that you will ever get to play. The first thing to do is change your mindset. Instead of thinking like any other normal person, you need to start thinking like a speculator, like a Forex trader. There many examples of Forex traders with experience and capability waste their career in the most unimaginable manner. This happens when they waste most of their time trying to perfect their knowledge of analyzing and reading Forex trading charts etc. As a result 95% of the traders have lost in the long run.

Anyone with an average intelligence can understand how the Forex trading market works although it might take a few years of following the market. But that’s about it! It doesn’t take a great IQ or knowledge to beat the odds and earn a profit in a Forex trading. The most important thing is the decision that you make. The decision making process maybe long and there might be some planning behind it but sometimes traders seem to take too long to take a decision and often that ends up being a wrong decision. This is one of the most important things behind success or failure. Some traders make quick decisions but are not able to stick by them or do a follow up and as a result they end up being on the losing side.

The reason why people avoid making a decision is because it’s painful and traders often have a ready assumption that their decision might not be the right one. So basically, the Forex trading market is playing with their mind. But they are not able to understand that if they can have some confidence in what they are doing, they will be able to sustain the pressure. There are many traders who shy away from making even short-term decisions. The pain being talked about has nothing to do with actual losses. It is from the fact that the traders are speculating already about future losses and feeling helpless that they don’t know what is going to happen tomorrow. At the end of the day everything depends on the trader’s ability to take a decision in spite of knowing that there is no guarantee to the Forex markets movement and taking a right decision. The Forex market is volatile and ups and downs are going to be there always. This is one fact every trader needs to live with. Keeping in mind the volatility, the Forex trader has to keep cool and be disciplined. It is like mentally preparing yourself in advance for what lays ahead so that you will not be caught off guard. The same mind game that most generals’ use in a war is what Forex trading offers.

Scott is the founder of currency, a community site for the active forex trader.

Tags: currency, currency trade, forex, forex quotes, forex trader, fx, investingcurrency, currency trade, forex, forex quotes, forex trader, fx, investing

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It is a common quoted statistic within the industry that in the region of 90-95% of traders/investors in the financial markets fail. Conceptually, trading looks to be an easy pursuit. With hindsight the price swings are easily identifiable and thus should be profitable and yet the above failure rate shows this is far from true. A bystander could reach the conclusion that this group of people must be gamblers of low intelligence, even stupid, considering that many within it will continue in this vain pursuit year after year, repeatedly following the same path.

Albert Einstein once said, “The definition of an idiot; someone who repeatedly does the same thing, but expects different results, not learning from the experience”. Yet this group will persuade themselves that

• it’s all part of the education process,
• the next system/methodology will be different - it will work,
• I’m determined not to give up, I’m not a failure and will ultimately succeed,
• I was unlucky …… the list could go on.

However, far from been of low intelligence or stupid, the profile of this group is in fact more often than not one of, well educated professionals, middle-class, successful business or career people of medium to high net worth. Typically, they are successful in other walks of life, particularly in their career or business and yet they fail to make a successful transition to a trading career. Furthermore, they spend vast sums of money on trader education typically accumulating a vast library of trading books and attend numerous expensive training courses and yet they still continually fail. With these apparent advantages why is it that they continue to fail (and on many occasions spectacularly so) over a prolonged period of time? The answer is that they attribute the failings to the wrong aspect of trading and incorrectly focus on resolving this. The 3 main aspects of trading are;

• the “Psychology” of trading,
• the “Methodology” or Systematic approach to entering/exiting trades,
• the “Money Management” of funds.

However, most people focus almost exclusively on the “methodology” (or system, often primarily using technical analysis) and give scant regard to the other two interrelated and more important elements. Consider a “system” that has a win/loss ratio of 50% and also a risk/reward ratio of 1:1. Such a hypothetical system is equivalent to “tossing-a-coin” and as such, ignoring transaction costs, would merely deliver breakeven returns and yet this is an inherently better performance than the majority of the trading hopefuls. However, most traders would argue (probably correctly) that from the knowledge and experience gained from studying technical analysis that firstly their win/loss ratio was better than 50%. That is, when planning and entering a trade they have used their skill and judgement to ensure that more often than not it will move in the direction they want. (If this were not true than you may as well toss a coin to determine when to trade!). Just a modest increase on tossing a coin, say 60%, meaning achieving 6 out of 10 winning trades should be easily achievable by applying correctly just a little knowledge. Secondly, they would argue that they can plan a trade that would have an initial minimum risk/reward ratio of 1:2, ensuring that on average, winning trades would be twice as profitable as any lossing ones. Given just a modest win/loss ratio of 60% and a risk/reward ratio of 1:2 most traders would be happy with achieving this (certainly as a launching point to a successful fulltime career). If most traders stuck to their “rules” they probably could in fact achieve comparable results however, in practice, other factors take over; greed, fear, ego, hesitation, hope ……

Whatever the good intentions of the initial plan, quickly the “Psychology” of trading becomes the most important aspect. It is an individual’s personality traits that are ultimately the determinate of the success or failure in the execution of any system or methodology. Simply put, they don’t stick to the plan for a variety of well documented reasons. This also has a dramatic impact on the “money management” side of trading. It becomes non-existent, unquantifiable and certainly impossible to do a risk assessment going forward when the trading style has become virtually arbitrary. If aspiring traders would only analyse past trades critically to categorise if it were in fact the system that failed or the failure was in the execution of the rules, then much progress would be made. However, this leads to another failure of novice traders in that a trading log/diary is seldom kept to allow this crucial evaluation.

Summary

Overall, unsuccessful traders rarely make the step up to a professional full-time trader because when the performance of a system doesn’t match expectations they discard it and move onto they next “system”. However, often it is not the system that is at fault but the application or adherence to the rules of that system. If a trader has spent a number of years pursuing this unproductive path of trying to find that allusive “system that works”, then more likely the problem lies within and not in the selection of a system. If this applies to you then, get those old trading books down from the shelf and focus more on the Psychology of trading and Money Management; you know those chapters that you skipped over and felt were not that relevant to you! If you want to succeed you need to reappraise your viewpoint and only then can you enjoy the wealth and lifestyle that is on offer to a fulltime professional trader. Choose a methodology (system) that works, stick with it and remain disciplined in its execution to ensure the success that has eluded you for so long. Your rebirth as a trader starts now.

Garry Roberts is an entrepreneur, professional property investor and active Forex Trader. He recommends The Affluent Desktop Currency Trader

Tags: active, currencies, Day, forex, fx, Indexes, investment, shares, stocks, Swing, technical, Trade, tradingactive, currencies, Day, forex, fx, Indexes, investment, shares, stocks, Swing, technical, Trade, trading

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