And for those who already know what this is all about, let's look at a couple more useful methods to improve their trading results.
Past Events Should Not Affect Your Judgment
It is human nature to extrapolate past experiences to future events. To some traders, it seems that if something happened previously in a certain way, then it will definitely continue. Such thinking caused many people to leave Forex for good after their huge failure.
Bias towards market behavior will sooner or later lead you to losses. When a novice trader first enters the market during a period of calm, he begins to think that it will always be that way. He thinks trading is safe and continues using the same trading scheme. Once high volatility returns to the market, this trader will inevitably lose control and all his savings due to such bias. According to the same scheme, some traders continue to open only buy trades ignoring the fact that the market is cyclical and cannot grow forever.
The same can be said of the success or losing streak:
- When you open many profitable trades day after day, you begin to think that this will always be the case, that you understand how the market works, and now you are invulnerable. What do such traders do? They begin to recklessly open a huge number of transactions and increase their volume, completely forgetting about the risk management system. We all understand the consequences of such self-confidence on Forex. The fact that you were able to show excellent results for some time doesn’t mean that it will last forever.
- The losing streak makes many traders lose their self-confidence. An insecure trader doubts every decision. He misses good trades being afraid to fail again or simply misses a moment while deciding to take a step. Many traders can’t regain confidence and leave Forex forever.
What I mean, is that everything sooner or later comes to an end, both good and bad. We must prepare for everything and never lose confidence. Be persistent, don’t lose vigilance and everything will work out.
Trust The Charts
Due to some uncertainty in their skills, traders tend to panic and make the wrong decisions under the influence of external factors.
Let's say you had a buy trade on US dollars and you have already earned $50 on it. Here comes the news about Non-Farm Payroll that tells you that indicators have dropped. You urgently close the trade as it seems to you that now the USD price should fall as well. But it continues to move in your direction and you are missing out on profits.
In another case, you have already lost $20 on the buy trade of the US dollar. Non- Farm Payroll indicators show an increase in employment and you boldly keep the position open, expecting a quick market reversal. However, the USD price continues to fall and you are forced to close the position when the loss exceeds $50.
Yes, economic indicators often have a huge impact on quotes but they are not the ones that drive the market. It’s the traders themselves. Price changes direction not because of the event itself but because of the reaction of market participants. Learn to trust the chart and your eyes. If all the signals tell you about something then you should not drastically change your mind because of the news you hear. The best solution would be to closely monitor the market reaction to the event and trade on price action.
Don’t Miss Good Chances
All traders go through the discomfort of losing transactions. And this is due to the well-known lack of confidence. It has already been said above how this ends:
- The trader freezes and just doesn’t dare to open a trade
- Tries to confirm it in all possible ways until it is too late to enter the trade
Your future success will largely depend on the number of such extremely successful transactions. Your main task is to overcome your fear and enter into trading when you see a good trading setup. To do this, you need to work out a couple of things:
- Accept losses as an integral part of trading. Ultimately, only the overall result matters.
- Choose a couple of reliable methods to confirm your trading setup and use them every time.
- No one can accurately predict the outcome of a transaction. If you receive signals of its success, make an order.
- Create a well-thought-out checklist for entering into a trade based on your strategy and risk management system. If all points are checked, feel free to make an order.
- Don’t let past failures influence your judgment. Always follow your plan clearly.
Stick To The Classic
Why do you think most traders trade precisely on Forex, on majors, or on gold? Does it seem to you that millions of other traders, unlike you, simply have not guessed that the future lies in some unique exotic currency or some less-used market?
Trading in the most popular markets has various advantages:
- High liquidity
- Lots of training material
- A wide choice of indicators and Expert Advisors
- Free technical analysis
- A large list of economic indicators
The simplest solutions almost always turn out to be correct. You should not reinvent the wheel and try your luck on some unusual trading instruments.
Today we talked a lot about lack of confidence and bias. If you are a novice trader and still struggling with these shortcomings, I hope the article will help you deal with them. See you next time.