You want to know the real secret to day trading forex currency? Well, here it is: Confidence and understanding of the market. There you go. There’s your real holy grail. If you can accomplish these two feats then you can write your own paycheck. Happy? Ok, so you probably need a little more information. Fine. Here it is:
Confidence! I cannot begin to tell you how many forex traders in the world are having anxiety attacks watching their trades just as I am typing. If you can’t handle a trade or trading or in general, then don’t do it. You’ll never have success day trading forex currency if you are watching every pip move like it’s life or death. Emotions can destroy a trader. A trader’s fear can cause him/her to hold a trade even though the obvious trend is going against them. It could also have the adverse effect in which a trader closes a trade WAY too early because he’s afraid to hold it, even though all the signs are pointing in the right direction.
I could give you the greatest trading system in the world, but it won’t do you much good if you don’t have any confidence in trading it.
The understanding of the market goes hand in hand with the confidence. When I say understand, I mean just that: Understand what you are looking at. Don’t be like everybody else who has to use indicators to tell them what the market is doing. Does anybody understand what these indicators even mean? Can you honestly tell me what using an MACD Divergence does? It’s colorful and its pretty on a chart, but what does that have to do with the tea in China? Take the time to understand the underlying causes of price and market movement.
Take off the indicators on your charts and see if you notice some repeated patterns. If you can start to see them then you can be ahead of the other 95% of forex traders who end up losing money on the markets. After all how can you have confidence day trading forex currency if you have no idea what you are looking at.
By: Jim Buhs
Posts Tagged ‘Fear’
The Real Secret to Day Trading Forex Currency
February 9th, 2010Forex Education – Why Retail Traders Fail
January 26th, 2010
There are many reasons why Forex traders often wipe out their accounts. In fact, there are so many factors that cause Forex traders to lose money, that only 10% of all traders are consistently profitable.
Almost all of these loss-causing factors, however, can be generally narrowed down to 4 basic reasons:
1. Not understanding what the Forex market is about
Many retail traders make the mistake of treating the currency markets the same way they treat other financial markets. I knew of a well-performing stock trader that lost more than $50,000 because he traded Forex the same way he traded stocks.
Even though the trading charts used in the stock and currency markets are similar (or even identical), the underlying natures of both markets are vastly different. To be able to trade profitably in the Forex market, you’ll have to first understand its characteristics and nature – don’t think that Forex trading is the same as other forms of trading!
2. Not understanding your position in the Forex market
There are many players in the Forex market, and each type of trader has different strengths and weaknesses. Many losing traders don’t realize that the trading strategies of one type of trader won’t work for the other types. For example, the trading strategies used by institutional traders will fail miserably for retail traders. This is because the strategies used by institutional traders are based on their strengths and weaknesses, which are very different from that of retail traders.
3. Not understanding the effects of greed, fear, impatience and pride on traders
This point is self-explanatory. Instead of using this knowledge as a tool to trade well, losing traders often fall into the habit of suffering from these emotional effects instead.
4. Listening to bad trading advice
It’s easy to find Forex trading information and advice on the internet today.
Unfortunately, most of this advice is provided by people who aren’t profitable traders themselves. While their advice is generally well-intentioned, the fact is that much of it is pure hogwash and cannot be practically implemented into any sustainable trading strategy. Be careful about where you learn about Forex trading from.
By: Harold Hsu
Forex Education – Identifying The 4 Human Weaknesses
January 6th, 2010
The 4 basic human weaknesses in trading: Greed, fear, impatience and pride. How do these emotions cause so many Forex traders to lose money? Let’s examine the ways.
Greed
Greed causes poor traders to increase the size of their trading positions the moment they’re “in the money” (in a winning trade). This often results in these traders having the largest position size trade just before the market turns in the opposite direction. As a result, this causes them to suffer large losses.
Fear
Fear makes people avoid entering into good trades because they don’t know what they’re doing. Heard of the phrase “buy low, sell high”? Unfortunately, many traders think that this is true. The profitable traders however, know that a more accurate phrase would be: “buy high, sell higher”.
Fear is often the result of not knowing what one is doing. If you have a proper, reliable trading system, fear shouldn’t be in your trading vocabulary.
Impatience
The opposite of fear, impatience leads people to enter into trades when there are no clear trading signals. Needless to say, most of these impatient trades usually turn out to be unprofitable.
Pride
This is very possibly the worst trading weakness of all! Pride makes a trader hold on to losing positions with the false hope that the position will turn around in his favour. Winning traders are humble, and aren’t afraid to admit that they’ve made a mistake when they lose money. After all, no one can be right all the time!
Unfortunately, many losing traders refuse to admit that they’re wrong, and often lose money to pay for their pride.
Summary
Understanding the effects of these emotions is crucial before one can be a consistently profitable trader. Use this knowledge as a tool to make money from ignorant traders, and don’t fall into these traps yourself!
By: Harold Hsu
