Forex Trading: Developing a Winning Mindset


 

Merely reading this article supports the assumption that you are interested in trading currencies (forex). You probably read enough trading books or online content that act like dictionaries and really would like to learn actual forex trading concepts. However, having a basic understanding of Forex is critical for developing a trading foundation built for long-term success. Simply searching for a single useful trading strategy without understanding the underlying principles of forex markets could turn into a recipe for financial disaster.

Those lucky enough to plunge in Forex, one of the most exciting financial markets other than cryptocurrencies, soon learn the harsh realities of trading without a plan and executable strategies. Trading the Forex is fun and exciting but can quickly humble even the fiercest traders. Even successful traders of other asset classes discover their once profitable strategies are no match for the Bermuda Triangle-like environment of the Forex. So why trade the Forex? The reward potential is too tempting to ignore, but the risk of psychological greed and fear usually leads most to a catastrophic account implosion.

On this Forex blog, you will find trading concepts that attempt to go beyond traditional trading rules and emphasize the importance of behavioral finance. However, many aspiring traders will probably think that if these trading concepts are so great, why reveal them to the world? The answer is: we are not. Everyone knows that if you have something great, the last thing you do is give it away for a marginal monetary gain. This Forex blog aims to help aspiring traders develop a foundation for trading the Forex. We have found success in trading, and it always feels good to help fellow traders find their trading edge. 

The problem with teaching Forex is conveying that there is no exact set of fitting trading pieces as if you were constructing a puzzle. When individuals complete a puzzle, they will always need the same pieces designed for it. The only difference is you may put the puzzle together differently each time but achieve the same known outcome without question. Applying this logic in Forex is an impossible task because there are not an exact set of pieces. Each real-time second is different from the last. In other words, once a single time process is complete, it will never look that way again in the Forex market.

As the market moves forward in time, you only so often see similar processes. In fact, you have likely heard the Mark Twain quote that “History never repeats itself, but it does Often Rhyme”. Traders simply find rules that fit a process or a set of actions that will never actually process the same. In other words, your defined trading rules will work sometimes, but none of the rules work all the time. There is not a perfect set of puzzle pieces, and to treat the Forex as if such a thing existed will undoubtedly carve the path for failure before you even have a chance at success. Remember that the Forex is not a market of limited possibilities but endless options only to those who understand its purpose in the global economy.

Stop Trying to Buy Instant Success 

Although trading comes with many challenges and a low success rate, it does not need to involve paying a lot of money for overly looking complex strategies. There are plenty of simplistic Forex trading strategies that can help you win in the long run if you are willing to learn. However, there are novice traders not looking to learn the ends and out of trading the Forex but a quick way to get rich for less than $19.95. The forex educational arena has lots of useless junk that promises the rocket ship to the moon to individuals willing to fall into that naïve trap. To develop as an effective trader, you must lose the busy mindset of looking for a one-size-fits-all trading solution. Traders will not find success through mimicking but by reinforcing learned concepts.

Individuals who believe they can buy instant success are the individuals who should never willingly risk anything because successful trading will not happen for them on that belief alone outside of luck. Serious traders who hope to earn success must begin with overcoming the psychological challenges almost guaranteed to exist. These traders can benefit from learning innovative ways to trade basic traditional indicators like moving averages. Again, it is critical not to become a misguided trader that believes trading is nothing more than one-dimensional.

Some of the most significant money ever made in the Forex derived out of understanding traditional indicators like moving averages. For example, how does one explain trading strategies such as the trend is your friend? Sure, indicators like moving averages tend to lag, but who cares if you can successfully stick with the trend once shown and add to your position in the direction of the trend.

There are many indicators and strategies in the trading world, many of which have a moving average foundation as part of the overall strategic development. Traders not looking to learn the trading game are merely trying to find a way to get rich quickly. If you have this aim, please consider not trading because you will more likely than not find yourself on the ‘I did not find the Holy Grail’ path. 

The individuals trying to learn the trading craft will look to understand what they are critically missing in their trading plans. These traders are trying to discover the missing elements that prevent them from successfully putting together a trading style that defines them and improves their overall trading chances.

As you immerse yourself into trading, it is crucial to remember that most trader pitfalls stem from being unable to control fear and greed psychologically. It is incredible how these two psychological factors dictate the success or failure of most traders. It is effortless to convince yourself that you can control these factors, but the sediments quickly change once money is at risk. While the fast nature of the forex market has great appeal, it is equally as thrilling as dangerous. Watching your trading profits rocket rapidly towards the moon is exciting, but watching it fall just as fast is traumatizing for emotionally attached individuals. 

Although preventing all emotional trading is not realistic, practicing controlling them using a small live account with capital you could care less about losing is ideal for building psychological tolerance for winning and losing. Think of this as if you are going to a casino. Playing a slot machine pretty much means you do not care about losing money, given those odds. Even if you are a confident trader or beyond the intermediate level, there is always room for improvement.

Furthermore, it is crucial to expand your forex knowledge by researching publications, news outlets, learning about indicators, and anything else that could give you an edge. Successful trading is about creating an edge not over the markets but over yourself. Once you can check yourself psychologically, everything else is a walk in the park.

Even seasoned traders should constantly seek more challenges and an understanding of how financial markets function. These traders should ask themselves if they can really measure these exciting markets using fundamental and technical analysis or are they just hoping to get lucky.

Diving into trading with the hope of instant success and lackluster work on your part will guarantee your trading failures. Aspiring Forex traders must develop a plan, implement sound risk management, and learn strategies that will help expand the trader mindset into a realm of realistically trading with clearly defined concepts for the Forex tsunami environment.

Stop Trading, the Forex like it, is a Single Market

Traders need to understand that trading forex using only a single-market analysis approach could prove risky for their bottom line. Specifically, trading the forex requires a complete understanding of how currency pairs interconnect. It is important to note that understanding the math behind currency calculations are basic and straightforward. The cross-rate calculation illustrates how various currency pairs directly or indirectly create forex cross pairs like EUR/CHF or EUR/GBP. The important takeaway is the constant nature of these cross calculations and derivatives created simulate catalyst reactions that drive the everchanging volatility in the forex market. This created volatility becomes crucial for finding potential trading opportunities.

Trading Set-ups: They matter, but not for the reasons you think. 

Trading the Forex is as exciting as it is risky. However, remembering that the Forex Market is a deep multi-trillion dollar a day market is one of the most significant steps towards becoming a successful trader. 

Essentially, understanding and embracing the very nature of systematic risk is vital for having a chance at surviving the profit-sucking rip currents of the Forex Market. Traders, specifically aspiring traders, need to create a tactical trading plan that is easily adaptable. Trading is not about finding the perfect setup each time but finding a not overly complex setup that prevents it from being adaptable. For example, learning a simple yet effective concept like an inside bar trading strategy.

Forex is about the survival of the fittest, and only those who can learn how to use a strategy in various situations win the game and control the number of losses. Yes, you will have losses, but there is a substantial difference between good and bad losses. For example, a professional sports coach would feel prouder of a team that loses a hard-fought game in OT over a team that failed due to noticeably poor defense and lack of effort. Traders must recognize that good and bad losses matter in trading. Therefore, traders must focus on crafting and fine-tuning their game by understanding the critical components of how the forex market moves rather than finding the perfect setup.

Sure, trade setups matter, but they matter even less when the person executing the trade is not emotionally prepared to play the forex game. The forex is merely a strategy game consisting of two teams trying to win, you and other traders. In this case, we know the market always wins by default, and the team that finds itself on the right side of the market, thus succeeding in the game theory of zero-sum.

Zero-sum implies that there is a loser for every winner, and this concept would apply to all participants within financial markets. It is also important to remember that there is a significant difference between increasing your trading profit factor and increasing your odds of being right. Increasing your trading profit factor means improving your risk to reward ratio while your odds of being right will remain 50%. Even if you win ten trades in a row, you still only have a 50/50 chance to score another win on the 11th trade because trading only gives you two outcomes, either a win or a loss.

Knowing that it does not matter what strategy, indicator, or any other trading system you employ as a trader, you still only have a 50% chance of being correct. Can you, without hesitation, say that you are 100% confident in being on the right of the coin? If you are an intelligent trader, you answered no because it is impossible to have 100% certainty about any outcome. Smart traders recognize that risk to reward ratios, market adaptability, and sound risk management creates a good recipe for developing an effective strategy. Therefore, traders should only have confidence in their strategy because a 50% chance is genuinely the best odds you can strategically obtain in forex markets unless you engage in currency rigging.

Although a variety of forex books and trading sites may promise perfect trade setups and holy grail approaches to trading, traders should set goals on expanding their trading horizons beyond traditional strategies. Not all trading ideas you come across will work for you, but your understanding of such a complex market will hopefully drastically improve your ability to succeed.

Good Luck in your Trading Endeavors!

 

 

 

Risk Disclosure- Trading financial instruments such as but not limited to off-exchange foreign currencies, cryptocurrency (cryptocurrencies), Futures, ETFs, Equities and Indexes contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
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Ingenious Forex Trading: Forex Trading: Developing a Winning Mindset
Forex Trading: Developing a Winning Mindset
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