Trading Psychology – Forex Trading | Forex Analysis | Forex Strategies

Forex Trading: Developing a Winning Mindset

FGC Trading — Sun, 13 Mar 2022 15:18:00 +0000

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.

Forex Trading

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 11^th 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!

Behavioral Finance: Are Traders Ever Rational?

FGC Trading — Fri, 24 Jul 2020 19:22:00 +0000

Emotional finance management is difficult at the best of times, but it can be nearly impossible to regulate while under stress, especially when money is involved. This may be most notably observed when you look at people invested in the stock market. It can be incredibly hard to keep emotions in check when thousands of dollars of your hard-earned money are on the line. However, the most successful investors are those that can set their emotions aside and think about things as logically as possible.

Behavioral Finance

The question as to whether traders are ever rational implies the assumption that most traders are not. And this may be true, at least some of the time. Psychological fallacies such as gambler’s fallacy, market euphoria, the hot hand fallacy, and others are at work to try to undermine your hard work in understanding global markets. The good news is that all of the potential issues mentioned have solutions that are mostly the same.

Some of these solutions include remaining calm, taking things one day, or one investment, at a time, and being careful not to get too caught up in the emotional rollercoaster that people tend to hop on when they are riding significant successes or failures.

Rational traders can overcome their false assumptions, often knowing the signs that they are falling into one of the aforementioned patterns of behavior. Having that self-awareness, along with knowing the signs of each, can be invaluable. It is not that successful traders do not experience things like the hot hand fallacy, they have just learned the skills needed to act rationally while experiencing the same mental symptoms as other people in the same situations.

Successful traders can recognize their emotional attachment to their stock market portfolio but avoid making decisions based on those emotions. Instead, they can look at numbers, read patterns, and all the other factors that tell them whether it is time to buy or sell and use those observations to inform the decision to invest, sell, or hold on to any given asset.

Rather than letting emotions get in the way of a smart investment decision, these investors can recognize and deal with any emotions connected to their investments.

While it sounds simple, separating yourself from your investments is an incredibly difficult task. Most people who invest in the stock market have large sums of money at stake, and stress, along with the other fallacies already mentioned, can play a huge role in making good financial decisions.

Most notably, loss aversion can cause people to try to simply avoid losing money rather than taking the calculated risks necessary to earn money on the stock market. This fallacy can be especially detrimental to financial success, along with one of the harder ones to recognize. Avoiding losses is obviously something to strive for, but people caught in the cycle of loss aversion often do so while refusing to take necessary risks. Again, successful traders can overcome this psychological fallacy.

Why Understanding Fear is Crucial: A Trader’s Perspective

FGC Trading — Fri, 24 Jul 2020 18:57:00 +0000

Greed and fear can be hard to balance and recognize, especially if you are trying to inform your decisions based on your fear or greed. For traders, While greed can be useful in small doses, it can also lead to irresponsible, irrational decisions that may cause you to lose money. Like greed, understanding fear as it relates to the stock market is incredibly important.

Why Understanding Fear is Crucial: A Trader’s Perspective

Fear is, essentially, the opposite end of the spectrum ranging from extreme greed to extreme fear. The understanding of these characteristics of the stock market or, to be more specific, stock market investors, can be incredibly useful to current or potential investors. This scale is released each day by CNN and considers the following seven factors: stock price breadth, market momentum, junk bond demand, safe-haven demand, stock price strength, market volatility, and put and call options.

Since greed and fear are opposites, too much of either can be detrimental to an investment portfolio. Too much greed can lead to irresponsible investments, while too much fear prevents people from taking risks needed to see a payout from their investment. Fear in its most extreme form would involve not investing at all, instead just letting your money sit in your bank account. You would never lose money, but you would also never make anything that a stock market investor could make.

But an understanding of fear is crucial to invest successfully. Knowing the best times to buy, along with the best times to hang on to current investments or even sell those investments, is of utmost importance to investors. People with incredibly successful portfolios are likely those who can understand and recognize their greed and fear. Being able to recognize when the emotions of individuals may be deceiving them based on hard numbers is a valuable skill for any stock market investor.

Out of all the actions resulting from an abundance of fear, the most common is abandoning a stock too quickly before it has time to yield a profit. This happens a lot with people who are too inexperienced to know that you need to hold onto a stock for a longer time before it will start paying itself off. It is also essential to understand that investing when fear is slightly higher than usual is the way to go. Stock prices tend to dip as fear gradually increases, and, if you are confident prices will rebound despite the increase in fear by shown by the majority of investors, you can cash out big time. People tend to sell investments as fear increases, driving prices down. All you have to do is recognize that this is what is happening, evaluate whether that fear is warranted, and act accordingly.

Greed is Good Until It is Not: Signs You Have Gone Too Far

FGC Trading — Fri, 24 Jul 2020 18:34:00 +0000

If you are invested in the stock market, chances are you are doing it to earn what is relatively passive or speculative income, ideally generating money from merely having your money in another place for a period of time before selling it for more than you paid.

And that idea requires a certain amount of greed, though that may be too strong a term in this example. It is much more likely you are just looking for your money to grow over time so that you can better provide for yourself and your family.

Greed is Good Until It is Not

In the stock market lexicon, greed is characterized by the willingness of individuals to sell or buy stock on any given day. The Fear and Greed Index (FGI) produced by CNN uses seven separate factors to determine where people are on their FGI on any given day.

The factors they consider are stock price breadth, market momentum, junk bond demand, safe-haven demand, stock price strength, market volatility, and put and call options. These factors are considered while a score from zero to one hundred indicates whether extreme fear, on one end of the spectrum, and extreme greed, on the other end, are dominating the way people are making decisions for any given day.

In this context, greed can be incredibly positive in small doses. You need to take certain risks in order to see any successful investment play itself out. However, doing so too often or at a time when you should be investing more conservatively could spell disaster for your bank account.

It can also be easy to get caught up in a cycle of greed once you see initial success in your stock market investments. It can be easy to be too ambitious, wanting too much return on any given investment or simply overinvesting at a time when resources should just be conserved instead.

Even more challenging is recognizing exactly when you have gone too far. Having a team of advisors or, if you are an independent day trader, finding someone who may be willing to let you know if they think you have gone too far, can be crucial to seeing a successful outcome.

However, if you do not have either of those resources at your disposal, there are ways to recognize if and when you may be acting too much based on greed.

The easiest way to avoid becoming too greedy is to look at stock market trends expanding beyond one day. Just because there is a slight upturn one day does not necessarily mean that trend will continue the next day, especially if you are only looking at those two days independently.

Instead, looking at patterns over long periods along with projections on what will happen in the future are crucial to understanding whether you should act more on greed or fear. Understanding that investing when greed is high is a bad idea, along with hanging on to investments even if they do not pay out immediately, are essential lessons to learn.

Young Investors: Why it is perfectly okay to take risks early on!

FGC Trading — Wed, 08 Jul 2020 23:08:00 +0000

Although the current generations are investors investing much less when compared to that of Baby Boomers or the Greatest Generation that came before them, the advent of fee-free trading platforms has caused investing to grow in popularity with young adults (and even some teens) today.

I know it has become some sort of pop-culture reference — a meme, if you will — to say that millennials are more broke than generations before them, but that stat is sadly 100% accurate. This lack of assets, wealth, and net worth makes the younger crowd scared to take risks with their investments. However, believe it or not, it is not only okay, but it is recommended that younger investors take risks early on.

Young Investors: Learn From Your Investing Mistakes

The best way to learn from something is to make a mistake. Younger investors are likely fairly new to the world of investing. And, whenever you are learning something new, it is common to take some missteps. Now, when dealing with money, those missteps can be pretty bad.

Now, if you are young and make those mistakes, you have got time to recoup your losses. Younger inventors have the flexibility and time needed to take on the risk and recover from any losses that may have resulted in the process. The result is you either get a decent reward for taking a risk, OR you learn from your mistakes and have time to recoup.

Scenario 1:

You are 58 years old, a few years away from retirement, and you decide to use some of your retirement portfolio to make some risky investments. You lose out big, and there is no way you can recoup your losses before your retirement age of 62. This is also a great reason why you need to reassess your risk tolerance every 5-10 years.

Scenario 2:

You are 21 years old and decide to test the waters with some risky investments. You lose out big, but you learn a valuable lesson along the way about whatever securities you were investing in, and you have got plenty of time to recoup your losses.

Crisis-Affected Markets Are Great For Younger Investors

It is almost impossible for young investors to be too aggressive with their investments. As we mentioned above, they will have plenty of time to recoup their losses and should the risky investments pay off, and they will have a considerable head start with their portfolio that will surely pay off, in the long run, thanks to compound interest.

The dot-com bubble, 2008 financial crisis, and now the market downturns from the Covid-19 pandemic — all of these were and are fantastic opportunities for young investors.

Over time, the stock market has averaged 10% returns over the last century. Some years are bad, and sometimes there is a string of years that are bad, but over time it has always realized gains. Whenever we have bad years, the market must make tremendous leaps to get back on the plus-side of things.

We have had some terrible market days thanks to the Covid-19 pandemic, and many economies are suffering as a result. However, the laws of economics tell us that there are going to be some incredible leaps in the coming months or years that will make up for these tremendous losses.

Young investors that put 80%-100% of their portfolio into the stock market stand to make unbelievable gains as they ride the elevator back to the top during the market upswings. Now, it may take a few years, which is why this would not be a good idea for older investors.

The young bucks out there have time to ride out the wave and make up for any losses along the way. If you are a young investor, use this time wisely to make some risky moves in hopes of either a big payoff or the life-long lesson of learning from your mistakes.

Psychological Traits of Successful Options Traders

FGC Trading — Wed, 08 Jul 2020 11:04:00 +0000

Psychological Traits: As you have noticed throughout adulthood, there are certain types of people that are well suited for certain types of jobs. In fact, with many areas of work, it is easy to stereotype the person based on their position. Think about a doctor, an attorney, or even a police officer. There are some that stand out from the crowd in each of those positions, but a majority of people in them require an extremely specific kind of mindset.

Psychological Traits of Successful Options Traders

Successful investors are no different. You have to be able to avoid emotional trading, you need to understand your risk tolerance, and you might even need to have a longer ring finger. When it comes to options trading, many investors stand out as the successful ones tend to share some of the same psychological traits.

Emotional Options Trading = Failure

Our previous article goes a bit more in-depth about emotional trading, but it warrants another mention here. Why? Well, because options traders stand to miss out on tremendous gains and suffer enormous losses whenever their emotions get in the way.

For example, because some options contracts give them the option, and not the obligation, nothing is forcing them to act on the contracts. Also, the fear of missing out can cause them to cash in on these contracts too early, resulting in potentially missed profits.

Options Traders Take Risks

It is one thing to buy a few shares of stock with the hopes that the value will go up over the next few months or few years. It is another thing to put thousands and thousands of dollars on the line as a way of placing a bet that this stock will go up to a specific amount, or down by a specific amount, over a somewhat short time. Options traders have to take risks to be successful. Otherwise, they are merely out of their element, and they will not last long.

Creatures Of Habit

On the surface, it may seem like options traders merely get lucky now and then. And when they do get lucky, that luck makes up for any past losses. In reality, options traders are creatures of habit, and it is these habits that can make them successful.

Successful options traders make it a habit to always check the markets, analyze data, consider the sizing of their positions, and adjust their portfolios as needed. They always have an end goal in mind and, once they have found something that works, they will repeat it over and over until they achieve their end goal.

They Know Failures Are Inevitable

Because nobody is psychic, and options traders are not an exception to this rule, they understand that a failure is an option. The markets can swing up or down, and when they do, options traders are among the group most affected by these changes. Options traders are also affected whenever the market stays the same.

They know that there are times where a position is only going to get worse, and they must decide to bail out. A decision based on logic, not emotions. Understanding the fact that options can be wildly unpredictable makes it easier for them to accept failure along the way. Not only do they expect failures to come periodically, but they look forward to them as a learning experience. And speaking of learning experiences.

Successful Options Traders Are Active Learners

Over the course of the year, it is not uncommon for as many as 75%+ of all options traders for that year to realize losses. They are bound to happen. But a successful options trader looks at these losses as a learning experience. They see where they went wrong, learn what they could have done differently, and implement this into their next set of contracts.

The economy and the financial markets are always changing, and they are ever-evolving. In fact, the only constant is the fact that they will change. By being an active learner, successful options traders are able to tweak their current strategies and to identify new opportunities as they arise. Opportunities that many other investors will either pass over or simply might not have even recognized.

Psychological Influences on Cryptocurrency Prices

FGC Trading — Tue, 07 Jul 2020 22:35:00 +0000

With more traditional asset classes like stocks and bonds, the prices will rise and fall mostly based on supply and demand. Sure, mass panic and immense greed can affect the prices of stocks, but that panic, and greed still reverts to the same old supply and demand.

Psychological Influences on Cryptocurrency Prices:

Cryptocurrency, on the other hand, is unregulated and decentralized. A market that basically has no rules and let us anyone trade is going to be volatile. Especially, when you throw in the fact that one small rumor on the internet can spiral out of control through the cryptocurrency news cycle and cause prices to make steep climbs and deep falls.

With cryptocurrency prices and values, you will find that psychology, speculation, rumors, and allegations are at the helm. Cryptocurrency does not follow basic economic laws and investing rules. The science is much different when you break it down.

This can be great if you get in while it is good. But it can also be terrible if you lose a ton of money because someone on some random bitcoin forum started an anonymous rumor about illegal BTC market manipulation.

The Cryptocurrency Crash Of 2017

Back in December of 2017, Bitcoin was at an all-time high of nearly $20,000. Ethereum, Litecoin, and Bitcoin Cash were also at amazing high points at that point in their existence. Within a week, the price of Bitcoin fell to $11,000 — that is a huge drop regardless of industry or asset class.

With Bitcoin losing so much value so quickly, other cryptocurrencies dropped sharply as well. Ethereum, Litecoin, Bitcoin Cash, and dozens of others were not safe from the crash that was instigated by the Bitcoin market. The psychology behind greed caused the BTC bubble, and the psychology behind fear caused this bubble to burst.

As we are in mid-2020, the price of Bitcoin still struggles to break even $10,000

Speculation Can Ruin Markets

Back in 2017, one of the largest trading platforms, Coinbase, had some sort of glitch that caused it to temporarily stop processing transactions and delay wire transfers. This caused the market to panic. But why was the panic so widespread and dramatic?

Well, cryptocurrency is typically driven by speculation. Speculators do not trade by logic; they trade based on how they are feeling emotionally and psychologically.

Because cryptocurrencies are so volatile thanks to emotional trading, and because the types of investors that cryptocurrency attracts will trade primarily on psychological aspects of how they are feeling in that specific moment, you can bet that it will always be a wildly unpredictable realm that can both make you rich beyond your wildest dreams AND take away everything you have in a heartbeat.

Cryptocurrency Bubble = The Dot-Com Bubble Of 2000?

Many TV celebrity finance pundits compared the cryptocurrency bubble to the dot-com bubble from the 1990s. To those pundits, I want to say: YOU ARE WRONG! The fact is, based on inflation and valuation, Bitcoin was more expensive than the dot-com stocks were at the time.

The dot-com bubble inflated because of trading psychology, and it burst because of trading psychology. Cryptocurrency has done the same thing, but on a much higher value. Greed and fear ruled the dot-com bubble from the inexperienced investors that jumped on based solely on speculation, and that is precisely what happened in 2017 with cryptocurrency.

Cryptocurrency is not immune from another bubble

Again, with no rules and regulations in place, and with the attraction of speculative investors who trade based on their feelings and emotions and not facts and logic, cryptocurrency will undoubtedly bubble up again, and that bubble will undoubtedly burst again.

Psychology and emotions rule cryptocurrency more so than facts or logic, so there is a considerable risk involved. However, this also means the potential for a huge reward is also there. Enter at your own risk!

4 Psychological Mistakes of Forex Traders

FGC Trading — Tue, 07 Jul 2020 20:32:00 +0000

When it comes to investing, there is a treasure trove of psychological information available. In fact, there are volumes of research done on trading psychology alone. But Forex trading is an entirely different ballgame. Are those same psychological traits prevalent in the land of Foreign Exchange currency?

That is what we are here to figure out today. Because successful Forex trading requires a much different psychological mindset than that of stocks and other traditional investors, undoubtedly, the mistakes they make are psychologically different, too, right? Well, let us find out!

4 Psychological Mistakes of Forex Traders

You Might Be Interested In:
We did some research to find out if Forex trading was the same as gambling. Our Forex vs. Gambling results might shock you (or, they might be precisely what you are expecting)!

Unrealistic Forex Trading Expectations

Sometimes Forex traders seem to forget the fact that probabilities exist for a reason. It is not probable for a Forex trader to be profitable 100% of the time, but some of you guys seem to forget this fact. You need to know that sometimes losses are not only possible but inevitable in the world of Forex (or just about any area of investing).

Learn when to cut your losses and move on so that you can make it up on the next trade. Do not try to mess around with your stop/loss presets on your currencies in hopes of trying to eke out some tiny bit of profit. That is an excellent way to just dig yourself in deeper.

Forex Traders Are Overconfident

Sometimes confidence is excellent when it comes to investing. In fact, confidence is actually a required trait for those that need a mental push to take a significant risk in order to realize potentially big returns. But in Foreign Exchange, being overconfident can cause nightmarish scenarios.

The second your mindset goes to “Forex trading is easy!” then you should either take a break or just call it quits because it is only downhill from there. You need to have laser-sharp precision and mental focus for its trading. Overconfidence is a great way to tear away at that focus and start letting your guard down.

Can the size of your ring fingerdictate your confidence and trading abilities?

Emotional Forex Trading

One of the most common psychological mistakes of Forex traders is that they let their emotions get in the way. This is not limited to Forex trading only. In fact, emotional trading is linked to huge losses across any traditional or alternative asset classes.

There are two schools of thought that cause emotions to ruin Forex gains (and gains from any other investment):

Greed – You see, other people are making a bunch of money with a specific currency pair, so you get greedy and want to jump in on those gains as well. Except, by the time you dive in, the money train has already stopped. You are now needing to get rid of your currency pair and end up having to sell at a loss.

Fear – It is human nature for our minds to assume the worst. Maybe your ideal currency pairs are not performing well, so you hurry up and pull the trade before any gains are realized. Except, once the trade has been removed or canceled, the market makes a little jump that would have given you some sweet profits. Fear caused you to miss out on those profits.

Poor Forex Traders Cannot Admit Defeat

The final mistake we are going to leave with you here today is this: Psychologically, a poorly performing Forex trader has trouble admitting defeat. This may go hand in hand with our first point about probabilities, but it needs to say it on its own.

Your currency pairs are on a losing run, and you need to pull the plug. Your experience tells you it is time to pull the plug. But, for some reason, your brain is telling you, “No, hang in there a little bit longer, it’s going to bounce back, I promise!” Some Forex traders even double down on losing trades. “I’m losing now, but if I throw more money into the trade, then when it rebounds, I’ll have made a decent profit!”

Just learn to listen to your gut and listen to your experience when you are told that it is time to jump ship on a particular trade!

Myopic Risk Aversion: Why It Can Hinder Potential Gains

FGC Trading — Sun, 28 Jun 2020 02:13:00 +0000

Realizing decent gains is a good feeling, right? But losing the same amount can be absolutely crushing. Seriously, it sucks. Whenever investors have a greater sensitivity to losses than they do to gains, it is called Myopic Risk Aversion, and it is not a good thing to have.

Myopic Risk Aversion

Myopic Risk Aversion will not only cause you to evaluate outcomes much more frequently, causing a lot of stress and anxiety, but it will make you much less willing to accept risks, regardless of the reward potential.

If you are sitting there reevaluating hypothetical outcomes over and over, and obsessing over the tiniest of potential losses, then, of course, you are going to be scared to take a risk!

The thing is, you need to be risky if you want to make any decent headway with investing.

Who Is Affected By Myopic-Aversive Investing?

Everyone. Amateur investors who are simply opening up their first IRA at the age of 25, middle-aged investors dabbling in Crypto for the first time, or 65-year-old day traders that risk their entire net worth over a month — all are affected.

Myopic risk or loss aversion is needed for our survival. It is an evolutionary trait that just so happens to have translated over into the digitization of survival (and investing).

Humans have a natural risk aversion when it comes to losing stuff that we need to survive. And, in present times, we need money to survive. Risk aversion helps to make sure we do not overspend so that we can plan for an emergency or a rainy day.

Now, those are just Risk Aversion examples, and those are all normal for humans. However, Myopic Risk Aversion is not normal. The difference between typical risk aversion and myopic risk aversion comes from the Myopic side of things.

With myopic risk aversion, we will lose sight of our end goal or lose focus from the bigger picture. It causes us to focus too much on what is immediately in front of us. For investors, this can mean emotional and panic trading — selling off during sharp market declines and missing out on the inevitable market rebounds.

A Diverse Portfolio Will Usually Rise In Value OVER TIME

It is a lot easier said than done but knowing that — over time — the market almost always evens out and realizes gains. This is true, as long as your portfolio is nice and diverse.

Think about a 401K or IRA. Those lost value in 2000 but bounced back over the next few years. They likely lost value again in 2008 but bounced back over the next few years. As we hit a worldwide pandemic with Covid-19, the market took another dive. Those who panicked and liquidated everything missed out on some amazing rebound days that came in the coming weeks and months.

If you check your portfolio daily, then you are going to see some losses. Your portfolio is not going to gain value every single day. There are going to be bad days, and some of those bad days will be terribly bad. But, over time, things typically even out.

With investing being so highly digitized, it is absurdly easy to log in and get a real-time view of every single aspect of your portfolio. Those who make daily checks on their portfolios are likely to fall victim to the woes that come from myopic risk aversion. You are going to feel the pain from losses more so than the pleasure of gains.

This pain can, and will, cause many of you to lose sight of your long-term goals.

Will You Be A Successful Trader? Check Out Your Fingers!

FGC Trading — Sat, 27 Jun 2020 23:48:00 +0000

Science just gets more and more amazing, especially whenever you mix biology with economics. Some scientific research has suggested that comparing your ring finger (4D) with the size of your pointer finger (2D) can accurately predict how good of a trader you are.

A Successful Trader tips

What Is The Digit Ratio?

The ratio between the size of your pointer and ring fingers is known as the 2D:4D ratio. If your pointer finger is shorter than your ring finger, then you have got a Low Digit Ratio. And that is the specific ratio we are going to focus on today.

While in the womb, fetuses are exposed to various androgens, such as testosterone. This exposure has been directly correlated to finger growth. Those that have a ring finger longer than their pointer finger likely experienced much more testosterone and other androgens in the womb.

Prenatal testosterone and androgen levels have been shown to have a drastic effect on males when it comes to everything from athletic ability to confidence and risk tolerance.

Why Does A Lower Digit Ratio = Potentially Successful Trader?

There is a huge psychological component when it comes down to being a successful trader. Successful trading takes more than just a thorough understanding of the markets and its asset classes. To be a successful trader, you must also possess a few psychological traits:

● Confidence to “place bets” that may be deemed risky

● Risk tolerance to risk significant amounts of money

● The ability to process data and information quick enough to outpace your competitors

The digit ratio correlates with athletic ability, and that is true as well for successful traders. An average person would get exhausted after just an hour of trading when the market opens. A wildly successful trader can remain extremely alert and vigilant enough throughout the day so that they can process information quickly and make decisions on a whim, all without tiring out.

Day traders that engage in a high-frequency, fast-paced atmosphere are even more sensitive to these rules or biological traits. They must always be on their toes and keep themselves in a position that lets them react faster than their competitors before specific deals have been arbitraged away.

Low Digit Ratio and Success: The science and data behind the claims.

We knew in the past that a longer ring finger meant you were likely exposed to more prenatal testosterone and other androgens while in the womb. This increased sensitivity to these hormones in the womb would lead to increased sensitivity to them as an adult. Heightened sensitivity means that your body can more efficiently process the testosterone.

This increased sensitivity to androgens had been proven in the past to show a direct correlation with quick reflexes and risk-taking impulsiveness. These two characteristics are crucial for successful traders on Wall Street. A former trader and cognitive scientist named John Coates out of Cambridge in the U.K. wondered if there was some correlation between all of this.

In a previous study, Coates and his colleagues learned that traders who have a higher amount of testosterone in the mornings, when the market opened, were much more successful than those with lower testosterone. He now wanted to see how the digit ratio came into play with all of this.

For the first round of the study, Coates and his colleagues identified 44 professional Wall Street traders, took their handprints, and measured out their digit ratios. They also took handprints of a control group. All the traders were monitored over a 20-month period, and, upon seeing the results, Coates remarked, “I almost fell out of my chair. I could not believe what I was seeing.”

Traders with a lower digit ratio (longer 4D or ring fingers) averaged $1,232,590. This was almost six times more than those traders with a higher digit ratio (shorter 4D or ring fingers). These results allowed scientists to look at successful trading as something more along the lines of natural selection because of the psychological traits required.

Digit Ratio Does Not Stack Up?

Then do not worry! This study only looked at one specific kind of trading. (Day Trading). Being a successful trader overall goes way beyond possessing the psychological traits needed to become a successful day trader.