With market sentiment changing dramatically these days, it is important to make sure that you are able to adjust your forex trading strategy.
As you can see, being profitable over the long term requires you to be able to adapt to ever-changing market conditions.
Have you ever stopped to think about how casinos actually work and make money?
Casinos make a lot of money every day, despite the fact that casino operators cannot predict with certainty who will be a complete beggar and split 5 on the dealer who shows 10, or who will hit the jackpot by playing the slot machines.
How is this possible? Shouldn't non-random results lead to consistent profits?
If so, shouldn't random results lead to inconsistent profits?
Casinos are able to consistently make profits because they realize that in every game, the casino outperforms the players.
They realize that over time, potential outcomes can actually produce consistent and predictable results, given the sample size is large enough.
Just like a casino, traders try to be consistent and make money in a seemingly random business environment. The key is to think in terms of probabilities.
In fact, this is much easier said than done, because it requires two layers of belief that you initially think cannot coexist.
Trade level
At this point, you have to understand and accept the uncertainty and unpredictability of every trade.
Let's go back to our casino example and use everyone's favorite game, blackjack.
While playing blackjack, you never know what cards you will be dealt, nor do you know how each player will play their hand. These factors have a direct impact on the outcome of your hand.
However, there are some people who make money playing blackjack because they realize that each hand is statistically independent from every other hand.
Over time, if they follow the basic strategy, they can reduce the house edge and actually make a small profit.
The same applies to trading. We have to understand that every trade is independent from every other trade.
Your win or loss in the previous 10 trades has no effect on the outcome of your next trade. Once you accept this, you can easily make trades without being negatively affected.
Macro level
You need to understand that over time and with a large enough sample size, the probability of gain or loss is relatively certain and predictable.
This degree of certainty depends on fixed variables that are known in advance and, more importantly, within your control.
Once you realize the independence of each trade and believe in letting good possibilities unfold, you will have an easier time removing emotions from your trades.
For example, you are less likely to exit a trade early if you know that your trading idea has a good probability of winning in the first place.
Likewise, you are less likely to make a fuss about the outcome of each trade if you know that given a sufficient sample size, your trading method is more likely to work in your favor.
But before you put too much confidence in your trading method, you must first make sure it has… Edge on the markets.
Without any advantage, you're like any random idiot walking into a casino – yes, you might win once in a while, but over time, the casino will win because it's outperforming you.
The key to gaining an advantage is not to pay billions of dollars for a “risk-free system” that can “guarantee profits.”
The best traders find their edge by constantly searching for opportunities and tirelessly putting in the necessary muscle effort to fine-tune their trading tactics and techniques.
The bottom line is that traders who win consistently don't rely on luck – they rely on the knowledge that their system works because they put in the effort to make it work.
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A blogging tool that can lead to valuable insights about performance and strategy! You can easily add your thoughts, plans and track your psychological state with each trade. Click here to see if this is right for you!Disclaimer: Babypips.com earns a commission from any signups through our affiliate link. When you subscribe using our affiliate links, it helps us maintain and improve our content, much of which is free and available to everyone – including Pipsology School! We appreciate your support and hope you find our content and services useful. Thank you!
