Why do you trade forex?
Let me guess…
Because you want to make a lot of money and be able to buy anything you want?
While this is a perfectly valid reason, it will most likely lead to excessive greed and eventually destroy your trading account. You can also take your money to Vegas and gamble instead.
Greed is the worst motivation for trading. The market will always punish greed and reward moderation.
There is a fine line between traders and gamblers.
When there is real money at stake, there are always those taking blind chances.
If you want to be consistently profitable, don’t think like a gambler, Don’t take blind chancesAnd don’t just rely on luck. Remember that luck comes and goes just like a gambler.
As a trader, you must be aware that anything can happen in the markets. Until you accept this fact, you will not always become profitable.
I know, I know, the idea sounds ridiculous! How can you, as a trader, become consistently profitable in a market with uncertain outcomes? this is not possible!
mistake! In commerce and in life, we have what is called possibilities.
Casinos are profitable year after year after year, although there is a business where the outcome of each card, dice roll or slot draw is unknown each time.
They understand the concept of odds and create games that put the odds in their favor – in other words, the ‘house advantage’.
While it is true that there will be some lucky ones who will win and walk away with millions of dollars, casinos know that if they get a large enough sample size, there will be more losing sponsors than winners in the end.
Let’s take baccarat, a popular card game for high rollers, for example. The game is rather simple. The cards are dealt to a “banker” and a “player”, and all you have to do is bet on either of them.
Since you have equal access to both the banker and the player (you can even bet on TIE if you want), it looks like you have about a 50% chance of winning. But in fact, this is not the case.
By tweaking the rules, such as charging a very small commission or reducing the payout if the banker wins by a certain number, the odds shift slightly in favor of the house.
It may be a very small advantage, anywhere from 1% to 5%, but it is enough for the house to eventually come out on top when enough games are played.
You have to remember that What differentiates trading from gambling is the ability to bend the odds in your favor.
This is why, as a trader, your mindset should be similar to that of a casino and not a gambler, who only focuses on one event (or trade) at a time.
To become consistently profitable, you need to trade like a house Play the feature on a series of outcomes. How do you do this, you ask?
Here are some tips:
1. Study the markets
First, you need to Learn market behaviourAnd patterns and trends that can be identified in the future and turned into business opportunities.
This comes from reviewing price action against a framework (support and resistance, mechanical indicators, economic events, etc.), recording your observations, and then deriving statistics to track different types of patterns or setups.
2. Record your trades
This is also where keeping a trade journal becomes essential.
Using the data from your journal, you can focus on setups that have higher odds of winning, rather than those setups that tend to lose.
3. Develop good risk management practices
You will also need strong risk management. You can tilt the long-term odds of success more in your favor if you limit yourself to creating or entering trades with an attractive risk management ratio (i.e., the average profit is greater than the losses). The better the risk-reward ratio, the less you need to win a trade.
For example, if you notice that you are good at spotting and trading Double Top formations, then you can devise a trading system that focuses on finding setups based on Double Top chart patterns.
If you are able to take a large enough number of these trades, and have more winners than losers, you will end up making profits in the long run!
4. Find out the biases of other traders
Last but not least, you can take a look at other traders as well as your own analysis. The Internet is loaded with free economic and technical analysis content. By getting a second opinion, you make sure you don’t fall into the “confirmation bias” trap.
Of course, these are not the only ways to tilt the odds in your favor, but you should always remember that you don’t have to predict exactly where the market will go; You just have to know where the price is likely to go and make the most of it if the trade goes your way.