Almost every Forex Trader is aware that over 90 percent of retail traders are losing money in the market, we certainly do not believe those claims, over 80% of students who take our Forex Mentorship class to learn how to Trade Forex are making money, furthermore there is no clear cut data to ascertain the veracity of this claim, and yet it is falsely paraded online by several forex blogs. Regardless of our disbelief in that claim, it does not hurt to take your time and learn how to trade Forex before you commit your hard-earned resources (time, money, and mental fortitude)
Experience has shown us that every trader would pay for their education one way or the other. You can either pay to learn from us or you can pay through your time and losses in the market, if you are lucky, you could become profitable 10 years from now, but most quit along the way, never recovering the money they lost in the market.
How to Trade Forex Profitably; The Tips
Concepts for behavioral finance that concern risk taking and decision making has been well studied for professional trader’s in the equities market, there is very little research on same in the Forex market .
Although past performance does not predict future success for traders, traders increase trade sizes, trade size variability, and the number of trades with gains, and less with losses. There is a large discontinuity in all of these trading variables around zero past week returns: e.g., traders increase their trade size dramatically following winning weeks, relative to losing weeks. The effects are stronger for novice traders, consistent with more intense “learning” in early trading periods.https://academic.oup.com/rof/article-abstract/22/6/2009/5051186
- On Learning How to Trade Forex, Do not Fall a Prey to the Survivors bias, let the large number theory be your guide!
Traders make distinctive and irrational decisions using trading strategies based on personal heuristics, and personal biases often with brutal consequential losses in the Forex market. The retail trader often learns how to trade Forex by practicing a few trades based on some random thought processes and concludes with 100 percent certainty the efficacy of their trading strategy, only for them to be bitten hard by losses in the market.
This scenario can further be extrapolated to what we call the survivor’s bias. Survivors’ bias is a common logical error that distorts our understanding of the world. For retail trade’s the survivor’s bias could be detrimental to them in numerous ways. There are retail traders who make a little success in the market by following their guts, and yet there could be a thousand others who learnt how to trade Forex following that same guts principle that failed.
There are retail trader’s upon making small money in the Forex market, they turn to make noise all over the place, at least for a while, they invite the whole world to tell them their great success stories even showing off their simple and yet successful trade’s based on very small sample size, the problem is, they are not aware that there could be thousand other trader’s who learned how to trade Forex using very similar methods to theirs and yet failed, they are not even aware of beginners luck.
In probability theory, the law of large numbers (LLN) is a theorem that describes the result of performing the same experiment a large number of times. According to the law, the average of the results obtained from a large number of trials should be close to the expected value and will tend to become closer to the expected value as more trials are performed.
Unfortunately, stories of failure’s are not as pleasant as story’s of success, we turn to write, rewrite and re-post success, no one want’s to listen to the man who failed, no man wants to listen to him, that perhaps he used the same strategy, but got different results. Failure isn’t as sexy as success.
Have you heard of Forex trader that was a success but then failed along the way? the answer is simple, he drew a conclusion based on very small sample size, and the large number theory brought him closer to the expected results; Failure! If you learn how to trade forex on your own, your best bet is to trade on a demo account for more than a year. We recommend you take one simple set up, and take that trade everyday of the year, as many times as they appear, at least a thousand times, before you draw a conclusion on it’s efficacy.
That is one thing we do in our Forex Mentorship Class to ensure we have our students truly ready for the Forex market. The thousand trade’s challenge is designed to teach you how to trade Forex, to become a sharp shooter, a master trader with one simple strategy.
- In learning how to trade Forex, Beware of the disposition effect.
The disposition effect is defined as the tendency of a trader to close winning trade’s while holding on to losing trade’s. As a Forex Mentor, this is one thing we work on excessively, we see many new trader’s do this over and over again while learning how to trade Forex. In fact, some false Forex trading professionals fall to this simple error.
Every trader knows not to cut down on winning positions, but not every trader is able to do that, why? You know what to do but you are not able to do it, because of your own bias.
Roger Bannister was a British athlete who was the first in the world to run a mile under 4 minutes. Prior to this, the adage was that no human was physically able to run a mile under 4 minutes, it was a known fact, and a man dared not to do this.
After Roger Bannister, break the 4 minutes myth, a several other’s, even high school athletes were able to finish a mile in less than 4 minutes, so what changed? It is just the believe! Seeing Roger doing it, made it possible that anyone else could do it. Your beliefs in Forex do matter, if you have not seen someone truly become successful in Forex, it could be very hard for you to become successful trading the Forex market.
It does not help either that it is a common myth that over 90% of retail traders are losing money, I tell you what, that myth is pushed forward by brokers, to keep you losing money trading Forex. Do not let the disposition effect be your story, learn to cut down losses and let the winners run, that is how it is done.
To help you learn how to trade Forex profitably, I will leave you with one more theory called the gamblers fallacy otherwise known as the Monte Carlo Fallacy.
This is the erroneous belief that if a particular event occurs more frequently than normal during the past it is less likely to happen in the future (or vice versa), when it has otherwise been established that the probability of such events does not depend on what has happened in the past. Such events, having the quality of historical independence, are referred to as statistically independent. The fallacy is commonly associated with gambling, where it may be believed, for example, that the next dice roll is more than usually likely to be six because there have recently been less than the usual number of sixes.https://en.wikipedia.org/wiki/Gambler%27s_fallacy
In Forex, we may perhaps call it the traders fallacy, for those of you learning how to trade Forex profitably, remember that a winning trade is most likely to win, while a losing trade is most likely heading straight to your stop loss, no matter how much you expand it. Do not fall for the gamblers fallacy, and do not let the disposition effect cause you to loose.
Learning how to trade Forex should be something easy, but more often than not, the blind are leading the blind. Obviously why people keep losing but joining the right team, would be of immense help to you.
- Overconfidence and Weak Emotional Regulation
You need to be confident in order to trade the Forex market Profitably, unfortunately for most retail traders they confuse faith with confidence. I am a Christian, know this; No amount of prayers would save your losing position, your best bet is to close your losses and maintain your winners.
What we say though is that students learning how to trade Forex, more often than not, exercise faith and over confidence in their trades. They want to pray their losses away, and underestimating the extent to which a market can go.
Do not let indicators fool you into thinking a market has been over bought or over sold! The market though might have it’s limits, your trading account do not and if you do not cut down your losses, you would soon have a margin call!
Be brave, and know that some losses are acceptable in the market, accept the losses with the same joy you accept your winners, especially when learning how to trade Forex, doing this would help reinforce good habits that would ensure your progress in the future as a formidable Forex trader.