Forex Trading Success – The 3 Things You Never Knew

Browse the Internet for an hour. I think we can agree what is propagated is that success in the foreign exchange market (a.k.a, FOREX) is about systems that provide some magical insight into the nature of the market, some set of rules that allow the trader to predict outcomes and attain untold riches. Most don’t stop to think that if it was just about good systems, then 95% of traders would not be failing, but rather flourishing. What is it that the 5% of successful traders do right? What’s their secret? Keep reading!

Truth be told, systems do play a role – but only a very partial role in the grand scheme of things. Success in FOREX trading (or any trading) boils down to a balance of 3 things:

1. Method. This is your strategy that dictates when/what you buy and sell. You need a set of rules to keep your decision process consistent at all times. This is important and a lot of time must be spent ensuring that you have a valid system to work with, but it is the least influential component in determining your overall success. Yet, it is practically the only thing you see spread over the Internet.

2. Money. This refers to your risk management plan. It dictates how much you risk on any given trade or set of trades. Important to realize is that you can have a brilliant method, but if you mismanage your risk, you are doomed just the same. How much you risk is far more important that when you decide to get in and out of positions.

3. Mind. Alas, the most important aspect that gets, at most, a quick look-over by new traders and popular media. In fact, many would say that it’s an inability to acquire and maintain a proper trader’s mind-set that accounts for as much as 90% of failure. Discipline is something that most traders lack but is a very important part of the proper mind-set.

You must have all 3 of these success factors working together if you expect yourself to succeed in the long run. You can’t have one without any of the others. But the one factor that brings it all together more than anything else is # 3, your mind-set.

As human beings, our minds are naturally wired to fail at this game – unless we do something about it and at least recognize what those natural shortcomings are. There are too many to mention in this article but one of the more important ones is the Gambler’s Fallacy

The Gambler’s Fallacy is based on the belief most of us have (consciously or subconsciously) that markets are random. That when a market experiences, say, 3 consecutive up days that we are due for some correction. Traders, in turn, will lower their risk on the next trade expecting this outcome. The same is true in the opposite direction, after losing a few consecutive trades, traders will increase their bets.

The above scenario is very natural behavior but it goes against the grain of everything that holds true of successful trading. And sadly the behavior is bound to continue until traders understand that successful trading often involves doing things in a counter-intuitive fashion (i.e. increase bets when winning and decrease them when losing). The right thing to do is often the hardest thing to do.

Source by Danny Vescio