The main issue that traders have with forex trading is the psychology aspect, there are books about it, video’s about lots of advice, but no real exercises you can do to overcome these issues, we shall have a look at a simple exercise that could transform your trading.
The Forex 50/50.
If you were to put a trade on each time that would either win or lose by the same amount, the only reason you would lose money consistently is due to psychology, you can disregard the spread, the trades will always go a little past your stop loss or take profit. But first of all you can’t just put them on willy nilly, if you do this, then your psychology will become too big a part of the equation. You need to be looking at the trend, and this means the higher timeframes, notably the daily chart, you need to have an edge on the market, there is something about the chart patterns in forex that for most people it makes it look like it’s going down when it’s going up, and you have to overcome this. So now you have a plan that has very few decisions to make, your psychology will play a much smaller part, your take profit and stop loss is fixed meaning that you don’t have to make a decision about it and so your trading mentality will not affect it. Never change your stop loss or take profit, forget about how much profit you make for the time being, this is not the point of the exercise to start with, it’s all about learning to execute your strategy. If your strategy says stop loss at 30 PIPS and take profit at 30 PIPS, then that’s what you should execute. It may sound very simplistic as a trading strategy, but if you cannot get an edge by trading with the trend in this manner, it will be difficult for you to employ a more sophisticated strategy.
Moving On To More Sophisticated Forex Strategy.
When you find that you are winning more trades than you are losing you can consider moving on to a more sophisticated strategy, you have a good solid base to form your trading plan on. You know that you can trade with the trend this will give you so much more confidence in your trading, and this can have a very positive result on your trading profits. Don’t get too hung up on pure price action trading, if two moving averages on your chart helps you to trade with the trend then do so, and again do this on the daily chart, this should be the main plank of your strategy. Of course you have to consider that if you can win more trades than you lose in forex this will translate into a very profitable strategy, and if it ain’t broke, you might not want to try and fix it.