You Are Your Own Worst Enemy in Forex Trading

You Are Your Own Worst Enemy in Forex Trading
You Are Your Own Worst Enemy in Forex Trading
4.3 (85%) 4 votes

Let’s begin with the easy part; in order for you to at all be profitable as a trader, you first need to have a strategy, plan, or a method that actually makes you money, also known as an “edge” in the forex markets. Then, let’s talk about the difficult part; you need to follow your plan. Finding forex strategies that works is not necessarily that difficult or complicated, but it is very difficult to follow through with it and execute your plan every day.

Imagine the following: You have taken your strategy, modified it, spent hours on fine-tuning it, and finally realized that this is THE strategy that you want to use and follow every day. Then the forex market opens on Monday morning and you are sitting there with a pile of cash that you intend to spend on taking positions in the market according to your strategy. When your strategy gives you the “buy” signal, you obviously stay true to it and enter your buy order in the market.

Perhaps the trade goes against you for a little while, but nothing dramatic happens and you feel that this is within what should be expected. No alarm bells or sales signals are triggered. You have, after all, thoroughly backtested and researched your strategy.

But then… You get bored; go online to Twitter, forex trading forums, tradingview, and other sites. “There’s nothing wrong with staying up to date” you tell yourself. However, there is a difference between “staying up to date,” and letting noise get in your way.

Imagine reading a bearish technical analysis of USD/JPY from a successful trader you usually trust. Maybe other high-profile traders even think USD/JPY is a short now. What is happening? You start to doubt yourself and your own strategy. Perhaps you should be more careful? It seems like nobody is really bullish on the USD nowadays… In the end, you cannot stand the uncertainty anymore and you decide to sell. You figured it’s better to be a bit careful. And it feels good – finally you can relax again.

And then what happens? USD/JPY turns up! Just like your strategy predicted that it would do. Adding fuel to the fire, you read on Twitter about a trader who posted a profit of 100 percent in two months. A new feeling is creeping through your body, a mix of envy and annoyance, and you decide to get back in as fast as possible. There may still be a large upside in the USD, and you don’t want to be left behind again as the train departs the station.

What happens then? Of course, USD/JPY falls back to the stop-loss level on your original trade, which in that case would have given you a slight profit. Now however, since you took your position at the “wrong” price, this amounts to a loss – far greater than what would be possible had you just followed the strategy.

In addition, your motivation and self-esteem took a serious hit and you don’t feel happy about trading anymore. You start to think things like “the forex market is rigged”, “I always have bad luck”, “I always make bad decisions”, and so on.

We have all been there before; it’s a fairly common and typical novice mistake to make. But hopefully, you do it once, learn from your mistake, and then follow your strategy the next time around.

You might also want to take actions in order to reduce the noise that you surround yourself with. For example, be careful about who you follow on twitter. If you are easily affected by other peoples’ analysis, block them out. Remember, nobody else knows what you’re doing, how you do it and what your style is. This is no competition with anyone other than yourself; you are not competing against other traders, not against the broker or robots, but against yourself and your own mental flaws. When you learn to manage these flaws, you win.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts