Forex Optimism
I got this article on Forex Optimism years ago from Innerworth.com when they were a coaching company. They are not any more, but the article is still great. Enjoy
Optimistic, Realistic, and Profitable
Trading lore is replete with stories of novice traders who work tirelessly to achieve big rewards, yet success eludes them, time and time again. Even seasoned traders may start to believe they have lost their touch when market conditions change and they can’t seem to take home enough profits. A positive, optimistic mindset is essential for trading success. Eternal optimism is an asset when it comes to mastering the markets. On the other hand, it is important to show the proper amount of optimism. It is important to be humble, but also sure of your abilities and the positive outcomes you can achieve if you put in the proper amount of time and effort.
Popular inspirational books, such as “The Power of Positive Thinking,” imply that optimism is “good” and pessimism is “bad.” This view sometimes extends to professional psychology as well. For example, Dr. Martin Seligman argues in his book “Learned Optimism” that optimists are more likely to persist when faced with severe setbacks, while pessimists tend to give up easily after only a minor setback. But optimism may hamper some traders. Dr. Terrance Odean, a behavioral economist, argues that traders can often be too optimistic and too overconfident. In his studies, he has shown than overly confident traders take risks that they should not, and end up with lower amounts of capital than if they had been more cautious. Dr. Seligman similarly notes that pessimists may not feel very happy most of the time, but they are more likely to view circumstances more realistically than eternal optimists.
In the end, a trader should be optimistic yet also realistic. Many trading coaches advise novice traders to “expect to lose” when they trade. At first glance, this may sound like a pessimistic outlook, but it is all a matter of perspective. Unrealistic optimists expect life to be easy. They expect big rewards with relatively little effort. Novice traders with this approach may naively think, “I’ll make 10 trades and I can expect 8 to be profitable.” A more realistic trader may think, “I would be happy at this stage of my trading to make profits on 4 out of 10 trades.” Traders who have genuine self confidence are realistic and committed. They expect to make heroic efforts to achieve success. They do not unrealistically believe that high probability setups are easy to find. Traders with low self esteem, in contrast, are afraid to look at the downside. Admitting the amount of work and effort it takes to trade profitably is daunting. It is so overwhelming that they would rather fool themselves into thinking that trading is easier than it really is, and that even a minor effort will produce success. But in the end, they are just setting themselves up failure. Winning traders are truly self-confident. They are not afraid to admit their limitations and accept the obstacles they must overcome to achieve success.
Thinking like a winning trader requires a combination of realism and optimism. It is useful to remind yourself of the facts of life in the trading world. First, it isn’t necessary for every trade to be profitable to make an overall profit across a series of trades, and indeed, many trades result in losses. Thus, it is vital to assume you’ll realize more losses than wins, and to manage risk on any one trade accordingly. Second, it is a fact that many times, novice traders lose a lot of money trying to survive the learning curve. One will become very disappointed if he or she is not prepared to lose some money early on when first starting to trade. It is useful to look at the lost capital as “tuition” you spent to learn valuable trading lessons. An optimistic attitude is powerful when used properly. It is important to be optimistic when it comes to the big picture; remind yourself that if you put in enough time and effort, you’ll eventually achieve profitability. But at the same time, don’t set yourself up for disappointment and failure by thinking that trading is easier than it is. Trading is difficult, but if you persist and overcome obstacles, you will trade like a winner.
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My Take on Forex Automation
Here is another of my forum posts in answer to someone ranting and raving about Forex Automation.
I admit that there are some good programs that will help you in your search for success in trading the forex market. But beware, they are few and far between. Most automated systems only end up doing one thing. Helping separate you from your money. Experienced traders are able to use a program to help them in their trading, but wise traders will rarely ever just flip the switch to autopilot. They use these programs to enhance their own methods and systems. Because they know how to trade they are more capable of determining when is the right time to use software as an aid.
The biggest problem with trading on automated software is that the market is always fluctuating in and out of different moods and what may work today will probably not work next week or month. A well trained trader can learn to recognize these shifts and apply different methods to compensate, software cannot.
You cannot escape the fact that if you want to become a consistently profitable forex trader you must educate yourself. Once you know the techniques and skills then you have to get your head in the right place. I have worked with many students that knew how to trade, but could not find lasting success because of different mindset issues that many traders face. Trading psychology is a major factor as well. (this usually requires outside assistance i.e. Coach or Mentor)
Good luck trading and stay sharp.
Bad Forex Trading Practices
Talk about Bad Forex Trading Practices, Holy cow, check this out.
I was responding to a post on an online forum that was talking about how great it was to Scalp, Hedge and Average into losing trades. I couldn’t just let that sit without sharing my views on the topics, so here is what I replied to that with.
Click Here to see the origional post.
“Here is what I have learned over the years with my own trading and as a coach working with hundreds of other traders.
Scalping (depending on your definition) is a strategy used by new traders, it is not a good long term ticket to success. I do not know a single Professional trader that uses scalping. But it has a purpose; I encourage my students to start out scalping to help them build experience in their trading. The more trades you place (in a demo account at first) the more you learn how the market moves, and you can get used to watching your trades going up and down, which can take the edge off of the adverse effects of trading psychology issues. The problem with scalping is that you cannot usually plan to have a positive risk:reward ratio. When scalping you are almost always going for fewer pips than you are risking and that means that you have to be right almost all of the time. Too much pressure and when you hid a draw-down period traders tend to panic and do crazy things like Hedging the position to avoid taking the loss.
Direct Hedging (which is not available on most brokers any more since Aug 1st, 09) is really only a way to staunch the bleeding on losing trades. Traders tend to think “I haven’t really lost until I actually close the trade” A direct hedge is like hitting the pause button on a losing trade, but you cannot avoid eventually playing it out. Even with a hedge you still have to find the best times to get out of either trade. You still have to determine where the most likely direction the market is probable to go, and if you don’t have some proven system with the probabilities on your side, you may be in a world of hurt. The other problem with hedging is you pay twice for the trade on the spreads and you will pay a premium on interest every day you are in the trade (paying even more on Wednesday).
Position trading is actually more of a time frame you plan on being in the trade than a strategy. If you are trading on the daily charts and expect a move to climb for a while, several days, weeks or even months, that is a position trade. AutoTrader1 stated it correctly that what you have described is a form of averaging. It is also known as the Martingale technique. Which can work for a while until it doesn’t and then you can get into some serious trouble. Beware there are a lot of automated strategies that use this method.
The best way to trade is to study and recognize patterns in the market that show a higher probability of success, whatever tools you use. Then figure out ways to capture more pips than you are risking on those trades so you don’t have to be right so often. Do the math on your tests and determine if each strategy is ultimately profitable. You do have to do a good job of journaling your trades to be able to do this effectively. I have found several of these strategies over the years, but I will save them for a different post in a different section.
Good luck in your trading and be careful of what you read.