Trading Forex: Confidence is Key

Filed under: Learn Forex Trading |

In order to perform well as a forex trader, confidence really is key. You will notice the ebb and flow of your confidence as your trading performance goes through the inevitable peaks and troughs. When you have a market edge (which you will need if you want to be profitable), you will need to put on a long series of trades before you can be successful. However, probability works in mysterious ways…

 

If you have a market edge of 50% (meaning a half of all of your trades are successful) with a risk-reward ratio of 1:2, you will be very profitable over the long term. If you make 1000 trades and risk $100 per trade, then you will make a profit of $50,000! However, having a 50% winning percentage does not mean that you will have one successful trade, followed by one loser, follower by one successful trade, followed by one loser. You might conceivably have ten losers in a row, or ten winners. However, over the long term, this will even out to a 50-50 split. It is a bit like tossing a coin. You might get several heads in a row. Or you might get nine tails out of ten tosses. However, over a longer number of tosses, this will get increasingly closer to a 50-50 split.

 

Confidence tends to ebb and flow along with these anomalies of probability. What we have to do as traders is to see the long-term picture. This helps when you have made a lot of trades and can look at your past successes. However, if you are just starting out and you get, say, four losers out of five trades, then you are probably going to be pretty low on confidence, and you might even give up. This is why backtesting is important and using demo accounts – to build your confidence.

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