Trading Psychology 101: What separates the beginners from the professionals

Filed under: Learn Forex Trading |

 

If you have been following the live trades since I begun them in early December (almost three months now!), you might be wondering why I am persisting when we are down about 5% on our bank. Well, you would be right that a five percent loss over a three-month period is not good by any means, but you have to always look at the big picture.

 

In the six months before this losing three-month period, I was personally in profit by around forty percent and my equity curve moves nicely up from left to right. I know that we have experienced a significant drawdown, but it is not so large that it is something to be overly concerned about. Drawdowns are a part of the trading process, and you must take them as a cost of doing business.

 

The difference between a beginner and an experienced trader is that the beginner has no past trades to look at for reassurance. If I had been testing a new strategy and gained a 5% loss in three months of trading, I too would probably give up or at least try revising my strategy. But as I am using a trading strategy that has proved to be very profitable in the past, then my job is to simply ride out the current drawdown and wait for the market edge to come into play again.

 

If you have done your homework and believe that you have a strategy with a market edge, make sure that you test it with a large enough sample of data before drawing any conclusions. I would suggest at least 100-200 trades. Anything less than this and the sample could not be representative. Remember, if you throw a coin ten times, you will not necessarily get five heads and five tails; but if you toss a couple 10,000 times, then you will roughly get a 50/50 split. Probably is only played out over large enough samples of data. Otherwise, this game would be a hell of a lot easier!

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