Why Losers Usually Follow Winners?

Filed under: Learn Forex Trading |

Screen shot 2013-02-01 at 10.48.41I have noticed, like many of you have, that a string of winning trades are usually followed by a string of losers, and vice versa. But why is this? Is it simply a quirk of probability, or is there some other reason.

 

The phenomenon of a bunch of losers following a good run (or vice versa!) may be a result of human psychology. After I have just had a good string of winners, I know that there is a perceptible change in my attitude and behaviour. I start to feel that I know something about the markets, that I have figured the markets out, and that I am, in a way, unbeatable. This attitude is not just exhibited by myself (hopefully!), but is a common feature of traders in general. Feeling overconfident is just about the most dangerous attribute that a trader can have. It is a recipe for disaster.

 

Once you start to feel overconfident, you start to take trades that you might otherwise shy away from. You take trade setups that are weak – you gamble, and the results are inevitable; you take a string of hits until your confidence is back where it should be, and you give back most of the gains that you made to the market.

 

Conversely, after a string of losers, confidence is low, and you tend to be more careful about which trades to take. The protective instinct begins to kick in, and you do a much better job of preserving your capital by only taking the very best trades available. Therefore, what you have to do to be successful in the forex, or indeed, any other market, is to remain impartial and businesslike, and try to take emotion out of the equation. And when you figure that one out – answers on a postcard pleas

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