Winning and Losing Streaks

Filed under: Learn Forex Trading |

One aspect of forex trading that we all have to get used to sooner or later is the phenomenon of winning and losing streaks. There can be a number of factors that can produce a winning or losing streak, and I would like to run you through some of these factors for today’s forex-related article.

 

The first factor is a psychological one – that of having confidence or a lack of it. When you have a few winning trades, you have more confidence to put another trade on when you see the right setup. Conversely, if you have just had a few losers, you might put a trade on that is not really there in order to try to catch up what you have lost.

 

Another factor is that of the laws of probability. When you have a 50% win rate, this does not mean that you will win every other trade. The laws of probability are not so neat. A 50% win rate means that over an infinite series of trades; you will win 50% of them. However, over a shorter series of trades, there can be wild swings. With a 50% strike rate, you can expect the longest losing sequence to be anything up to ten trades! Long losing runs are not uncommon, and you just have to stick with your method when the going gets tough.

 

Another problem that can create losing runs is trading on currencies that have similar movements. For example, you could have a trade on the GBP/JPY pair, and another trade on the AUD/JPY pair. Both of these pairs move in a very similar fashion, so in effect, you could be doubling your risk. In this way, instead of having a losing run of three in a row, you could easily rack up six in a row! All of these things are something to bear in mind when you are on a winning or losing run.

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