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Inspiring Thoughts on Trading
Trading is Not Logical, It’s Psychological
“The battle does not always go the strong, nor the race to the swift, but that’s the way to bet.”
If there is only one rule to live by when trading FX this has to be it. Trading by nature is a game of probabilities which is to say that it is highly unpredictable. At its core speculation is simply glorified guesswork. We never truly know how the data will print nor how the market will react to it. All we can do is make highly probabilistic judgments and hope that in aggregate we are more right than wrong.
Lest you look down on trading as just a form of gambling, allow me to point out that almost all human activity is wrought with tremendous uncertainty. One need only to look to medicine including my month long unresolved tooth ache to understand that doctors are often as clueless as financial analysis is determining what to do next.
While equity markets look ready to take a nose dive as the reality of the Coronavirus and the Helicopter money finally catches up with the US economy, the currency markets are primed for more volatility and we intend to take full advantage of all the opportunities that come our way.
In this respect it seems a good time to revisit the key rule of speculation, namely that at its core, trading is not logical but psychological. Once you understand that dynamic you can understand why tulips were once worth their weight in gold and why a trailer home in California was once listed for more than a million dollars.
Psychology plays an important role not only in valuation but in trading tactics as well. As traders we are commanded to cut our losses short and let our profits run. Yet in real life this is difficult to do as there is something called retrace risk. Prices never go in a straight line: they go up and retrace, or they go down and then they retrace. They are doing all sorts of things in a zigzag mode and this makes it very difficult to stay in a trade and bank profits because trades always go back on you. The command, as we mentioned it, is the equivalent of being told to run and stand still at the same time. The natural tension that is created by this rule generates much unneeded angst, but there is a way to resolve this conflict.
We can avoid this conflict by using the 2-lot method mainly where the first target is going to be appr. 10-20 pips in the money. After that we’re going to move our trades to break even and then I hope that we get those maybe three out of ten type situations where you get continuation and an opportunity to truly let your profits run there.
There are a couple of advantages to doing this like this mainly because once you bank a little bit of profit like 10-20 pips you’ve taken tremendous amount of psychological pressure off the trade. Most traders are simply unable to absorb huge losses continuously and stay in the game which is why the 2-lot method even though it is perhaps not mathematically optimal is psychologically proper and that’s one of the reasons why we’re doing this as part of our trading strategies.
This procedure will really help to give us better pippage and everybody will enjoy their trading a lot more.
Rudy – Professional Forex Trader
One-on-one live trading mentor
+27 82 926 6855
Wipe out your fear, failure is not an option
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