Having a good strategy is not enough to make money in the forex market. When two traders use exactly the same trading strategy, they will usually end up with different or opposite results. There is only one explanation for this phenomenon, the difference results from the psychology of traders who think and act differently depending on their personalities and past experiences.
Here are the differences that separate successful traders from losing ones.
Successful traders have realistic profit targets in relation to their trading capital. They don't have the ambition to get rich quick. This mentality contributes to their success, because they don't make mistakes linked to emotions or to excessive risk taking.
Unsuccessful traders frequently hope to make lots of money regardless of the amount of trading capital they have. It is not uncommon to see traders who are new to the forex market start out with a $1,000 account thinking that they can turn it into $10,000 in a few months. This mentality naturally leads the trader to take on huge risks that inevitably lead to significant losses.
Successful traders manage risk effectively, they are not afraid to lose money on a trade, and this allows them to not be attached to the results on an emotional level. Unsuccessful traders usually start trading with money management rules, but they often abandon these rules after a series of losses or profits. Professional traders continue to manage risk without taking account the series of losing or winning trades. They know that every instant on the foreign exchange market is unique and that anything is possible. They are always aware of the dangers and the typical errors that result in a lack of success.
Unsuccessful traders generally do not know how to effectively manage risk. They often spend lots of time in front of their screen just staring at current price action. The euphoria of winnng a trade increases their confidence, and they are more inclined to increase the risk on the next trade. When they lose a trade, they also increase the risk (and therefore the lot size and leverage) to try to win back losses.
Unsuccessful traders do not control their emotions the same way that successful ones do, as the latter have developed efficient thought processes based on discipline.
Successful traders have profit targets that are predefined according to their strategies, while unsuccessful traders tend to take small profits compared to their losing trades.
It is important to understand that risk management is the key to success, profits come naturally with careful risk management in relation to an expected profit level. But, to achieve this, a trader must act with coolness and determination. The only effective way to avoid making mistakes linked to emotions is to establish an entry and exit price before executing the trade; and, in order to not to change your mind thereafter, it is recommended that you not stay in front of the trading platform at all times.
Losing traders make small profits in relation to the capital they risk because they do not precisely plan out their strategy before executing a trade. Most of the time, they bail out of their position prematurely, because the risk involved is too high. A strategy that takes profits that are lower than the risk taken is unlikely to succeed in the long run; in this case, the percentage of wins needs to be high to make money. The best trading strategies have a success rate of around 30 to 50%, they are profitable thanks to their risk/return ratio.
What really separates the good traders from the bad ones is their ability to stay disciplined and manage their emotions. But strategy is also important - the best forex strategies are simple - and the hardest thing for a novice trader is to wait for the right market configuration that perfectly matches the strategy. Professional traders are patient! They are willing to not trade if there are no real signals, unlike the bad traders who rush into a trade without actually mastering their strategy and believing they can predict what will happen next. In reality, they master nothing! Successful traders know the market is an untamed beast and that the only thing they can control is the way they react to the foreign exchange market.
The successful forex trader develops a simple strategy based on market configurations while the unsuccessful one tries to predict the future while getting bogged down with a multitude of unnecessary technical indicators!
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