The Three M’s of Forex Trading

Mindset
Of all the skills that you must master, having the proper mindset to trade is the most important. 90% of your success will come from your ability to trade Forex with discipline.

There is a substantial difference between simulated trading and actual forex trading from a psychological standpoint. When you trade in simulation, the brain applies 100% logic. Emotion plays no part and has no effect. Therefore, achieving 15 days of consecutive success on a demo account is achieved by simply following the trading rules. When you start trading with real money, a whole new range of issues suddenly comes into play. It is vitally important that you fully understand the emotional side of trading before you ever consider trading real money. When you go from simulation trading to trading real money, the brain will apply only 10% logic and replace the other 90% with emotion. It’s as if suddenly two “devils” jumped upon your shoulders…two devils named “Fear” and “Greed” and they always tell you to do opposite things. When you are not in the market, Fear says, “Stay out!” and Greed says, “Get in!”. When you are in the market, Greed says “Stay in!” and Fear says, “Get out!”. Both of these devilish emotions pulling you in opposite directions at the same time creates uncertainty in the traders mind.

Suppose we put a two-foot wide lumber that is twenty feet long on the floor in a room and we asked you to walk from one end to the other as quickly as you can. You would confidently go from one end to the other in a matter of seconds with no difficulty.

Now, if we put the same piece of lumber on top of the 50th floor between two buildings and asked you to cross it, how long do you think it would take you now? You would probably never even try because fear would be telling you that you could fall. Is that fear based on the fact that you suddenly forgot how to walk? No, it’s based on your fear of falling. Just as the fear of falling applies in this example, the fear of losing applies to the trader using real money. How do we learn to overcome these fears? What if we simply raised the lumber off the floor only one inch and we had you cross it over and over until you were completely confident then raised it another inch, etc, etc. We would eventually reach a point where the lumber would be 50 stories high and you could still cross it with confidence because you learned how to ignore your fear emotion through a controlled step-by-stop process. This is why simulation trading is so important in the process of becoming a successful trader. Step-by-step you gain confidence in yourself and your trading method. This confidence is vital. Even after completing your simulation trading with 15 consecutive days of profit, do not begin trading real money with large amounts. As with the lumber example, you will want to inch into the market with the smallest amount…only one E-mini contract per trade. By doing this, you are able to put your discipline on trial, so to speak, with the least amount of capital risk involved.

Once important consideration is the fact that you must never trade with capital that you cannot afford to lose. It is extremely difficult for Avatrade Trustpilot reviews the trader to trade unemotionally when he is constantly in fear of losing money he cannot afford to lose.

No one ever likes to lose. We must accept the fact that taking a loss is, and always will be, a part of trading forex. It’s how we deal with those losses that affects our ability as traders to trade effectively on a long-term basis. You must be willing to accept stop outs as a cost of doing business, not loss, as long as that it was based on following correct trading rules. As an example, imagine you are the owner of a very profitable store. As a business owner, you know that there will be those inevitable bills to pay…employees, utilities, insurance, rent, etc. You pay them without thinking about them as a loss. They are merely the cost of doing business. This is exactly how you must think of the occasional trade stop outs. It’s going to happen and you should simply put it behind you and go on to the next trade.

Never let the result of one trade affect how you feel about entering another one. If a stop out in one trade causes you to hesitate taking the next trade you should be aware that you are now trading emotionally instead of logically. Reacting to the market and chasing it in order to “get even” are sure signs of emotional trading and certain to go bad very quickly. Steps must be taken immediately to correct this emotional reaction. Accept the inevitable stop out as just a cost of doing business as long as it is based on correctly trading the method and as long as the overall results are positive.

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