How To Find Success In Forex

Why Traders Fail

I work with forex traders on a regular basis, and one of the most common hurdles I find is necessary for them to overcome before they can truly begin to achieve success, is the belief that those who are successful posses some magic system or are privy to some insider knowledge that gives them an advantage over "ordinary" traders. This is more commonly referred to as the "holy grail".

This problem is exacerbated by the constant influx of get rich quick schemes perpetrated by hacks looking to take advantage of the emotional instability in new forex traders. They pray on emotional fear and greed in an attempt to sell them worthless trading systems that promise to make them millions while they sleep.

It is in fact this very emotional rollercoaster that is the root cause of his failure in the markets. His/Her inability to manage their "Trade State" makes them vulnerable not only to these types of scams but also to emotional pain they feel in the currency markets.

So what is Trade State Management?

Recent trading events can affect your trading state. Losses make it harder to execute entries, cause you to break exit rules and stop placement rules.

Quite simply your "Trade State" refers to your psychological and emotional condition while operating in the market. The combination of your internal dialogue and outward physiology directly affect your decisions regarding the next trade, and your ability to execute your trading plan.

If you are a losing trader, you bring a great deal of emotional baggage to your trading each day. This will, without a doubt, affect your decision making throughout the trading day.

So what can I do about it?

Consistent profitability is not a myth, and those traders who continue to turn winning days into winning weeks, weeks into months and so on are not a myth either. But those traders have accepted several basic tenants about trading and have taken steps to operate accordingly.

1. Everyone has losses.
 
All traders have losing trades. It is a cost of doing business in the market. No one is right 100% of the time. With this in mind the successful trader focuses on following his trading plan rather than if his last trade was a winner or loser.

2. A trading plan is essential.
 
It doesn't matter if you are a fundamental or technical trader, long or short term. Taking the time to formulate a trading plan is the first key to successful trading. This is where most traders get hung up. They trade a plan until it moves into a draw down (see #1) then give up, and move on to another system. This process continues until the trader is bankrupt.

The profitable trader has invested the time to develop a system of rules for entering and exiting the market and has back tested those rules to ensure they are profitable.

3. The system you used is not half as important as your ability to follow the system.
 
This is where 90% of all training programs, trading systems, trading seminars, etc. fall short. The successful trader realizes that without a solid handle of his emotions and strict discipline to his trading system there can be no success.

As I spoke about earlier, if you are a losing trader you are bringing a great deal of baggage to your trading. The process to profitability is not a short one. Nor is it easy. It can't be corrected in a weekend seminar or week long trading course. It takes consistent work on a daily basis. Regardless of what type or trader you are, your success will be determined not my your trading system but by your ability to follow the system you put into place. Your ability to manage your "trade state" is the most important key to consistent profitability.

Social Proof

Ed Seykota, industry recognized trader and lecturer, once taught a college course in trading that lasted ten weeks. He spent the first week of the class teaching basic information about trading. He then spent another week teaching the class Donchian's 10-20 moving average crossover system. However, he needed the remaining eight weeks of the class to convince the students to use the system that he had taught - to get them to work on themselves enough to accept the losses that it (or any other good trading system) would generate.

Dr. Van Tharp, of "Trade Your Way to Financial Freedom', has argued that trading is 100 percent psychology, and that psychology includes position sizing and system development. The reason is simple: We are human beings, not robots. To perform any behavior we must process information through the brain. Behavior is required both to design and to execute a trading system.

The Past Does Not Equal The Future.

You can change the direction of your trading.