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Forex Gambling Mentality Kills Profits

Every forex trader understands that we need to use basic forex money management to be successful at forex trading online.

This mentality caused a winning series of trades (60% success) to lose 700% of a forex trading account that should have gained 520%. Read this post to see how a profitable forex trader can still lose so much money, and how you can prevent this from happening to you.

Confession: This trader was me a few years ago when I got started trading forex online. I’d be willing to bet something like this has happened to you…

Why is Money Management important?

It prevents what I call the “Forex Gambling Mentality,” when you see how this can turn online forex trading PROFITS into LOSSES, hopefully you’ll beat this dangerous way of thinking forever.

What is the Forex Gambling Mentality?

When you follow impulsive decisions to determine the amount of risk you take on a forex trade, you are falling into the Forex Gambling Mentality. Anything outside of a predetermined money management strategy is considered a forex gambling mentality.

Let’s look at an example:

• You enter trade #1 and risk 10 pips to make 10 pips. The trade succeeds and you make 10 pips!
• You enter trade #2 and risk 10 pips to make 10 pips. The trade succeeds and you’re now up 20 pips!
• You are felling good, so on trade #3 you risk 20 pips to make 20 pips.  The trade succeeds and you’re now up 40 pips!

At this point you’re feeling like you’ve mastered forex trading. You get out your calculator and start figuring out that at this rate of compounding your forex trading profits you’ll have $2.5 million in your online forex trading account in about 9 weeks (TRUST ME – I’ve actually thought this way, and you probably have to).

You are now cocky and you start trading again, since you’re on a roll you decide to trade more lots to make more money faster.

• You enter trade #4 and risk 40 pips to make 40 pips. The trade fails and now you are at breakeven!

You’ve still been successful 3 out of your last 4 trades, so you do another trade:

• You enter trade #5 and risk 40 pips to make 40 pips. The trade fails and now you are down 40 pips!

Now you get nervous and decide to be more conservative, so you go back to what was successful for you in the past:

• You enter trade #6 and risk 10 pips to make 10 pips. The trade succeeds and you’re only down 30 pips!
• You enter trade #7 and risk 10 pips to make 10 pips. The trade fails and you’re down 40 pips!
• You enter trade #8 and risk 10 pips to make 10 pips. The trade succeeds and you’re only down 30 pips!

You now look at your past 8 trades. You think to yourself  “I’ve been right 5 out of 8 times, or 62.5% of the time.  I’ve been allowing my emotions to control me. I need to stick to my plan. If I just risk 20 pips to make 20 pips, I’ll be successful.”

So you do the following:

• You enter trade #9 and risk 20 pips to make 20 pips. The trade succeeds and you’re only down 10 pips!
• You enter trade #10 and risk 20 pips to make 20 pips. The trade fails and you’re down 30 pips!
• You enter trade #11 and risk 20 pips to make 20 pips. The trade fails and you’re now down 50 pips!

You’re down 50 pips, so you look at what you’ve been doing to try to analyze patterns and stop making the same mistakes. You’re not too worried yet, so you notice the following. You’ve still been right 6/11 times. You also notice that you’ve never had three failing trades in a row. Since you just had two failed trades, now’s your turn to put the odds in your favor. So you decide to go for breakeven and risk 50 pips to make your money back:

• You enter trade #12 and risk 50 pips to make 50 pips. The trade fails and you’re now down 100 pips!

Now you feel like you’re having bad luck and aren’t going to risk any more money wildly. You’re still in the game and you know you can still make money with trading forex online, so you go back to risking 10 pips and the following happens:

• You enter trade #13 and risk 10 pips to make 10 pips. The trade succeeds and you’re only down 90 pips!
• You enter trade #14 and risk 10 pips to make 10 pips . The trade succeeds and you’re only down 80 pips!
• You enter trade #15 and risk 10 pips to make 10 pips . The trade succeeds and you’re only down 70 pips!

STOP! END OF EXAMPLE

It doesn’t seem right that a forex trader who is profitable 9 out of 15 times (60% of the time) could lose so much money trading forex online. This is the same reason that compulsive gamblers lose money, they don’t follow basic forex money management of trading only 2% of their account per trade. By doing this the forex trader gets to be more profitable. This is what forex losers do.

A forex winner who is free of the forex gambling mentality would have had the following experience (with the same trades):

• You enter trade #1 and risk 10 pips to make 10 pips. The trade succeeds and you make 10 pips!
• You enter trade #2 and risk 10 pips to make 10 pips. The trade succeeds and you’re now up 20 pips!

You notice that your account size has grown & you can now safely risk 12 pips to make 12 pips.

• You enter trade #3 you risk 12 pips to make 12 pips.  The trade succeeds and you’re now up 32 pips!
• You enter trade #4 you risk 12 pips to make 12 pips.  The trade fails and you’re still up 20 pips!
• You enter trade #5 you risk 12 pips to make 12 pips.  The trade fails and you’re still up 8 pips!

You notice that your account size has shrunk & you can now only safely risk 10 pips to make 10 pips.

• You enter trade #6 and risk 10 pips to make 10 pips. The trade succeeds and you’re up 18 pips!
• You enter trade #7 and risk 10 pips to make 10 pips. The trade fails and you’re still up 8 pips!
• You enter trade #8 and risk 10 pips to make 10 pips. The trade succeeds and you’re up 28 pips!

You notice that your account size has grown & you can now safely risk 12 pips to make 12 pips.

• You enter trade #9 and risk 12 pips to make 12 pips. The trade succeeds and you’re up 40 pips!
• You enter trade #10 and risk 12 pips to make 12 pips. The trade fails and you’re still up 28 pips!
• You enter trade #11 and risk 12 pips to make 12 pips. The trade fails and you’re still up 16 pips!

You notice that your account size has shrunk & you can now only safely risk 10 pips to make 10 pips.

• You enter trade #12 and risk 10 pips to make 10 pips. The trade fails and you’re still up 6 pips!
• You enter trade #13 and risk 10 pips to make 10 pips. The trade succeeds and you’re up 18 pips!
• You enter trade #13 and risk 10 pips to make 10 pips. The trade succeeds and you’re up 28 pips!

You notice that your account size has grown & you can now safely risk 12 pips to make 12 pips.

• You enter trade #14 and risk 12 pips to make 12 pips. The trade succeeds and you’re up 40 pips!
• You enter trade #15 and risk 12 pips to make 12 pips. The trade succeeds and you’re up 52 pips!

You notice that your account size has grown & you can now safely risk 14 pips to make 14 pips.

Would you rather be up 52 pips, or down 70 pips?

This is the difference between the Forex Gambling Mentality and Basic Forex Money Management.

Posted in Money Management

7 Habits of a FOREX LOSER!

Losing money in the forex market is totally pitiful! If forex trading were a religion, consistently losing your money would be a deadly sin.

The best way to avoid becoming a forex loser is to know how to spot one and to avoid the forex gambling metnality. By looking at the characteristics of a losing forex trader you will know the pitfalls to avoid.

We’ve all committed some of these errors (Trust me, I AM NO EXCEPTION!)

Fortunately, there are identifiable reasons why some traders fail and others succeed.

There are seven characteristics and attitudes that unsuccessful traders have in common, all of which lead them directly to failure:

1. Unsuccessful forex traders are trading to get lucky and make quick money.
2. Unsuccessful forex losers’ greed exceeds their need.
3. Shameful forex traders think that trading is a game of chance and luck, and therefore do not seek out the education they would need to succeed.
4. Pitiful forex idiots are not willing to pay for their education or mentorship.
5. Moron forex losers are extremely unfocused.
6. Forex jerks do not have a defined trading strategy instead they rely on the forex gambling mentality.
7. Forex losers cannot handle their emotions when they’re trading.

Those seven characteristics of unsuccessful traders set a trader up to lose – with those characteristics and attitudes no trader could ever succeed at forex trading.

Did this post get you upset? Is your blood about to boil?

I’d love to hear some of your comments about other traits of a forex loser…

Posted in Forex Trading Mindset