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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

Successful Forex Traders vs. Unsuccessful Forex Traders

Two weeks ago I discussed the 7 habits of a forex winner so you don’t become a forex loser (yeah, I’ve read some Steven Covey ).

While there are several concepts that I’ve reinforced repeatedly on the rapid forex blog,  the ideas below are simple and need to become part of your mindset as a forex trader in order to become successful.

As a forex trader, you will have the highest chance of success if you believe in – and follow – the following principles:

1. A successful forex trader educates themself on how the market works.
2. A successful forex trader understands how to find and place a trade.
3. A successful forex trader trades only when solid equity management allows.
4. A successful forex trader NEVER trades without a protective stop loss order.
5. A successful forex trader never chases the market.
6. A successful forex trader patiently awaits solid trading opportunities that meet his trading criteria and passes on trades that do not meet his equity management requirements.

One of the fundamental reasons that 90 percent of Forex traders fail is that they do not follow the rules.  It is crucial that you educate yourself on how to place sound, educated trades, this is why you’re at the rapid forex trading blog

But you can have all of the education in the world and if you don’t follow the rules you have learned, you will fail.  Do not get emotionally attached to the money invested in a trade (that means, in part, that you should not trade more than you can afford – practice sound equity management).

Do not get emotionally attached to a trade.  Psychologists have found that many people who lose big in the markets held on to losers for too long – you can prevent this by setting appropriate stop loss orders with every trade.

Remember that every trader loses sometimes. It’s how we deal with losses that allows us to ultimately be successful! The ones who win overall are those who trade the Forex in an educated, methodic way.

Posted in Forex Trading Mindset

7 Habits of a FOREX Winner!

Making money in the forex market is of the utmost importance! If forex trading were a religion, consistently making money would be a the highest virtue. Surpassing all the forex losers & forex gambling addicts would help you ascend to the ranks of the true forex genius traders.

The best way to become a forex winner is to know how forex winners act and behave.

By looking at the characteristics of a winning forex trader you’ll know what to emulate for success.

There are seven reasons why forex winners are successful:

1. Forex Winners educate themselves on how the market works.
2. Forex genius traders have a well-analyzed, well-thought trading plan that they stick to. By sticking to a pre-defined trading plan, successful traders allow themselves to remain reasonable and logical. Sticking to a trading plan helps keep emotions at bay.
3. Successful Forex Winners quantify their potential loss before each trade. They don’t risk everything on one trade (in fact, they don’t risk more than 5% on one trade).
4. Brilliant forex traders create a trading plan and stick to that plan when they’re trading. If they deviate from their original plan, they do so only after creating a new trading plan.
5. Forex Winners maintain their focus.
6. Forex Winners do not marry their trades. They are quick to change direction if that’s what the charts and indicators are telling them. In other words, they are not emotionally tied to a particular trade. They do not take it personally if a trade does not go their way. Successful traders do not allow their emotions to overwhelm their intellect in a trade.
7. When successful traders are unsure of the signals they are getting from their charts and/or indicators, they stay out of the market.

Traders who adopt those seven characteristics and attitudes as their own are the ones who will be successful winners, the ones who will net profit overall no matter how often their trades win or lose.

Successful traders, in addition, are disciplined, confident, self-reliant, motivated, optimistic, intuitive, honest, strategic, patient, focused, independent, risk-taking, hard-working, high-achieving, energetic, objective, proactive, organized, goal-oriented, self-confident, knowledgeable, open-minded, determined, ambitious, and committed.

Forex winners enjoy trading, they manage their risk, they manage the stress that comes with trading, and they visualize their success.

If you have, or are willing to develop those qualities, and you educate yourself on how the market works using this book as a guide, then you will no doubt be a successful trader, too.

Nobody wants to be a forex loser. Follow thes habits of a forex winner and create success in your forex trades!

Posted in Forex Trading Mindset