Many traders, both new and the experienced, fail to understand one of the most important rules to the Forex market. This rule is – “We can never be 100% sure of what anything in the markets will do!”
Do a quick search in any forum and you will soon see traders the world over looking for a trading method that is 100% accurate. They want to know exactly what is going to happen, and they even want to know with certainty what the outcome will be!
This may seem like a small problem that doesn't have the potential to hurt a trader’s balance, but when we dig a little deeper we learn that this thinking can severely cripple a trader’s account.
To trade the Forex markets successfully, a trader needs to have the best mindset possible. This mindset needs to be flexible enough to let the market move and breathe. When a trader is fixated on being right and not losing they will trade attentively and over manage their trades.
A trader needs to instead have the mindset knowing anything can happen and whatever is going to happen they don’t have control over.
Every Trader is a Market Factor
To fully understand why we can never be 100% sure of what is going to happen in the Forex market we need to look at how the markets work. The price of currency pairs go up and down because of traders either bidding the price higher or lower.
Every trader that places a trade has the potential to move the market. Because it is others that make the price go up and down, for traders to place a winning trade they rely on other traders agreeing with what they think and acting in the same manner. For example if I was to go short I would be relying on other traders also going short to make the market go short and make me a winner.
Because every trader has the potential to move the market we can also look at each and every trader as an individual factor in the market. At any time there could be thousands of individual traders entering and leaving a certain Forex pair.
The only way we could know exactly what is going to happen in the market is if we knew exactly what every single trader was going to do at exactly what time and price! To think of it like this makes looking for a certain outcome in the Forex market pretty silly, but this is what people are expecting every time they look for a system that is 100%.
Obviously knowing what every trader is going to do is impossible, so therefore knowing for 100% certainty what will happen next in the Forex market is also impossible!
Play the Odds
After I explain this the next question I tend to get is “How can I make money if I can’t know what all the other traders are doing?” To make money in the Forex market we need 3 things. These are;
- A logical method
- Solid Mindset
- Good Money Management technique
When traders have these 3 important tools in place, they give themselves a huge advantage over other traders. What a trader must then learn is to practice their method and ensure it gives them a profitable edge on the market over large sample sizes of trades.
Traders tend to get caught up with individual trades. As we now know we can never know for sure what will happen in each trade and because of this we can only measure the success of our trading method over many trades.
If we have a profitable edge in the market we will make money over a large sample of trades. Individual trades may lose but over a period of time the profitable edge will put the odds in a traders favor.
At Forex School Online we always stress the important of correct money management and in particular never risking too much on any one trade or trades. As obvious as this may sound many traders still fail to stick to this very basic rule. The next time they see a great setup they either risk far too much money or they hold onto the trade believing it will turn around. Let me just say again no matter how fantastic an individual trade may seem it can fail!
The other times a trader can be caught out is when similar setups form on carry trades that have the same country in the pair. For example Pin Bars may form on both the GBPJPY and AUDJPY because they both have the JPY in them. Traders can often see this as a great sign of where price is looking to go on the JPY.
Never fall into this trap and instead of opening up two full trades and risking two full losses on very currency similar pairs, either split the risk and only risk half on both trades or pick the best setup. DO NOT over risk on any trade or trades! We never know for sure what will happen!
Learn Price Action to Gain and Edge
Learning a very logical method such as Price Action trading can give traders an edge on the market that can help them become profitable over time. The bonus Price Action gives a trader is they can read what the market and other traders are looking to do by looking at a clear chart only.
No fancy indicators or black box systems are needed once traders have learnt to correctly analyse Price Action. Price is always giving hints as to which direction it’s looking to go and a well-educated Price Action trader can pick up on these hints and profit from them.