I’ve decided to share some of the thought process that I go through when deciding to take a trade, this is a 7-part series on Trading Strategies that I hope you enjoy.
Forex Trading Strategies #1 – The Real Reason
Far too many times Forex traders get into the market without the right reason, or for that matter, without a good enough reason. Usually the emotion factor is driving the trade, such as greed or fear of missing out on a potential profitable trade… And I have to confess to this as well, because when you take away all of the technical mambo jumbos, the only reason that sometimes compelled me to take a trade was: greed…
They say that to sell to a man you need to give him 2 reasons, the real reason and the reason he tells his wife why he bought it. Most of us traders tell ourselves the wife-reason, but the real reason is that we just wanted to make money fast… Of course, fundamentally there is nothing wrong with being greedy or wanting to make money, or we wouldn’t be in this business in the first place. However, we have to be smart greedy, not stupid greedy and get our hands caught in the cookie jar. That’s why it is so important to have a right reason to take a trade, instead of chasing after the market like a chicken without a head…
In a fair game, as defined by 2 players with the same odds, or neither one has an advantage over the other; it is proven that the one with the biggest purse will win the game. In Forex Trading however, it is NOT a fair game for Retail Traders because:
- We enter the market at an immediate loss due to spreads
- We have limited margin accounts
- We use methods that are well-known and studied by traders all over the world, and
- There are so many underlying factors that move the market and no one can be certain at times.
…all of these put us at a great disadvantage in our trading, and it’s no surprise why most traders hit or miss with their trades all the time…
That is why we need to identify The Real Reason behind our trading decisions. Ask yourself why are you in this particular trade, is it because you saw how the market jumped 30 pips in the last 5 minutes? Or did you have a strong fundamental reason to take this trade? Is it because you’ve been sitting in front of your PC the whole day and you haven’t made any money? Or you took this trade because it was the entry level you’ve been waiting for the whole day?
So make a habit to always ask yourself when you are about to take a trade, and pretty soon you’ll realize that you no longer look at the 5-min chart and fly by the seat of your pants… And since you are always looking for the real reason, you’ll soon anticipate the market and plan ahead… It is always a good habit to plan ahead, knowing where you want to get in, why you want to get in, your stop loss, and your take profit levels, so you can see some consistency in your trading.
In the coming day’s I’ll cover some of the fundamental reasons to trade, I’m sure you’ll find it helpful so bookmark my blog or signup for the newsletter.
To wrap this up, here’s a great reason to be in the market – Economic News Releases:
Since we get about 30 high impact tradable news releases a month with potentially hundreds of pips of movements per release, I’ll say that news trading is a great reason to be in the market… considering also the fact that the bulk of market movements takes place during the first 45 minutes after the news, you get the most out of trading in a relatively short time, plus the fact that some high-impact news could change the long-term trend of the market, which puts you in an excellent position to get in just as the trend changes… I can’t think of a better way of trading…