Author: Shanda Biggs
Losses seem to be the dirty word in trading that newbies do not want to talk about. Rather, most people want to see strategies that have very little losses and much more wins. Strike rates of over 80% are enticing to new traders coming into the markets. What we are going to discuss today may be difficult for some people to digest. But you must understand the concept we are going to bring to light if you want to be a successful trader.
Forex trading is a game of uncertain outcomes. What this means is that you never really know how a trade is going to perform. All factors could align which would make your proposed trade seem like the perfect setup but then… it loses. Why is that? If you had the perfect opportunity and all the stars were in alignment wouldn’t it make sense that that trade should win?
The human mind will say yes and to most people that would make sense. But trading the markets is a completely different game. When all the stars align and the setup looks perfect, you can still lose. The reason for this is that the market moves on its own accord and with its own timing. We cannot control how the market moves and what it does. But what we can control is our technical edge and how we take advantage of opportunities in the market.
What is the Market?
The market is simply a collection of buyers and sellers from around the world. These buyers and sellers create supply and demand within the market at certain price levels on the proposed trading instrument. If we can learn to trade along side the momentum of buyers and sellers, we develop a technical edge.
So what allows for this edge to be present? Well you cannot do all of the work on your own. When your order is put into the market a collection of buyers and sellers are pushing price up and down. When you are on the side of the collective market is when your trades profit. This leads me to say that it is when many traders are thinking the same thing is when the market makes its move.
Market participation allows us to potentially capitalize on the said market moves. Being able to identify trading opportunities that present an edge allows us to potentially grab a slice of the pie.
As forex traders, all we can do is participate in the market with an edge and continue to execute trades based on our set of rules. This gives us the opportunity to grab our slice of pie. When we have strict rules that we adhere to, we reduce the uncertainty of our trades. We give ourselves a higher probability of success.
Trading with an Edge
To have an edge means that there is a greater probability of one thing happening over another. In trading it is essential to understand your edge and know where your edge lies within your particular strategy. By doing so you can embrace the uncertainty in the markets, knowing that overtime your edge will present and you will be profitable.
To trade an edge successfully over time requires that you understand probabilities. Trading is a game of probabilities and the better you understand this concept, the more success you will have. See it is not a matter of the “perfect” trade setup winning or losing.
The mind of a successful trader ponders if the trade is inline with their edge and trading plan and if so, they understand that by taking more of these trades that the probability of success will soon play out in their favor. By trading inline with the probabilities you can expect to be profitable over time. This comes from being disciplined and patient in the markets and having confidence in your strategy to execute every time a trading opportunity presents itself.
Developing confidence in your strategy comes from hours and hours of chart and screen time. When you start to understand where your edge lies, you must develop a plan that allows you to continually execute your edge.
The Trading Plan
It is absolutely essential to have a trading plan to be a successful trader. If you do not have a trading plan you are effectively gambling and you might as well go to a casino. Having a trading plan reduces the uncertainty in the markets. When you have a plan you know your action steps. If you know your action steps then you are well on your way to reducing uncertainty in your trading.
Being able to clearly identify our favorite setups gives us a better chance of success. Then we are able to execute the same trade over and over again. When we can do this, our edge presents itself and we are on our way to profitable trading.
One thing that can help us to become more confident in our trading strategy to reduce uncertainty is backtesting. If we can see that our strategy has successfully performed in the markets in the past we can reasonably assume it could perform in the future. Of course the future is never certain but we can move forward with more confidence then if we had no successful backtested track record.
At Evestin Forex we have successfully backtested multiple strategies and put them into a portfolio that trades on autopilot. These strategies are proven to have an edge in the markets through not only backtesting but multiple years of forward testing as well. If you are interested in knowing more about our strategies and seeing some results click the link below and let us show you more.