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FX Trading Guide

Successful FX trading

FX Trading Guide

This lesson teaches you how to avoid self-sabotage and attain the winning mental attitude required to become a successful FX trader. This is the final lesson.

Traits of successful and unsuccessful traders

Successful traders don't have access to better information, trading models or broking facilities than losing traders. Their edge is mental: decisiveness, ability to be comfortable with uncertainty and responsibility for their own trading outcomes. They transcend the focus on money with attendant emotions of greed and fear, and see trading as a challenge and a game.

Losing traders typically wait for confirmation from others before they act, and want a broker to hold their hand. They do not use a tested model, but instead try to second guess the market and trade by the seat of their pants, or buy someone else's trading model. They don't manage risk or use stop losses and have unrealistic profit targets. When they lose, they typically look for someone to blame and avoid responsibility for their own actions.

The FX market is not the place to find out what type of person you are, but will quickly and ruthlessly reveal your true character and expose your limitations. Hopefully you will do the homework of working on your psyche before starting to trade.

Self sabotage

Self sabotage is when an FX trader unconsciously acts against their own best interest, and sabotages their opportunity for success. This is often very deep rooted, and stems from low self esteem.

Since FX trading offers an opportunity for financial success and the associated rewards, the unsuccessful trader feels that they don't deserve success. Alternatively, when they do experience some success they may find this an uncomfortable change of circumstances - for example they may feel more comfortable relating to people on their own financial plane.

Whilst having an outward desire for change, they have an inward desire to remain the same. This leads to poor trading performance, because the trader unconsciously sabotages their own trading in order to avoid change. The way to eliminate self sabotage is to resolve the conflict.

The human mind works very quickly but logically, similarly to a computer. Like with a computer, garbage in equals garbage out. To resolve internal conflict, it is necessary to uncover the underlying false beliefs and replace them with new correct beliefs. This is something that a winning trader will spend time doing through reading, introspection, and perhaps working with a psychologist. A losing trader won't do this work.

Taking responsibility

Successful traders believe that they are the only ones who can influence their trading outcomes. In contrast, the unsuccessful trader believes in luck, or blames the broker or the market when things go wrong.

The successful trader does not base his or her self worth on whether their account is up or down for the day. When something doesn't go to plan, the successful trader uses it as a learning opportunity, but does not necessarily abandon their system since he or she is realistic about losses.

Most of all, the successful trader realises that there is no-one else to blame, and that the individual trader must accept all credit and responsibility. There is sometimes a negative view to this, but accepting responsibility also means being able to take the credit for success. When a trader has a proven profitable system, on balance, this means that success will be the norm.

Managing uncertainty

The FX market is inherently unpredictable, and is uncontrollable. It is impossible to make the market do what you want - it is far too big for an individual to control. This means that the trader has to be able to manage significant uncertainty.

Successful traders have an internal locus of control. This means that they believe that they do have control over the outcomes in their lives. Unsuccessful traders believe that external factors change the outcomes, and they have little or no control over the outcomes. Both winning and losing traders face the same market circumstances, but with a different attitude.

Successful traders realise that they can control whether or not they take signals from their system, the currencies that they will trade, the size of their trades and whether or not to enter a market. These variables are what gives the successful trader control in the market. The market itself is not controllable or predictable.

Since unsuccessful traders don't have a trading system, they don't have any basis to enter or not enter a particular trade, and no defined exit point. This leaves the activity of the market as the key variable in determining the outcome. This reinforces the belief that external factors influence the outcome.

Changing your thinking

Now you know what psychological attributes are needed to successfully trade FX. How do you develop these? Generally there is no way to develop without practice. We recommend that you start trading with a practice account (available from many brokers). Take it seriously, and analyse your reactions to wins and losses. Keep a journal which details the reasons for your trades, and track how you feel about them. This introspection is necessary to grow as a person.

Write down your trading goals, and also imagine yourself as a successful trader, and write down a specific picture of how that trader analyses the market and handles and feels about successes and losses. Keep your goals where you can see and review them regularly.

Consider working with a personal coach or psychologist to increase your performance. The best sportspeople already do this, and you should follow their example.

Focus on the game rather than the dollars. As you become consistently successful, gradually increase the scale of your trading.

A final note

The FX markets offer an exciting opportunity for you to build substantial wealth without needing to run a conventional business, or scale the slippery corporate ladder. You need a systematic approach to trading, typically by developing your own system. There are no short cuts to success, so you will need to read widely and critically, and work on your trading psychology.

We wish you successful trading.