Forex trading is unique in many ways. You can reap profits irrespective of the direction in which the market is trending. However, this is possible only if you have a clear understanding of what is happening in the market and can recall and apply strategies suited for that. Your memory about your previous experiences also plays a vital role in this. Thus a trader can make profits only if he/she is smart enough to do the following:
(i) Grasp the market situation with clarity.
(ii) Recall from past experience the best suited strategy.
(iii) Apply that strategy with perfection.
Let’s now look at each of these in detail.
(i) Grasping the Market Vibe
Misperception is one of the main reasons for losing trades. This is one area where both beginners and experts make similar mistakes. (Please explain why experts make this mistake)
Sometimes, they fail to understand what exactly is happening in the market. They do not strive to develop anything beyond a superficial understanding of the market situation. When you do not have a firm grasp of the market condition, all subsequent steps will fail to yield any meaningful results.
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Why is abear on upside?
(ii) Using Your Experience
Which is more beneficial – the quantity of nutritious food consumed or the quantity of nutritious food ingested? Obviously, it is the latter! Similarly, your years of trading experience is of little value if they do not play a role in your current trade. Strategy selection is the phase where your past losses become important. You may have lost $100 on a previous occasion, but today, that experience is capable of helping you reap a profit of $1,000 if you recollect the lessons you learnt that day and apply them in your current trade.
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(iii) Applying With Perfection
“I knew what strategy works best in that situation, but still I made a mess of it in the last minute.”
This is something one hears from a few traders, on a daily basis. Knowing something is entirely different from doing it. We all know many things about living life the perfect way, but we seldom apply them in our own lives. Same is the case with trading. In many cases, the after-shocks of the previous trade affect the current trade, resulting in a last minute mix up and subsequent losses. To capitalize on the strategy that you chose based on your knowledge and experience, you should execute them without getting influenced by the results of your previous performance.
For some people, an intellectual understanding of the above mentioned points is enough to change the results of their trades. However, for majority of traders, these habits need to be cultivated with the help of some techniques. If you belong to that group, then the following techniques are going to be handy for you:
The three traits mentioned above can be cultivated by diligent practice of three psychological techniques; viz., Grounding, Connecting, and Centering. Let us understand them one by one.
Grounding:-
Grounding refers to the practice of emptying your mind of all notions you might have about the market from the news you’ve read, from the opinions you’ve heard, etc. If you look at the market with those preconceived notions, you will not be able to see what is actually happening there. So in order to empty your mind, you may simply close your eyes and focus on the darkness that you see inside, for a couple of minutes. This exercise will help you to empty your mind and evaluate the market without any prejudice. So
“Forget what you have heard”
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Connecting:-
It is a good idea to tune in to yourself and connect with yourself before going for the next trade. Many a time traders feel, especially after a short winning streak, that they are the next Warren Buffet. This will influence them to choose strategies that do not match their personality or skills. Therefore, take a pause and connect with yourself, remind yourself of your strengths and weaknesses, remind yourself to stick to your style, and so on. Hence,
“Be yourself”
Centering:–
As the result of your previous trade influences your subsequent trade, it is very important to get back into a state of emotional balance before attempting your next trade. This process of ensuring emotional balance is called centering. The best and easiest method is to sit comfortably and focus on your own breath. You need not control your breath or try to make it deep. Simply observe the breath. It will help you to
“Balance your emotions”
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Following these principles will help you to become nimble and totally focused on your trades and thus become the best in trading.
