Wednesday, September 8, 2010

Keep That Ego On Check – Else You'll Lose Your Shirt On Forex Trading

“E” is For Ego – The Biggest Stumbling Block of Most Forex Traders

Making money on online Forex Trading is actually easy! It is only the forex traders themselves who makes it rather difficult and complicated to win trades.

Consider this!

To make money trading the foreign exchange market, there are only 5 basic and simple rules to follow!  All of which are quite easy to understand.

One needs only to:
  • 1. Buy low, sell high.
    2. Let profits run, cut losses quickly.
    3. Add to a winning position, never to a losing one.
    4. Go with the trend. (Don’t buck it!)
Richard Alcantara, Basic AuthorHowever, simple though, the above rules may seem to many, most forex traders I’ve known still continue to lose money on forex!

Instead of buying low and selling high, many forex traders find themselves buying high and selling low instead! In fact, a lot of them jump into the market for the wrong reasons.

For example, I have known forex traders who start buying into a currency pair just because everyone else is buying into it! Worst, after finding themselves in a losing situation, they start looking for flimsy reasons and insignificant fundamentals to hold on to their losing trades.

Afraid to take a loss and more adamant to admit mistakes, many of these forex traders I’ve known end up desperately holding on to losers - hoping that the market will finally turn around and “prove that they were just a little early in calling the correct market direction”.

Often, after settling for some flimsy excuses to hold on to their losing positions, many of these forex traders even worsen the situation by adding  up more positions to their already precarious trade (a trading practice called averaging)  – hoping to recover faster once the market finally vindicates them.
Often, they desperately hold on to losers until they can no longer bear the pressure of nursing a losing situation or when they start having trouble  meeting margin calls.
You may wonder why these forex traders seem too eager to want to kill themselves in the market. Despite acknowledging the fact that they’ll end up losers if they disregard any of the 5 simple trading rules above, forex traders repeatedly break them and chances are they will continue to do so!
They have become so engrossed with learning and analyzing the many factors that make the market tick to a point that they forget the fact that as mere speculators, they are there not to move markets(they simply can't), but merely to take a free ride to profits! They unknowingly immersed themselves in a process of self-deception… even making themselves believe that they can bend markets their way! They have so so deceived themselves into believing that after some well thought of trading plan and some well collected fundamentals plus a thorough technical analysis, the market will (and must) move their way!

They have been practically beclouded from the tragic truth that we are all but incidentals in a global market such as forex…that we are there only to react (and react appropriately) to take a free ride to profit as the market unfolds! They have totally forgotten that the market makes all the decisions. Our only decision is to Listen, feel, and respond to the market’s siren. Always and without exception.

Remember, the market never lies. It is only we who lie to ourselves.

I found myself in the same sad situation many times over early on in my career as a forex broker…and I’ve asked myself the same question over and over again! I found out (not too soon though) that the problem lies not in the trading rules but inside each individual trader! I soon realized that once on trade, we are not contending with the market – we are actually up against our own selves! I soon realized that there is an enemy that resides within ourselves...our very own egos!

It is our ego that prevents us from doing the right thing when trouble begins! It is ego that prevents us from getting rid of losing trades. It is ego that drives one to to seek for flimsy and fantastic reasons to hold on to capital-draining trades. It is ego that prevents one from swallowing his pride and take a loss before it becomes more expensive. It is ego that coaxes one to get out of a winner too soon just to harvest immediate gratification for being rarely right.

'E' is for ego...the biggest stumbling block of both professional and start up forex trader! The sooner we become aware of the tight grip our egos have on us, the better of we will be to a flying start in making money trading forex online!

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