We are kicking off our week with a speech from the European Central Bank (ECB) President Lagarde. She is due to testify at a virtual hearing before the European Parliament Economic and Monetary Affairs Committee, via satellite.
On Wednesday, Federal Reserve Bank (FED) is expected to maintain their Interest Rates at a current rate of <0.25%, followed by FOMC press conference. Below is the weekly economic calendar.
The statement above can be very true for many people. It was also very true for me too for so many years. It is very easy to adopt a gambler’s mentality when trading the financial markets, especially when you are expecting trading to be exciting and you are viewing it as some cash slot machine. How you view your trading account makes all the difference and has an impact in your performance. There are a number of contributing factors which may lead a Forex trader into becoming just one more gambler without even being aware. On this post, I want to focus on this one big factor listed below.
From the day a Forex trader decides to go from a demo to a live account, things change in so many ways. The trades that they do become emotion based instead of logic based. They become indecisive about so many things, like when to take profits, or when to cut the losses and whether to enter the market or not. If you start to feel like that, you have just discovered the effects of trading psychology. It is just a phase that is likely to pass if you really want it to pass. What you do after that, will determine whether you’ll succeed or you’ll become a gambler.
It actually clouds your judgement. There are two most important emotions that I am sure every trader has experienced in their trading career, these two are:
Fear can either cause you not to place a trade even when opportunities are plenty in the market, or it can make to you to close good running trades prematurely without giving them a chance to actually be profitable, and it can also cause you to hold on to a losing trade even when there is no hope for that particular trade, for the fear of being a loser. As long as one stays in the market, this emotion will at some point affect them. We all go through it at some stage of our trading journey or career.
The good news though is that it does get better with time. Actually, it does disappear completely. Think of the first time you had to be in the car driving alone and think of yourself now when driving alone. The fear that you had is no longer there. But if you stopped driving on that first day just because you became too scared and you ended up crashing your car, you would not be as experienced today. What made you become better was the fact that you never stopped driving and you faced your fears head on. That gave you strength to keep on trying and improving. You did not park your car and go back to public transport. It’s not just driving, there are so many other situations when you had fear and today you are a master in that area of your life simply because you did not give up.
Greed is the most dangerous zone, you don’t want to find yourself here. This emotion can cause you to take trades that are too risky with an aim to score big or to make massive profits in a short space of time or it can also be just about trying to appear clever and impress the crowd or even to be seen as the best. Greed can also make you to not close winning trades hoping that you can still make more out of them.
This emotion causes a trader never to be satisfied even when they make profits. They keep on holding on to a trade until they sometimes find themselves on the wrong side of the markets. When they are finally on the wrong side of the markets, they want to trade even more by opening more trades in the opposite direction to make up for a loss.
The good news again is that this emotion can be dealt with effectively as long as you are willing to put in the work that is needed. A good mentor/ coach is able to assist with such issues. I work together with my mentees to help them deal with these issues and I have had successful cases (but only where there was willingness and commitment from a mentee) Should you need private lessons, mentorship and coaching, you can enrol here.
Just like any other business whether online or offline, risk becomes part of it, but it should be a calculated risk because if it is not, it can eventually lead to the business closure. In closing, we can all be profitable traders as long as we understand that we never lose but learn, and we focus more on being consistent and getting it right because by getting it right, the profits start pouring eventually. Thank you for stopping by. If you find value in this post, kindly share with your peers and subscribe for weekly publications. You can also download the App on Google Playstore for a quick read and weekly tips which are only posted on the App.
This week on Tuesday, Reserve bank of Australia (RBA) is expected to maintain their Interest Rates at the current rate of 0.25%. On Wednesday Bank of Canada (BOC) is also deciding on their Interest Rates. They are expected to maintain their Interest Rates at the current rate of 0.25%. Both Central banks will also issue their Monetary policy statement. European Central Bank is also on the maintaining path. They are expected to maintain their Interest rates at the current rate of 0.00%.
To close our week, United States will release their 6th job numbers stats (the Non Farm Payrolls) on Friday. I have published Non Farm Payrolls (NFP) annual schedule. You can download it HERE. If you would like to receive any new publication whenever I publish one, kindly subscribe to this blog. Look for a subscribe button on the sidebar and enter your email address. Make sure that you check your email for a confirmation link which could be in spam/ folder. Clink on the link on email and confirm subscription.
Draw-down: A decline in an investment or fund. Let’s assume you start your account with $1000 and you lose about $100, that is a 10% draw-down (which is acceptable in my books, because you can recover it back). Being disciplined is one of the major challenges that many traders are faced with, but it is a skill that can be learned, but only if you are willing to learn.
Self control is something that should come from within, no amount of motivation or support can work if you are not doing your part. Traders need to understand that no matter how great the strategy or trading method is, if the emotions are not well checked, you are heading for trouble and a disaster is imminent. This is a very sensitive subject and not many traders are keen to talk about it.
It happens a lot, especially when you are still starting out, even seasoned traders do experience a draw-down. It is something normal, but it becomes abnormal when you cannot even figure out why you got your account into such a state in the first place. It then becomes very difficult to improve, especially if you do not keep a trading journal or even have a trading plan.
You had a very bad week and your confidence went out of the window. You feel so down and stupid, so ashamed and embarrassed, like you are such a loser and you think you need a break, maybe you do or maybe you don’t. There is absolutely nothing wrong with taking a break, but what exactly does taking a break mean? Does it mean walking away from your account and neglecting it without trying to figure out what you could be doing wrong or what could be the biggest contributor to your draw-down?
Most of the time, failing has nothing to do with your strategy or method of trading that you use, but a lot more to do with your emotions and your behaviour. A group of traders who are trading the exact same strategy can have different outcomes. I see this even with my own mentees, the outcomes aren’t the same. When you have lost more than 50% of your account’s equity, it is definitely time for you to take that break, evaluate yourself and work on your issues (if you have a coach, a good coach can help you with tools to sort out your issues but you have to be willing to do the work needed)
The problem is when you do not have a trading journal and you do not record your daily trades and the reasons behind them, it is almost impossible to recover and you won’t know what you did wrong, and therefore you won’t know what to fix. So while you are still reading here, check if your trading journal is in order (that’s if you have one), if you don’t have one, get it today and start writing In it from Monday and while you are still at it, also draft your own trading plan. If all these are really confusing for you, it is time you find yourself a coach (I can be one)
A good break means that you are going back to your demo account, you are decreasing the amount of money you are trading with by asking your broker to do a “withdrawal” for you on your demo to accommodate your new smaller equity on your live account. Get your trading journal in order, start writing In it right away. Do that for about a week and at the end of the first week, go back to review your daily trading activities and see if there are any mistakes you can pick up. Chances are, you will pick up some mistakes because you’ll be doing it with a sober mind, minus the emotions you get when you are trading live. Start fixing your mistakes on your demo account and see if you can improve or do better, chances are, you will improve and become a better trader. Gradually move back to your live account to get your emotions in check again. Start with a very small volume until you feel confident again.
A bad break is when you walk away from your live account and you do not touch your demo account or even try to figure out what could have gone wrong and why you are in that situation in the first place. When you take a break, it is a bad break if you do nothing during that break. If you do that, chances are, you will go beyond a simple draw-down when you finally go back and you’ll head straight to a margin call (losing your account), because you will still come back with the same emotions and behaviour.
If you should know, a demo account is there to retest and retest. A trader is never too smart for a demo account. I used to do that all the time and it worked. That is how a trader becomes emotionally stable day by day and that is how you become rational. I hope you found this post informative. Thank you for stopping by, kindly share with your friends.
Again this week, Central banks are in focus. BOC, ECB, RNBZ and Fed. It is Covid-19 time, the Central Banks are busy. Below is the weekly economic news to watch this week.
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