The setup looked so favorable and yet it still resulted in a loss. You start to wonder what the heck it’s going to take to make it work in this crazy business of Forex trading.
But here’s the kicker, not all traders feel this way after a loss. In fact those who have found their trading edge don’t even flinch at the thought of a loss because they know that their winning trades are in front of them; they understand that losses are just part of the game.
What does it mean to know your winners are always in front of you? That’s what you are about to find out…
Forex Trading Is a Game of Odds
Trading Forex or any other financial market for that matter is simply a game of odds. There is no such thing as a guaranteed result in this business, regardless of how favorable a setup may look.
Like any game of odds you are going to have winning ideas and you are going to have losing ideas. The goal, of course, is to put yourself in enough favorable positions to come out ahead over an extended period of time.
Those are the key words, “extended period of time”. It doesn’t mean you have to wait for a year to see profits, but it does mean that you shouldn’t get wrapped up in trying to win every trade; it simply isn’t possible nor is it necessary to turn a profit as a Forex trader.
What I’m about to say may surprise you. For reasons I just mentioned your win percentage is the least important statistic as a trader. I get emails every week asking what my win percentage is and truthfully, I have no idea what it is and I don’t care enough to find out.
The only thing that matters to me is how much I make when I’m right and how much I lose when I’m wrong. Everything else is irrelevant.
Why then is this statistic so prevalent in the world of Forex, particular black box trading systems? Because the sellers of those trading systems are preying on your ego. They know that a high win percentage looks and feels good because after all, who doesn’t like to win more than they lose?
What is Your Trading Edge?
Think about it this way, even sports teams that win championships have losses during the regular season. The only way they are able to go on to win the championship is by having the ability to bounce back after those losses.
In the same way a championship sports team remains confident despite losing, you need to have confidence in your trading edge so that you too can bounce back from trading losses in the Forex market.
Without that confidence each loss becomes a mental setback rather than an experience from which you can learn from your mistakes and ultimately become a better trader.
Confidence Before Success or Success Before Confidence?
A common question that is often directed at those who have found success is – did your confidence breed success or did your success give you confidence?
I think any successful person, trader or otherwise, will tell you that it’s a bit of both. You must have confidence in your trading methodology if you intend to find success as a trader. At the same time, finding success is a journey during which your confidence will grow as you learn what works and what doesn’t work.
What does this have to do with knowing that your winning trades are always in front of you?
It all comes back to your trading methodology. Great traders don’t mind taking losses because they know their winners are always in front of them. They know this because their trading methodology is sound, which in turn gives them confidence to know that they can easily rebound from a loss or even a series of losses.
Final Words
The most important aspect of becoming a successful Forex trader is having a well-defined trading strategy. Not only will it stack the odds in your favor and allow you to profit consistently, it will neutralize the negative feelings that are often associated with losing.
Of course developing such a strategy and having the discipline to follow it are easier said than done. But it must be the starting point for your journey to consistent profits in the Forex market. Otherwise you will quickly find your emotions running wild and your account balance spiraling out of control.
Your Turn
How do you feel when you lose money in the Forex market? Share your experience or ask a question in the comments section below.
I look forward to hearing from you.
Hi Justin,
Another great article that is exactly the kind of information I need to absorb. I can see that this mental clarity, calmness and confidence is what is needed to succeed in this game. I have also identified that my interfering with my trading strategy is a big cause of some lost opportunities and some small losses (checking the terminal frequently, reanalysing and changing my plan mid-trade etc). So I can get wholeheartedly that having trust in your trading strategy and following it with discipline will be the key to consistent success.
However, the one question I have is: “how do you know your strategy gives you a defined edge and quantify what that edge is?” Once I know that my strategy has a defined edge, I don’t see myself having a problem following it. However, I’m not quite sure how I get to the point of KNOWING the edge that it gives me. Do I backtest the strategies to build that confidence and awareness of the edge? Do I need to create the strategy, follow it, and see the results over a longer period of time to know the edge?
I think this also causes problems in that newbies such as myself will follow a strategy (and probably not to the letter) for a short number of trades, not get the results they were after, and then change for another before they have given it a chance. They then move around never sticking with anything and continuously lose money.
I would be interested to know Justin, how you arrived at the knowledge of the edge of your strategy.
The other thing I would say is I see the win percentage as still important information, but it is not sufficient. It goes hand in hand with how much you make when you are right, and how much you lose when you are wrong. If you make three times what you make when you win than when you lose, but you only win 10% of trades, you are going to lose money.
Cheers,
Ben
Hi Ben,
First and foremost I think it’s important to find a strategy that fits your personality. This is something a lot of people ignore when doing their search. They are too focused on finding one with a high win percentage, which is the complete opposite of what they should be paying attention to.
As for how to know if your strategy has an edge, the best way to determine that is practice. You can backtest but in my experience there’s nothing quite like having some skin in the game. This is why I always recommend starting with a smaller amount so that your mistakes aren’t costly.
Hope that helps.
Justin
Great article, you couldn’t be anymore right than the next professional fx trader. I have got one question for you that doesn’t concern this post hope you don’t mind?, it concerns the pin bar 50% retrace. Assuming I took a trade based on the setup and the market had not retraced and triggered my buy/sell limit and the market had only moved let’s say 20 pips in the direction I want to go (it hasn’t moved that far). My question is should I wait for the candle to close or should I close the order manually and if I should wait for the candle to close, how many candles should I let close before close the order if it hasn’t triggered the trade and still hasn’t moved that far?.
Hi Sage,
You need to test it to find what works best. I will typically close a pending order if it doesn’t trigger within a couple days, but it all depends on the price action for that particular setup.
Cheers,
Justin
OK thanks.