The Power of Simplicity in Forex Trading
Nial Fuller is an Expert Forex Trader , He Has been trading Price Action Strategies in the Forex Market for almost a decade, He Also runs A Forex Education and Training website for Aspiring Traders.
Most traders that are just starting out tend to over-complicate their trading methods by over-analyzing every piece of economic data and also by not really having a defined trading method. It is very common for traders to jump from one indicator to the next; especially after having a series of losing trades. Traders often give up on their system as soon as it shows a few consecutive losses. The problem is not usually the trading method itself. The problem is usually a combination of lack of self-discipline, risking too much, and over-trading.
Taking a simple approach to all of your trading related activities is really quite crucial to your long-term trading success. You need to have a simple money-management scheme to control your risk on each trade. Contrary to popular belief money-management is not difficult. All you need is to define what your trading method is and then find out how many trades out of about 20 or 30 you can win on. This will then be your systems expectancy. Most systems will not have expectancy higher than about 70% at best. This means it would be possible to lose three trades out of every ten you take. So, you can see even if your expectancy is 70% you aren’t going to want to risk say 5% per trade because very few people can emotionally handle losing 15% of their trading account in one week’s time or less. The point is all you need to do is decide on a percentage to risk on each trade, usually 3% or less is best, and then stick to it. Once again, we are keeping this simple; it doesn’t need to be any more complicated than this.
Simplicity in managing your own emotions is key as well. The key to managing your emotional reactions to the market simply and effectively is by having a good written out trading plan. It’s as simple as that. Find your edge in the market, write the rules that define your edge, and then stick to it. Once you get off track and stop following your plan that you wrote out with an objective mind set, you start complicating things and deviating from the simple mindset you need to trade effectively.
Finally, having a simple yet effective and valid trading method is crucial to your success in all other aspects of trading. We have all heard that trading is mostly psychological and that there are many trading methods that will win more than 50% of the time. This is true. But where most people go wrong is getting stuck trying to use indicators in their method and trade price movements indirectly, thus complicating the matter. If you trade using price action you are trading directly off what the chart is telling you. There is no middle man so to speak. This simple yet effective method of trading the forex market will help you concentrate on maintaining your discipline in the other areas of trading psychology and money management. Trading does not have to be complicated, a simple and logical approach mixed with self-discipline is all you need to succeed.
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