Currency Trading is a probability game

As a trader, you need to forget finding a dead cert. You have to accept the incontrovertible fact that the stockmarket can do anything at anytime. If you aren't convinced, consider that there are millions of merchants trading for establishments, funds, stockholders, stock traders, scalpers, etc all acting together in different time frames and using various sorts of research.

If you accept this fact, then it is much simpler to take losses without destroying your self-image. You are taking a trade, you acknowledge that you do not know what will occur next. You haven't any expectancies this trade will become a winner. So how does one make cash not knowing what will occur next? You treat trading as a chance game. Here is an example of a chance game : we could say I roll a dice : - I pay $1 every time I play - If I roll a three, a four, a 5, or a six then I win $2. If I roll an one or a 2 then I do not win anything. Obviously, each time I roll the dice I haven't any idea what the outcome will be. But I'm sure that for each roll the chances are in my favor. I'm going to be a consistent winner if I play long enough. In mathematical terms, your anticipated win each time you play is ( four / six ) X $2 = $1.33 meaning $0.33 profit ( you pay $1 to play ) Another version of this game may be that you win $3 if you roll a four, a five, or a six, and nothing if you roll an one, a two, or a three. In this situation the expectancy every time you play would be ( three / six ) X $3 = $1.50 meaning $0.50 profit in the long run So how can we interpret this into trading? Every time you roll the dice, you do not know the outcome, the same as for each individual trade. So for each trade you enter, you should know the chances are in your favor to earn income. As you can see in the second example, it doesn't mean that you should win more frequently that you lose. How does one put the chances in your favor? You have to develop a trading edge using technical research, fundamental research, market internals, etc..

You must have a number of variables that must be present before you enter a trade and always use the same set of variables. Your edge is your technique to enter and exit trades and may be well outlined in your trading plan. All that can be summarized like the following : - For each trade you're taking, you do not know the outcome, you acknowledge that anything can occur, and thus you don't have any expectancy for that trade. - you have a belief in your trading plan, that is you think that for each trade you take the percentages are in your favor. - you suspect the outcome over a chain of trades is comparatively certain and predicted. To return to the dice example : will you get nutty or feel dumb when you do not roll a winning number? No because with a dice you accept the indisputable fact that you can't know the outcome. You don't have any expectancy.

Apply the same concept to your trades and save your self-esteem. This idea of treating trading as a chance game made a massive difference in the way I feel about losses. I learned about it in'Trading in the Zone' by Mark Douglas. I strongly endorse this book.

If you have got a good trading plan, with a technique to enter and exit trades, then a successful trade is one for which you followed your intention, not really a winning trade.