There are many psychological hurdles when it comes to trading forex or other asset class. The lack of patience is one of the main reasons for ruining a trade. And this is because a lot of retail traders will try to force the issue and get swayed by emotions.
However, no matter how a trader carefully planned its trade, the market can and will do anything they want. So, this is the reason why backtesting trading systems and understanding their perspective merits and weaknesses will become one of the main tasks of a trader.
Back Testing
In backtesting a system, traders must place theoretical trades in market conditions that will stimulate the returns expected as probable. Traders could do this with various trading platforms and the like, or just look at a chart of historical action and simulate the trades would have been through for several months, if not, years.
As traders back test the system, they will see the expected returns might be in the future. But a lot of people do not work their way through this; therefore, they typically tend to ‘system shopping’ – meaning they take a loss or two with a specific trading plan, and then they go to the next system.
For instance, over the long term, a system tends to be successful by 60% of traits taken and returns 35% annually. With that, they need to understand that the system also loses 40% of the time. In 40%, there is a chance to have three losses in a row. So, if there is no faith in the system, this is where they must look for the next best thing.
This kind of cycle is where most traders fall into, meaning they may have come across a system that works in the long term, but they did not give it a fair chance. And this is where psychological wherewithal and knowing the system enters.
Let’s say; there are times where a specific system might not work out well. And this is because the system would do much better in a trending environment than a consolidating one, and traders must know this ahead of time.
This is how a trader should be, continually watching the system and the possibilities of enhancing them. Thus, traders could use a demo account first because it is too costly to risk trading in a live account on a feeling or some new methodology that a trader is dabbling in.
Speed Up
Not looking at what’s obvious in other professions is probably one of the greatest mistakes new traders make. For instance, Twitter has so many users that are experienced traders. They could offer some insights into how the markets are moving. When it comes to learning forex markets, there is no valid excuse not to because the amount of market information available for free out there is extraordinary.
Even though most people want to hurry and start gaining money, there are no shortcuts other than learning from people who have been there. The odd thing about traders is that they expect to step into the forex markets and clean up immediately.
By that, it is like expecting to be a great physician by just showing up to the hospital. It needs a significant amount of training and experience to be a world-class trader. Thus, you can’t simply fall into it.
But unlike trying to get medical practice going, you do not need to have an education aside from being self-taught. With that, it makes trading one of the best businesses you can enter as long as you treat it like a business.
Successful people in this industry will always tell you to go to where people have already succeeded. As there are no shortcuts, taking a mentor or learning from a professional can help prevent some of the problems existing out these.
