Have you ever been in a position where you had several winning trades in your previous trading days and then lose all the profits back to the market? You are not alone; I was once in that shoe. This occurrence is most popular among newbie traders, and this is because they failed to think like a trader. As I said in the previous lesson that forex trading has its psychological aspect that all traders need to put into account if winning is their goal.
Previous Lessons: How to Make Money Trading Forex 1
For instance, you deposited $1000 as your capital then after about 4 trades your account grew up to say $1200. Then suddenly after trading some more, you lost all the profits and a part of your capital. I guess this scenario is a familiar one? In this post, I will tell you what causes that and how to prevent it.
Why do traders give back their profit to the market?
Our most recent winning trades tend to make us think in a certain way. Someone with a 4 to 7 winning trades in a row will assume or put more confidence in his strategy. This is a psychological behavior that gets many traders in trouble. As a trader, you can’t afford to stop thinking in probability if you do, the market will beat you again and again, and again.
Been confident of your trading strategy is not bad, but putting too much confidence in your most recent winning results is not cool, it can make you behave stupidly. Even the most experienced traders sometimes fall into this trap. In trading, you have to always think in probability, the chart might look exactly like the one on your recent winning trades, but remember, the market might behave differently. Always think in probability that is what pro traders do.
My first trading account was with forex rally where I learned a bitter lesson. After depositing a sum of money into my trading account, my first 3 trades were all winning trades. That phenomenon made me enter into a psychological state of mind thinking within me that forex trading is so easy and straightforward, and that was the beginning. I had so much confidence that I considered myself a pro trader, funny right? Due to that false confidence, I had a series of losing trades that wiped my whole account.
How not to give your profit back to the market
Thinking in certainty is an enemy to your trading. When you overly put confidence in your most recent winning trades, you will fall a victim and probably lose not only your profit but your capital. The chart you always analyze before placing a trade is a reflection of trader’s behaviors, and since human behaviors vary time to time, two same chart setups can result in different outcomes. Since you cannot see the future but can only predict it, then why thinking as if you do.
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Furthermore, withdrawing part of your profit regularly is a good way to keep you in check, because we tend to be careless about something intangible. Withdraw part of your profit no matter how small it may be.
As always, let us know your thoughts in the comment section.