Written by Derek Frey
Monday, July 20th, 2009
FX Trading is a business of odds. Much like insurance companies, successful forex traders constantly plan for the worst while hoping for the best. Just like hurricane Katrina, it is the events that you CANNOT foresee that cause the most damage.
So the real key to successful trading is not what you do know, but rather “knowing” what you do not and cannot know. I realize this sounds like a contradiction but it is not. Having the simple knowledge and understanding that anything can happen is more than the “Wizards of Wall Street” can say they had these last few years. So how can we use the fact that we cannot know the future to our advantage? It is simpler than it may seem. Having this core understanding as a forex trader prepares you for what you cannot expect by never allowing you to say or trade as if “that will never happen”. Those are the famous last words. Always expect the unexpected. That is why as traders we must at all times have risk controls in place.
No one can know the future with certainty. So on your next trades I suggest you do not look at where you want to get in, but rather focus on where you would get out, AT A LOSS! The real key to successful FX trading is knowing how and when to take a loss. Having that plan in place before the trade is ever placed allows one to not have to make decisions in the heat of battle.
Good generals do NOT go into battle without a retreat plan already in hand. Keep the odds in your favor by planning for the possibility of a loss before you enter the trade. While this may not be the most fun part about trading it is the most important.
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To learn more about FX Trading, Technical Analysis, and Technical Indicators, visit with Derek Frey daily and weekly as he shares his Weekly Forex Market Updates and sage advice!
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