Wednesday, June 25, 2008

Learn to Manage Your Forex Non-Method Trades

Non-method and non-setup forex trades are in effect trades that are "bad" forex trades, which are done without proper analysis or method. These are trades that are outside of your usual trading methods and strategies. One would think that traders would avoid placing forex trades that goes against their own tried and tested forex method, but in reality this is not the case.

Many forex traders often do this, even the experienced ones are no exception, and they pay the price because they hold out on "bad" trades too long, hoping against hope. The interesting thing is, often times, the forex trader is actually aware of what he/she is doing, but makes the trade anyway.

This behavior is called the forex trading psychology problem, that is, a forex trader knowingly taking a non-method trade AND then is forced to accept the additional 'baggage' when there is a loss.

A bad trade is not only based on the results of the actual trade - ie a bad trade is not always a trade that ends up a losing trade. A losing trade based on forex methods and setups is not a bad trade. There is always some risk involved in all of one's trades, and that is factored into one's analysis in the methods and set-ups. So the risk of loss from a percentage of your method and set-up trades is accepted. Losing this way is not a result of a trading psychology problem.

To call a trade a bad trade, one knowingly takes a non-method and non-set-up trade, probably as result of chasing a missed trade, or because of fear of missing a trade. A trade bad IF: (1) the trade does not have method components that setup-trigger the trade (2) the trade is done at a 'filter point' specifically established to eliminate a trade at that given time.


The implication of a trading psychology problem goes from taking bad forex trades and knowingly taking non-method trades, goes further than the obvious, where the forex trader has to accept that they were the cause of the loss. There are times where the bad trade is a winning trade, however this will still have trading psychology manifestations, as the 'winner' reinforces the continued taking of non-method trades.

Trading psychology causes enough problems for forex traders as it is. We should learn how to not make create additional problems by trading psychology becoming a primary cause. Any winning trade that you may occasionally be able to get from placing non-method and non-setip trades, is going to be far outweighed by the losing trades AND especially by the additional trading psychology issues that make method trading become more difficult.



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