Many people compare forex trading to gambling. Some who
follow the random market theory support this. However some
technical analysis experts would argue that technical
analysis Forex techniques stack the odds in the favour of
the trader. Sound risk management and money management are
another ways of stacking the odds in the favour of the
trader.
How much do the odds have to be in the favour of the trader
for them to make money? Many people think that a trading
success rate of 70% to 80% is required to make money. At
70% your gains would be $700 (assuming gains and losses of
$100 per transactions) and losses would be $300 resulting
in an overall gain of $400. Let's take a closer look at
this assumption.
In Forex trading, when the price approaches strong
resistance or support, the question is: will the price
violate the barrier or bounce back from it? Good channel
traders and support and resistance traders will tell you
that in general there is a 70% chance of a bounce and only
a 30% chance of a breakout. These are important statistics.
The other statistic is that when there is a false breakout
(60% of the time) it will only go say 25 pips past the
barrier and then be forced back. Knowing this statistic is
another big advantage for traders. Most indicators or
trading methods have these kinds of statistics.
The risk management tool that good traders use is the risk
compared to reward ratio. Many will only enter trades that
allow them to gain 200% of what they risk (their stop
loss). This is a particularly powerful way of trading as
they make $200 on successful deals and only lose $100 on
positive deals. This means that if they had a 50% success
transaction success rate, on 10 transactions, they would
earn $ 1000 on successful transactions and only loose $500
on unsuccessful ones. A gain of $500 in spite of only
having a 50% success rate. Much better than the $400 gain
calculate above.
Just like card counters who make money from BlackJack you
need to develop the skill of stacking the odds in your
favour when Forex trading. This means knowing technical
analysis very well and knowing the characteristics of the
forex market very well.
BlackJack card counters also use money management to make
money. When the packs are rich of high value cards they
would progressively increase the value of their bets. They
would bet very low or not participate when the odds are not
favourable. This is one of the most neglected aspects of
Forex trading and as a Forex trader you need to develop
this skill.
Remember the trader above who achieved a 50% success rate
and made money because a 200 to 100 return on risk ratio
was used. Now imagine that only 1 lot was used for higher
risk trades and 2 lots were used higher probability trades.
The gains will now be $2 000 ($200 x 5 x 2) and the losses
$ 500 ($100 x 5 x 1). A $ 2000 gain compared to $ 500
loss. Now we talking. Remember this is still at a 50%
success rate. This $1500 gain at 50% accuracy compares
well with the $400 gain at 70% accuracy.
The above is an introduction of how some traders do not let
losses bother them as they have the odds stacked in their
favour. Many trading firms (including ours) take their
traders through a course of Casino game gambling odds to
show them how easy it is to make money on the forex when
you stack the odds in your favour.
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Learn from David Lloyd who is a trader at
http://www.forextradersupportservices.com
Know how to use
probabilities to stack the trading odds in your favour by
visiting
http://www.expert4x.com and having a look at the
Forex trading, Forex alert and Casino games based services
which will stack the odds in your favour. We have alert
services that have never had a losing day that apply the
above techniques.
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