We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light.
– Plato
Let's face it, even a professional currency trader will doubt themselves from time-to-time. You are not a good trader unless you are willing to admit that you may be wrong about a trade.
There are a lot of unknowns associated with trading…and that can be scary.
But have too much fear, and you will squash any hope of executing successful trades. So how do you find the balance between being cautious and making money consistently?
There is no one magic formula, but there is a framework that you can use to find out what works for you.
I used to believe in formulas…but no more.
What works in the real world is usually in a big grey area.
That is why frameworks work much better. In this post, I'll give you the framework that can help you have more confidence in your trading.
This is one of the fundamentals of currency trading.
Understand Your Trading Personality
The first key to successful trading is to understand how your mind works. You are an amazing collection of thoughts, experiences and opinions.
…and nobody is exactly like you.
But therein lies a potential problem.
If you want to learn how to be a currency trader (who actually makes money), then you need to know what works for you and what gets in the way.
To get started, you should figure out your Trading Timeframe Personality (TTP). Read this post to learn how to do it.
Once you figure that out, it will give you a huge advantage over other aspiring traders. There are other things that you have to figure out about your personality.
…but that will come later.
For now, just understand what general timeframe works best for you. Now that you have that important piece of the puzzle, you can do some critical filtering.
Filter the Noise in Forex Trading Education
Now that you have an idea of how your mind works, it's time to filter all the noise that is out there and learn about currency trading.
The biggest mistake that would-be Forex traders make is to look for a successful trading method, before considering the consequences.
Yes, there are consequences.
Big consequences.
You see, if you don't understand what types of trading methods might work for you, then you will spend your time chasing systems that you are certain to fail with. This is just waste of time and energy.
But I get it. I've been there too.
You think that there are only a few profitable trading systems out there. So you are going to jump on the first system that promises to give you consistent trading profits.
The reality is that there is wide range of trading strategies that can work for you. Since that is the case, take your time in choosing who you learn trading from.
In the beginning, only learn from educators who teach methods that match your trading timeframe personality. You might be surprised how much easier it is to learn when you are in sync with your strengths.
You will never be good at day trading Forex, if you are really built to be a swing trader.
…and vice versa.
Become the Master of One
Before we move on, it's also important to remember that you should only learn one thing at a time.
You have limited mental bandwidth and doing several things at once will mean that you will learn things much slower. A study shows that even doing just two tasks at the same time, can reduce brain processing power by 37%.
Studies also show that women are better at multitasking than men. Since about 90% of traders are men, then I'm assuming that you are probably a man.
If that is the case, then that is even more reason for you not to learn more than one thing at a time.
So pick a trading course and stick with it until you master it or you realize that it isn't for you. If you decide that it isn't for you, then be sure that you have a good reason.
Don't just quit because things are getting tough.
Embrace the suck and press on.
Test Your Trading Method Thoroughly
Speaking of doing one thing…
If there is something that will give you trading confidence, it is testing your trading method before you ever risk any real money. This means both backtesting and forward testing.
Backtesting
This is when you test your trading method on historical data. To learn more about backtesting and to get some actual methods to test, then read these posts.
There is no other activity that I have seen that has helped more amateur traders go pro.
…except for maybe active mentoring.
But that can be expensive.
Backtesting is affordable for most traders.
It doesn't work for everyone, but chances are very good that it will give you the confidence you are looking for.
I use and recommend Forex Tester 2 for backtesting.
Forward Testing
This is when you test your trading method in real-time. This can either be done in a demo account or a small live account.
There are certain elements of backtesting that cannot be predicted. Things like scheduling conflicts and trading emotions can only be worked out in forward testing.
So before you put your entire trading stake on the line, be sure that you test in real-time. This will give you a ton of confidence.
How to be a Currency Trader Who Learns From Mistakes
This is one of the least sexy elements of trading. It is up there with risk management.
Zzzzzz…
But like risk management, this is also one of the most important.
To become as close to fearless as possible, you need to understand what you are doing wrong. This means that you have to journal your trades.
If you are making mistakes and you don't know it, then how can you correct them?
Reviewing your trades will help you in two ways.
- You can see that you are trading well, but are just going through a normal drawdown.
- You can correct things that you might not realize you are doing wrong.
There are many different ways to journal, so figure out what works for you. If you don't like typing, you can even video journal. 🙂
Final Thoughts on Being a Fearless Forex Trader
There is no way to be completely fearless in Forex trading. But if you understand how your mind works, know what your strengths are, and practice a lot, then you give yourself the best shot at success.
Confidence is a currency trader's most important weapon.
Go get yours.
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