2Bull Forex Blog

There are those that think Forex prices can be predicted with mathematical algorithms but they cant but that doesn’t mean you cant win, you can if understand how and why prices really move…

You can buy no end of get rich quick Forex Expert Advisors for 100 bucks or so and they all lose.

The algorithms used by most are laughable and based on unsound logic – but even with a clever algorithm, you are never going to be able to predict Forex price movement and a simple fact proves this:

If prices could be predicted in advance and such a theory worked, there would be no market. We would all know the price in advance! Those who look for order are wrong, there is no order but there are high odds set ups and that’s the key to winning.

Consider a game of chess and you will understand exactly how you can win:

The pieces sit on 64 square playing board and the rules are simple, anyone can learn them yet there are more hypothetical outcomes to the game than there are particles in the universe. The key to winning is to understand that the rules of the game, ALWAYS remain the same and it’s the same in Forex markets.

Prices can make three important moves – they can go up, down or move sideways but, the way they do is not predictable and cannot be seen as a set mathematical formula but you can win by buying up trends selling down trends and staying flat when the market does nothing. This is called putting the odds in your favor and its the way to win.

If the trader knows the rules of the game, watches the situation unfold and uses a set of rules to put the probability in his favor, he can win. Always keep in mind that the human brain has one huge edge over any computer – it is capable of independent thought and this is a huge advantage.

Just like the chess player who knows the rules of the game and thinks for himself, the Forex trader uses rules and while the market does not move to a specific order it does allow you to win – if you know the rules.

If you want an example of how humans can win in odds based markets, they are always developing a computer to beat the best chess player and until now the famous IBM computer Deep Blue, hasn’t won a series and has been convincingly beaten by players such as Kasparov.

We look for formulas and order in Forex price movement when there is none.

There will never be a way of predicting market behavior, so simply learn the rules of the game and play to win, by trading high odds set ups and the reality of price change and forget, all you read about computers being better than you – there not.

Forex trading is mostly mindset and not method – why? Because you need to execute you’re trading signals with discipline and if you can’t do that you don’t have a system! Let’s look at how to adopt the correct mindset and win…

If you want to win you can, as Forex trading is a totally learned skill.

Learning a method is the easy bit of trading applying it correctly is the hard part you must stick to the rules and this can be hard at times. Trading success comes from within and always keep in mind, the trader doesn’t get beaten by the market, the trader beats himself. Let’s look at some common mindset problems.

The Market Price is the Right Price

No matter how ridiculous a price may be, it’s the price and it’s the right price.

Many traders try and argue and say it’s wrong, especially when their losing, as their ego is hurt and they try and justify their position. If you want to win this is fatal, as you will let losses get out of control and leverage will kill you. Accept the reality of price and trade it and forget about your opinions.

Lack of Patience

Most traders simply want to trade and the more the better they wrongly assume they will get a reward for effort but you don’t in Forex! You get rewarded for being right. The trader who trades to often takes low probability trades and lose.

Always, wait and only trade when the time is right before trading and in fact you can more often than not make more trading less, as you are trading high odds set ups.

Frustration and Revenge Trading

This is linked to the above point, traders get frustrated when they lose and engage in revenge trading or want to change their system. They get it in for a currency and hate it with a vengeance. They get so fixated with the currency their having trouble with they ignore better trades elsewhere.

Forex trading can be frustrating in the short term, you have to deal with it and keep your eyes on the longer term profits and the yen or euro don’t hate you when they take your money, so be nice to them and stay calm, its in your interest!

Over Confidence and Complacency

When a trader hits a big trade or has a big win, he thinks he’s god and leverages up to take advantage of his good fortune or starts taking trades because he feels he is unbeatable but this is a sure fire way to lose and is akin to gambling not investing.

Always remember just like losing periods don’t last for ever, winning periods don’t either. When you have as nice run, be sensible and humble and protect what you have.

You Cannot be Perfect and Your Going to Lose for Long Periods
Anyone who tells you otherwise is lying and this is why discipline is so important, as you need to fight the enemies within you that will put you off course.

The way to do this is to accept losing runs, as part of winning long term and remember you are never going to be able to buy bottoms and sell tops!

You may not be perfect and you may have to lose in the short term but this is the disciplined Forex trading mindset, you need to adopt to enjoy long term currency trading success and make the really big profits, the elite 5% minority of Forex traders do.

So what are the best currencies to trade? Let’s take a look at some of the obvious ones you should include in your trading and some others which will allow you to catch the big profits from the big moves…

There is no such best currency to trade, as any currency will offer you opportunities but its best to stick with the majors, as you have good liquidity and low transaction costs.

The British Pound, Euro and Japanese Yen against the dollar, are the 3 any trader should follow but I also like the commodity currencies and follow the Australian and Canadian Dollar, which are great for long term trend following.

You can also trade currency crosses which can also offer some nice opportunities.

A currency-cross is any currency pair in which the US Dollar is neither the base nor counter currency. For example, GBPJPY, EURJPY, EURCAD, and AUDCAD are all considered currency crosses and there are of course many more you can choose from.

If your broker doesn’t offer you the cross you want on the trading platform you simply can create a synthetic pair. Let’s say you want to go long the British Pound against the Swiss Franc, or buy GBPCHF. You would have to buy GBPUSD and buy USDCHF at the same time with the same amount being allocated to each trade.

Be aware this trading can cost you more in transaction costs but it opens up huge opportunities for you, as you have so many different pairs of currencies to choose from.

One trade I do each year is the following one and it often turns out to be one of the best performers.

It’s a fact that most currencies tend to have their high or low for the year in the month January. So at the start of each year, I look for the weakest currency and strongest currency based upon interest rates, economic strength, sentiment etc and simply take a position and leave it. In many instances the trade is in a currency cross.

Stick with the majors most of the time but keep your eye on the crosses, for some great long term trading opportunities.

If a currency trends and your system is soundly based, then any currency can give you profit opportunities.