Many inexperienced traders will tell you that their equity curve consists of a steady up curve followed by a sudden drop or a continued down curve. There are very simple reasons for this fact, some of which are easier to control than others, but the basic reason for the lack of steady growth is because they are not stacking the odds in their favour when trading Forex.
Odds are normally associated with gamblers and not investors in the markets, however in all aspects of investment there is a gamble and probabilities of success. In a casino the odds are always stacked in the favour of the casino that is why the house always wins. Of course they will pay out on occasions but the odds dictate that they will win in the long run.
As a trader you can and should be staking the odds in your favour so that you to only need to win a small percentage of times to win in the long term. The simple way to do this is to make sure when you win it returns a higher percentage than when you lose. This process is down to trade management, risk management and of course the right mental attitude.
Gamblers will risk money for fun, the fun is elevated when they win or in fact during the process of waiting for the outcome to reveal itself. Now professional gamblers or successful traders will have no such feeling of elation or disappointment on the outcome of a bet or trade. The reason for this is they are mentally tuned to the probabilities and the fact that the odds are stacked in their favour so the long term outcome is all that matters; losing and winning are just part of the process.
If you are new to trading Forex and experience the equity curve problems that many do then we are going to give you some advice to change that starting right now. Whatever strategy you are using to enter, exit and manage your trade’s part of that strategy should include your risk management. Risk management is what will stack the odds in your favour. Every time you take a trade you should always aim to take a profit that is 3 times larger than where your stop loss is placed. If you follow this simple rule you will only need to win 50% of your trades to make a profit.
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by Adam Woods