Every year many very knowledgeable and technically skilled Forex traders try their hand at currency trading.  They learn all they can about the market, technical analysis, fundamental analysis, trading strategies, indicators, etc.  They try every rational system they can get their hands on.  They implement every strategy known to science.  They leave no stone unturned in the quest for the holy grail of trading systems.  Yet, every year, the huge majority burn and falter.  I must admit to having been one of these who repeatedly failed time and time again.

Are You Losing Your Pants Trading Forex?
Have you been working the Forex market unsuccessfully too?  Been reading every book you can get your hands on about Forex? Tried every strategy?  Bought every course?

Still can’t make it happen, can you?
Want to know why?  It is most likely NOT because you lack information or skill.  Let me be clear.  If you have taken courses on Forex trading, read books on technical analysis and implemented sound trading strategies, the reason you are failing is NOT because of any lack of knowledge.  There is something else you are doing very wrong.

What are you doing wrong?
The answer is simple.  You are doing one or both of the following:

1. Failing to use sound Forex Trading Psychology
2. Failing to implement sound Money Management techniques.

A New Discovery About Forex Trader Behaviour
In the last twenty years, social scientists are discovering information about how we approach market behaviour that is very illuminating.   It probably comes as no surprise to you that human behaviour in a trading environment can be nothing short of irrational.

People make the strangest decisions when trading.  They buy when they should be selling and sell when they should be buying.  They add to losing positions and double up when they are down.  They avoid the market during the most profitable opportunities and refuse to get out when things are at their most risky.  In retrospect, they make decisions that any reasonable person would clearly see as being against their best interests.  Of course, these “reasonable persons” are not “in the trade” with money at stake.  The reasonable person is not impaired by the two twin evils of a trader – fear and greed.

Fear and greed are the twin evils that can cause even the most knowledgeable and astute trader to fail.  They lead to the phenomena of bias, emotional trading and overconfidence.  These are the silent killers of all things good in currency trading.

To illustrate, I would painfully like to recount some of my own experiences.  I can remember a time when my ratio of winning trades to losing trades was 4:1 and yet I still lost money.  For those of you who are new to Forex trading, this means that out of every ten trades I took, I was successful 8 times.  Pretty impressive statistic, isn’t it?  Why am I telling you this?  Well, not to impress you, thats for sure.  Instead, I want to impress UPON YOU that notwithstanding such a phenomenal win ratio, I LOST MONEY!!!

Why?  Poor trading psychology and poor money management techniques.  I had honed my actual strategies to such a polished extent that I could generate an 80% winning record over a substantial number of trades, say, 40 or 50 trades, and yet I still managed to lose money.  Sound incredible?  Well, let me tell you, it was real and in retrospect, it is pretty hard to do.  You have to make some pretty stupid trading decisions to fail with those kinds of numbers.  But I was a master of irrationality.  In fact, the more successful I became at times, the harder I fell afterwards.

Does this, by any chance, seem familiar to you?  Are you experiencing some of the same frustrations?  If so, I would bet anything that the same twin evils are robbing you of your success in Forex trading.

There is Hope!

Social Scientists to the Rescue
Fortunately, what social scientists have also discovered during the past two decades is that while irrational decision making is built into our very genetic makeup and hard wired into our behaviour from when we are a child, this irrationality is often times predictable.  YES, with practice and awareness, we can actually gauge when this irrationality is likely to creep into our trading decisions.    With this predictability comes the cure.

The Cure
If we know when to expect irrational behaviour, we can pre-empt its manifestation and avoid poor decision making.

The question is, how do we know when to expect irrationality and how do we cure this.
The answer to this million dollar question comes from studying the market and understanding how we interact with it and how we deal with market information.  By recognizing our susceptibility to emotional trading, we can adopt rules and guidelines to curb our behaviour and limit irrationality.  Even more basic, we can implement trading plans which prevent us from acting emotionally.

Combined with proper money management techniques, we can ensure that our psychology is working for us rather than against us to ensure success in our trading.

How do We Implement this Knowledge
The importance of trader psychology and money management seems to be poorly understood by most traders.  Only after a period of desperation and extreme failure do most traders accept the reality that perhaps the reason they are failing is because of themselves.

Fortunately, like the alcoholic who finally admits he has a problem, once the trader recognizes that his failure is self-imposed, he can begin to address the problem.

Just like the trader himself has neglected this most important aspect of his trading methodology, the industry itself has largely neglected the importance of trader psychology until recently.

Fortunately, some seminal works during the past ten years have shed some light on the topic and we now have some good sources to go to for help.