June 7, 2017

The Great Paradox in Forex Trading

Why do many people fail when they practice Forex Trading? According to the famous trader Ray Dalio, author of the book “Hedge Fund” of the “Market Wizard” series, the answer lies… in a paradox. It is summed up in a famous quotation.

In trading, you have to be both aggressive and conservative. If you are not aggressive, you can not earn. If you are not conservative, you can not protect your earnings“.

Solving this paradox means finding the balance between the need for aggression and the need for conservation. So what should you do? Here are a few tips.

How to be aggressive but not too much

A “moderately” aggressive attitude, or a “right” aggressive one, involves the following attitudes.

Do not hesitate when more signals confirm that this is the right time to enter the market.┬áDon’t be afraid, the risk is there and will always be there, so the appearance of multiple entry signs is a sufficient motivation to enter the fray.

Avoid small but frequent trades. Fear often pushes you to set minimum figures and to reiterate this behaviour hoping for profits, in aggregate, at least decent. It is wrong because the only result of it is increasing the chances of losing. It is better to point to rarer trades, better distributed in time but with acceptable volumes.

Do not overdo. It is a good advice for everyone, anytime, in every situation. In this case, trading continuously is not a sign of a healthy aggression, but of a pure (and dangerous) unconsciousness.

How to be conservative but not too much

Here are three behaviours that make attitudes conservative in the right measure.

Withdraw your money every now and then. This practice, in fact, has no strategic aim. But it has one from a psychological point of view. Withdrawing, in fact, fuels the belief that, yes, those are not just numbers on a screen. In a way, it motivates you.

Be introspective. It is not an abstract advice, indeed. Looking inside yourself means assessing your psychological tenet, so checking out the ability to win the next trade.

Standing still, when advancing is too dangerous. Very often, the best position is that one never opened. In some moments, the market is too volatile and unreadable to make something good out of it. So it is good to stay at your place and wait for the storm to end.

Balancing aggressiveness and spirit of conservation means essentially this: risk management coupled with a pinch of “personal” analysis. The graph is not the only element to be studied. You should also study your mood.

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