The Simple Trick I Use Daily to Trade like Professional Forex Traders without Getting a Finance Degree
The Problem: The Fear of Losing and Stress of Trading
What happens in your brain the moment you enter a trade? What is it that changes how you thought about that trade?
And how do you feel when the trade loses you money? What are the thoughts that keep you up at night? Do you wonder whether you should have taken that trade or not? Was there a better way to manage risk?
Traders hate losing money and often give up on their dreams of forex trading profits and success because they are too scared of losing. Well if you’re one of those people like me and 99% of other forex traders then this Cool Trick might CHANGE the way you trade forever.
Understand The Problem
Whenever we trade we assign a certain percentage of our total account as the risk for that trade. I understand that you apply this core concept to your trade, and if you don’t you definitely need to read about it. Assuming you understanding the basics of Risk Management and How to Take a trade in the Forex market,
Let's Now Consider 1% Risk as the COST of buying an Item.
Suppose you have a business of selling perishable item. Perishable items have a shorter limited life span. Say you’re in the Fish business, without access to modern fridges and freezers. (Just an example off the top of my head, let's not argue about technology ok haha) Suppose you hire a stall in the fish market for a day. So your fish can only last the Day in the Market. IF you don't sell it today, and since you don’t own storage facilities, the fish will have to be disposed off. They value of the rotten fish, as we all know is $0.
So lets count Inventory Costs: Suppose It costs you say, $100 to buy 10KG of Fish.
You want to sell it for $200 so that you can make a profit at the end of the day.
Now, in this example, you might have to pay the costs of getting the stock, the market stall might have a charge or commission.
This is not so different from the forex market. Just like the fish business you would end up paying spread or commission in the Forex Trading "business" which is really a smaller proportional cost. In this case you hire the trading platform (which the brokers give you for free) this is your Market Stall, and most importantly they LEND you the FISH, that is THE MONEY.
Point to Note here, I know a lot of beginners don’t even know they take a loan sometimes even 100 times bigger than their initial investment when they trade the forex market with 1:100 leverage.
So the next time you take a trade think about something like that. Create this visual anchor in your mind and use it over and over again. It does not have to be a fish it could be a cake, a curry, a fruit juice or even a time slot in a market place.
Suppose you are selling a service and you hired a spot in the busiest shopping centre. Every minute you spend their is your cost and it is NOT coming back. Suppose you paid $100 for that time slot of say 4 hrs. Every hr is costing you $25 dollars. You need to sell your service worth $100 to cover your costs.
Anything above that $100 is your profit.
Now think about your trading account. Suppose you have $10,000 in your account. You receive a good valid trading signal. You calculate 1% Risk for this trade which would be $100. Suppose you’re trading the 5 Min chart and your strategy suggests a 10 pips Stop Loss. That would equate to risking $10 per pip. In this case you need to make 20 pips to create that 100% profit margin.
Think of that SPACE between your Entry Price Level and the Exit Price Level ,i.e your Stop Loss level, as THE SPACE YOU OWN in the FOREX market. The 10 Pips is your STALL, The Rented Space. Yes, Think about Hiring those 10 pips for $10 a pip. Imagine that you’ve actually paid or agreed to pay the rent amount for those pips. And you always pay the Rent.
|Cool Trick Visualisation of Renting 10 Pips Space in the Forex Market|
Now imagine price hit your take profit level of 20 pips. You made 20 pips at the price of $10 per pip that equates to $200. You made back your $100 Rent cost and a nice juicy $100 profit on top.
The biggest mistake forex traders make is that they call it a $200 profit. When in fact it is a $100 profit on a $100 Cost.
When you start to think about your Forex trading Business in this manner you will have a better trading mindset that will lead to more forex trading profits and remain consistently successful. You will think of Forex Trading as your Serious Forex Business.