General over-analysis is one thing – too many indicators on a chart, too complicated a system, with too many ifs and buts in it – and common enough when you’re starting out learning about forex.

But what can happen after a while, maybe when you’ve been generally successful, had a few nice winning trades, but also a few losers, bigger than you’d like, is that you just don’t want to click that trade button. Call it overcautiousness, fear of failure, whatever.

You know the trend was going bullish – but you couldn’t place a buy order. You hesitated, waiting for extra confirmation, another indicator to give a clear buy signal – and then the moment passed, the market moved – and you’ve missed the boat, never got filled.

First – everybody has losing trades, sometimes three in a row. And nobody is totally keen on losing green. You have to tell yourself that. But it does knock the confidence, you wouldn’t be human if you didn’t deflate you a little.

Sometimes the best way round this is make it part of your system to pick your indicators for their signals, and when the time comes, say yes, two confirmatory signals, I trust my system, I won’t think about the negatives, I’m going into the market -and if you’ve got this issue in the first place, you’re not likely to be the reckless type.

Dont overanalyze the actual trade. Make the trade and then manage the trade. If it isn’t a winner, get out of the market – and see if you can learn any lessons from it and move on. But you don’t get anything if you’re not at the table in the first place.

Fact is, when I started out, I had the newbie’s disease of being unable to go 15 minutes with the charts in front of me without placing a trade. Being naturally conservative, I didn’t come to much harm, but it didn’t do the education much good.

Nowadays, I suffer mainly from #8 – constant tinkering with the mental system, without actually taking it as far as producing concrete rules and maybe even writing them down – and thinking I’ve got it all figured…

The top 10 excuses

1. Heck knows what’s happening, but if I keep it small and low-risk, I can’t go too far wrong, can I…
2. All the indicators are showing trade – even the ones I’ve switched off the chart might be now if I could still see them.
3. That’s an active market – you gotta trade when it’s active, everybody else is.
4. It’s ok, this trade is part of my system, (because my system just happens to include all the trades I make…)
5. I’m only practising for the big trade that’s going to clear all my losses – call it training.
6. If I don’t trade, how the hell am I going to be a dollar millionaire by this time next week?
7. That trade I should have made last week on GBP/USD – look where it is now… that’s still eating away at me…
8. If only I’d done the last trade like this, it would have worked 100% – actually, now that I’ve figured this all out, I may as well make a trade just to prove it.
9. I haven’t made a forex trade yet today.
10. I’m bored and I’ve got a chart in front of me.

The last two are the absolute classics. A bit of clear-thinking and honesty brings a bit of forex discipline – boring, I know, but that how it is…

Hey, it’s like poker.
It’s not like poker – just one of the many things it shouldn’t be like is poker.
You think that edge-of-the-seat stuff, adrenalin rushes, a bit of healthy panic are going to be integral and vital to the whole game? If you think that’s how the big guys do it, operating as if supercool, suave casino habitués, then you’d be way wrong. The big guys are nerds. They wouldn’t know what the hell they were doing in a real casino.

If you do trade like a gambler, then you’ll be turning your broker into the House, and they’ve already thought about that – they’ve given themselves nice fat House odds for people like you.

Remember when you tried out the lottery numbers and the system you had there?
You’ve got previous – remember? – in the past you been naturally drawn to this sort of thing and the currency market is just the latest craze. I don’t know whether there’s such a thing as an addictive personality or not, but if you’re chasing a high, then hang on…

But it’s simple odds, isn’t it? Just bet on up or down?
You might try to rationalize it – heck, gamblers gamble when they get 50% odds, I’d get 50% if I just tossed a coin – so if I do a little thinking on top, there’s my edge..
No. You’re not beating the odds that way. Risk/reward ratios in forex are a whole load more subtle than this…

Yes, it’s gambling then. No, it shouldn’t be. Don’t trade like a gambler – don’t ever trade forex like a gambler.

So why is it going to get better?
Hanging a bad position round your neck will suffocate you slowly. Better to cut it free and then you really can begin the process of learning then forgetting. Yes, learn from mistakes, it takes a bit of steel to go back and have a close look at what went wrong – it’s painful, no doubt about it – then keep the lesson and forget the feeling.
If you don’t, you’ll carry it for a day or two, and then – usually – your broker will do the job for you, like it or not. And those 2 days won’t have made you enjoy forex trading any more…

Don’t compound the error
The standard advice is “Don’t ever move your stop-loss order on a trade – unless it’s to lock existing profits”. Assuming you’ve made some estimation of the risk before placing the trade, why increase risk in a bad position? That’s hardly making sense – I can think of reasons to increase risk in a good position…
Compound your stake (in due time), not the error…

Was it your fault?
Markets do things that they’re not ’supposed to’. Events can strike out of a clear blue sky, forex indicators have been known to be misleading, however much skill you feel you have in their interpretation.

• Trading is not personal, it really is only business. Not even the evil gnomes at your broker’s office are going to be sitting there cackling at your expense, they’ve got other people to scam….
• It doesn’t mean that you as a human being are totally worthless… one, two, three trades don’t reflect on you as the complete person.
• So you’re going to be brave and stick in there… Bravery and stupidity? Often pretty damn close together…
• Everyone has made a loss – George Soros has made 5 losing trades in a row (and if he’d like to persuade me otherwise…).
• In just the same way as one winning trade isn’t everything – you’re not going to retire on one good trade – a bad trade just has to be added into the hard grind over months and years – it’s the long-term performance that defines success or failure.
• Wait for tomorrow to come – have another go.

For light reading, I have been checking James Surowiecki, The Wisdom of Crowds. The critical factor in this treatment of the subject is the consideration of a collection of individuals, all making independent decisions (given the same apparent input data) – yes, a bunch of forex traders, each of whom know it’s them against the rest – rather than the standard psychology of crowds.

Its main objective, to demonstrate that these groups of individuals may well make ‘better’ decisions is perhaps not really what concerns us, being uninterested in the correctness, or otherwise, of the mass decision, and much more interested in our position versus the mass, the market, the future…

Another area of the discussion, that seems particularly relevant to forex markets, is the extent to which our opinions may be determined by those of around them – and that is psychology, pure and simple.

Look around the web, there’s interesting reading-matter to be found – not necessarily on the financial or investment sites – that might just inform your psychology when looking at why a market, or here, a forex pair is behaving the way it is…

James Surowiecki, The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations. More info here.

A friend of mine does affiliate marketing – 14 hours a day at a screen, fixing up links, building a hundred or so rubbish web sites each designed to earn a dollar a day – so it mounts up, but it is a seriously brute force approach – and then there’s a heck of a lot of stress when a hundred sites go down at once. There are times, frankly, when he’s not a fun person to be near. He’s going to sacrifice a few luxuries like a social life, decent blood pressure readings, make his money and retire at 40. Maybe….

The simple fact is, jaded, fatigued, your decision-making is not going to be better. There’s no argument against that.

And the other major problem with getting obsessed – it’s so easy to get locked into the short-term, and be liable to lose sight of the bigger picture – give yourself 20 minutes at the start of a day, with a coffee, just pondering strategy, re-examine a few preconceptions you may have gotten into and generally getting the mind clear.

Everyone is different – we vary in how much we can concentrate and dedicate our time to a single activity. You may be a workaholic (but not everyone who says they are is best off doing this) or you may already have realised that a few days off, and few less hours a day, with leisure involved, will suit you all the better.

• You won’t be damaging your abilities as a pro trader if you get them a rest and recharge the old batteries…
• Definitely don’t get into the frame of mind where you start to think that other traders must be stealing a march on you just because you’ve left them to it for a few hours.
• Forex is a lonely business. Get out and about – even, I guess, if that out and about is around the internet, checking out what other people are doing.
• At least the forex market does, effectively, have a weekend – make use of it.

So avoid the fixations, compulsions that often seem to go with the territory. An effective trader is a well-balanced trader, who knows when to take time off.

And the obvious way to keep keep it as simple as possible at the beginning is to only trade one currency pair. Fewer variables, fewer moving parts, and a lot more chance for you to analyse charts, trends and trades with some accuracy. If you do try to handle 4 or 5 pairs at once, with all the major currencies involved, the individual characteristics of a pair, or even a currency, get lost in the blur of action. Learning the unique behavior of a pair is critical.

Individual pairs react differently to news events, show different patterns over the course of the trading day – for example, the opening of the London market has a significant effect on any pair involving sterling – and have to handled differently with respect to opening trades, risk evaluation and placing stops.

Once you’ve – hopefully – got some experience and mastery over a single currency pair then you have a base currency to work with – and that quite often means the one you’ve born with – and you have a base line. With this, you can start to work your way into understanding the mechanisms at work with other pairs.

• “My method is anti-trend, contratrend, it’s pattern recognition and price exhaustion.”
• “Make certain you’ve made your technique objective – it should be a definitive process.”
• Although, also – “Good discipline, a knowledge of limitations and good money management are more critical than the system or indicator.”

He also says that he retired on leaving business grad school – markets & investment have been a retirement hobby ever since, and not a proper job at all… Think I know what he means, sort of….

Suddenly, all these exciting trends jump out at you, making you think that here’s some action, better get on it… Major movements, established trends, breakouts? None of these. Remember the vertical scale – these are just a few pips here and there, the illusion is of faster, more dramatic activity. If you switch back to the longer period charts it all comes back into perspective.

Over-interpretation
Visual data – we know that humans are too good at making patterns out of random wanderings – significance and signals where none exist. And this is just with a line chart, when looking at an indicator the risk can increase if not careful. For example, such as CCI (the Commodity Channel Index) if displayed on short period charts is very prone to leaping around from peak to trough and giving . If you’re not a scalper, don’t try to be one.

Conclusion
Watch what you’re doing when outside your comfort zone in terms of timescale. The chance of being set off by a false signal is that much higher here, among pip ranges and periods much smaller than you’ve been accustomed to.

Or, more accurately, indicators can do this… Having just seen a nice march upwards, along the top Bollinger boundary, there’s a bit of a squeeze, and now the trend is into its third (Elliott?) wave. Everything worth consulting says go long, so it’s buy….

And this is what happened….

Instead, there’s a Bollinger bounce and then a fairly dramatic trip down. We thought the uptrend was going to continue a while longer.

Prices do not have obey indicators, there isn’t some sealed-in-blood pact between them, and there isn’t a set of indicators yet invented that’s 100%.

How you deal with these situations is make-or-break psychology for the forex trader. It’s gone wrong, maybe big-time wrong in terms of pips. Does this make you a bad trader? No, one trade doesn’t. It’s a case of learning the lesson – not thrusting it out of your mind, because that’s not understanding history and being condemned to repeat.

Having the illusion of certainty shattered every so often does no-one any harm…