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.

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.

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.

So what to do?
There’s no point in going wild and completely throwing away all the caution that has kept us in the game up to now, that would be even sillier. It’s not simply a matter of a bit more courage and everything comes right – I’d rather have a bit of discipline than courage any day.

Even though we don’t have that many losing trades, we have to recognise this – not every trade will be a winning trade.

Nobody maxes every trade to 100% of its potential – so that’s ok.

Cut down on the indicators – we may well have locked ourselves down to a system, and run through a long, too long checklist of indicators before we take the plunge – forex analysis paralysis.
Trust your experience a bit more here – not too many indicators and not too many charts either…

You don’t break these habits overnight – it comes with time, and you will find the balance, perhaps without even noticing. And having said all this I’d still always go for perfectionism as opposed to gambler every time.