Question: Forex Psychology and Mathematics: Control and Calculations
Question: Forex Psychology and Mathematics: Control and Calculations
Answer
The obsession with control is an exceptional characteristic in the animal world. Humans develop more or less complex systems to direct every facet of our lives, or at least that's what we try to do. The illusion of being in control reassures us, and when it comes to managing our money, much more. Is this why professional traders are so upset that Forex trading is compared to casinos ?
In part, yes; but what really irritates us is that to equate gambling with trading is like saying Hey, you're not in control, it's all just a coincidence! To be sure, there are factors that cannot be taken into account in casino betting as much or more than in trading. There are obviously subtle differences. The first is that, in games of chance , we call this uncontrollable factor "luck". In Forex, we call it "strong hands".
Without euphemisms, the reality is that there is a degree of uncertainty that cannot be accurately calculated. And its weight is of such magnitude that it can destroy any trading strategy, no matter how elaborate. You can't predict market movement, just like you can't guess at what number the roulette wheel will drop the ball. Of course, when it comes to making decisions, Forex offers us a much more appealing illusion of control.
Forex: A Question of Psychology
Certainly there are many decisions to be made when we talk about investing in currencies, much more than putting a lot of chips on a number or color. The problem is that most novice traders focus on building extremely elaborate systems, thinking that the important decisions are those relating to the application of indicators. Clearly, technical analysis is important, but it's not chart control that a good trader should worry about.
The real challenge of initiative is self-control. In fact, psychological decisions often determine the future of small investors. The reason is obvious: when you enter the jungle, you will experience difficult times for which you must prepare yourself mentally. When you dive into any market, you have to come away with a lesson learned: you're going to lose money and a lot of stuff. If you're not ready for that, stick with something else.
Forex is not about making easy money. Moreover, to make a profit from trading foreign currencies, you have to follow a torturous path of profit and loss that can undermine anyone's mood in a matter of months. This sounds exactly like what happens in casinos, so why are we still determined to draw a line between bookmakers and Forex? Certainly, because once the psychological work phase is over, luck is a negligible element in the equation.
Forex and calculation of probabilities
In reality, more than luck, it is the risk that can be assumed that is the variable that defines bets and investments. In both cases, and this greatly simplifies the matter, there is a chance of losing and a chance of winning. Take for example a short trade with CFDs : the price can go down (profits) or up (losses). The difference is that decisions are made based on in-depth market analysis, strategy development and some probabilistic calculations.
This is not to say that, generally speaking, it is not possible to operate with CFDs following the same philosophy as the bookmakers. Dealing with a casino mentality means adopting one of the fundamental premises of trading: minimizing losses and maximizing profits, increasing the probability of success beyond 50%. Casinos get it by adapting their games; experienced traders, by choosing strategic areas on trend, resistance and support lines .
Finding these points is not easy. This requires market research and an exhaustive search for models; but, in addition, it involves not getting carried away by emotions, bearing astronomical losses and cutting profits early due to anxiety. Either way, trading the forex market may not be the same as playing roulette; but, as Mr. Khoo says, you can (and should) think of trading like a casino.