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Luck & Greed

Luck and greed is another dangerous combination when it comes to FX trading. As frustrating as it may seem, some FX traders adopt manual trading strategies that are incredibly risky, but make them rich in a very short space of time. These results are down to nothing but luck. But this risk taking mindset will lead failure over the long-term. Luck always runs out on the FX markets. But greed can stick around with a trader for much longer.

Traders who implement high-risk techniques can fall into the trap of believing in a manual trading strategy that is ultimately flawed. Unfortunately, this sort of thinking has lead to many FX traders becoming broke when a high-risk trade fails. A conservative approach to manual trading will yield consistent profits over a longer period of time, increasing the traders experience, confidence and security.

Fear

Fear is psychological challenge that all FX professionals face. It comes from many situations, but if left unchecked, it can completely paralyze the best manual trading strategies. As paradoxical as it sounds, fear usually comes when a trader is ready to increase the amount of money they trade on the FX market; something which is necessary to make substantial profits. The cash value figures can appear daunting and the natural reaction is to become overly cautious and pass upon profitable trades. The trick is to not let fear induce inaction. Judgments should be made on hard evidence and nothing else.

Can algorithms correct psychological flaws?

An algorithmic approach completely removes psychological flaws from the trading process by relying on technology to take decisions on pre-defined parameters. Algorithms also take advantage of FX trading opportunities 24-hours-a-day over the five-day trading week. Some of the largest financial institutions in the world rely on algorithms to ensure a consistent and sustained trading performance that eliminates human error.

But here’s the catch - these algorithms are often formulated by some of the world’s most experienced FX traders who have significant knowledge and experience of manual trades. These algorithms are also not available to competing traders and companies. Don’t be fooled into thinking that adopting an algorithm-based strategy is a guaranteed way to FX trading success. It should be thought of as a tool to increase manual trading competency.  

The quality of algorithms, which are often referred to as FX robots, that are available to buy for individual FX traders are simply not good enough to yield significant returns. These products can be typically bought on the Internet for around $150, but are really not worth purchasing. Why would Banks and blue chip companies invest huge sums of money into developing effective algorithmic strategies otherwise? With FX robots, it’s a case of getting what you pay for. But the most important point to bear in mind with algorithm-based strategies is that they can work exceptionally well in tandem with a strong manual approach at a certain trading level, as they help identify instances of recency bias, greed and fear in trader’s psychology.

Conclusion

Mastering psychology is undoubtedly one of the most important skills to learn when it comes to successful trading. So serious FX traders should regularly check to see how they are thinking about their overarching trading strategy and whether they have the correct mindset. They should also combine the best aspects of manual and algorithm-based trading to produce consistent profits that are sustainable and based on evidence.

Jarratt Davis

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