FXEMPIRE
All
Ad
Advertisement
Advertisement
Add to Bookmarks
Forex Trading 101: Why Beginner’s Luck Is Not So Lucky

There’s a fundamental lesson each and every trader needs to learn early on in his trading journey: experience counts more than any other factor.

You might have read every book going on the subject, from “Currency Trading for Dummies” onwards, and see the world in a series of hypothetical charts or be able to list off the closing prices of your instrument of choice back weeks – but unless you’ve been active in the markets and experienced both wins and losses, you just have to accept that you don’t really know anything. Not really.

Advertisement
Know where the Market is headed? Take advantage now with 

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

But that kind of thinking can be hard to hang onto when you’ve just started and you’re doing better than you ever expected. Maybe you’re a natural. Maybe you’re an actual, real-life trading prodigy. Well no, you’re not. You’ve just come down with a classic case of beginner’s luck – and that kind of false confidence will do you no favors as you continue to trade. There’s another term we use to describe this misguided sense of infallibility: a false dawn.

Beware of false dawns in forex trading

A false dawn is a light you can sometimes see in certain parts of the world before the actual dawn. It gives those waiting out the night the hollow hope that daylight is closer than it really is. What does this have to do with forex trading? Well, think of true dawn as representing proper enlightenment with useful trading knowledge (which comes through experience); the false dawn is the unearned confidence a rookie trader can feel when they make a large profit or net a series of wins in a row, and they assume it’s a sure sign of greater things to come.

Oh wow, they think, everyone else is an idiot – this forex trading thing is easy. Why does everyone make such a fuss about different strategies and techniques? Why don’t they just do exactly what I do and get rich? It’s nice to feel smart. The issue arises when you fall from such a great (unsupported) height. A loss is inevitable – it’s how well prepared you are to deal with this kind of disappointment that determines how successful you’ll be as a trader in the long term. The massive confidence blow that comes when you turn out to not be indestructible can be difficult to recover from.

Battle-hardened traders know the unpalatable truth: luck matters more than most are willing to admit when it comes to successful trading. And the only way to deal with the uncertainty of not knowing whether Lady Luck is smiling down on your next trade is to have the experience to recognise it for what it is. When you don’t have the experience earned through months and years of ups and downs in the markets, it’s easy to get carried away and mistake beginner’s luck for natural talent. The inexperienced trader who convinces himself that luck has little or nothing to do with his wins is facing a false dawn and is in grave danger of losing major trades in the long run when the line between skilled judgment and random luck becomes completely blurred.

Advertisement

How to fight false dawns

That’s why having an unqualified successful start when you first begin trading isn’t actually always a good thing. You ride the bull, stare the bear down, win big – and then what? Assume you can’t lose and don’t finesse your strategy? A better way is to keep your guard up and look at it like a one-time fluke that you hope to repeat, but don’t necessarily expect to right now.

So much for attitude. In practical terms, do not increase your leverage or expand the range of financial instruments you trade (until you understand how those markets work). Stay at a steady pace until you can be sure that your period of beginner’s luck is over. Once you’ve flexed your trading muscles in different circumstances – won some, lost some – you’ll be on your way to being able to differentiate between good and bad luck and between good decisions and bad ones.

Even if it does turn out that you’re the self-taught trading prodigy we said you almost certainly weren’t, what’s the rush? Trade with caution and profits might still come in time if you have a natural talent. And if you’re making a lot of money but you can’t explain why the moves you’ve made were correct in the circumstances, then you should accept that Lady Luck is in control, not you.

Of course, luck will always be a factor, especially at the beginning and during short bursts of wins. With experience, however, comes the ability to control your own emotions and reactions to lucky streaks. It’s this clinical approach to the markets that will stand you in good stead in the long run.

 Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

 

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Trade With A Regulated Broker