The human psyche is like a triangle with the three points registering confidence, overconfidence, and self-doubt. The body of the triangle is made up of varying shades of these characteristics within which our psyche roams. We normally find a natural balance, usually orientated more towards a particular corner depending on our personalities, but occasionally we may find ourselves lurching out of control from one corner to another.
What has this to do with trading? Well, psychology plays a vitally important role in trading, and it is extraordinarily easy to move rapidly between these three points, often with disastrous consequences as far as one’s trading account is concerned. Typically a new trader will be likely to start cautiously. They may invest in training that will teach them strategies and rules and emphasise the importance of discipline. This may get them on the road to some winning trades and an important building of confidence. Confidence however at this stage is fragile and easily derailed.
If the early phases have been successful then different scenarios can present themselves: a desire to up the tempo, trying out different strategies or managing risk differently, all of which is understandable. In the hands of a seasoned professional a change of tack will only be explored using due protocol, such as rigorous back testing, before going anywhere near the market with their hard earned money. With someone new to trading who has tasted success however, it is more likely to be a case of jumping in to see what happens.
What happens can often be painful causing the trader to withdraw to lick their wounds. They have moved from confidence to over-confidence and are now on the axis towards self-doubt. A different scenario but one with a similar result may be that after tasting success early on the back of a series of winning trades, they are then hit by a string of losing trades. This scenario is not uncommon in trading but if you are not aware of it, it can derail fledgling confidence, particularly if the trader hasn’t changed their tack and there is no tangible reason for the change from winning to losing.
The galling thing for these two traders is that they both tasted success, it had been within their grasp, and now that touch seems to have deserted them. In an effort to regain it they may find themselves going back to the drawing board to discover if there were any hidden traps out there that caused the turn about. Of course in trading there is no end of information and different trading styles that can be dug up to improve one’s trading chances. The list is literally endless. And as one wades deeper and deeper into the mire of information and alternative options, trying in vain to assess everything in order to maximise the chance of success, the reality is that one is getting further and further away from an effective means of trading, which is quite simply to keep it simple.
Less is more. A simple, effective strategy applied consistently according to a well-observed set of rules is all that is required, along with the discipline to implement it properly. For this to happen successfully and consistently it is important to have a clear head devoid of clutter, conflicting variables and information that only serves to keep you out of the market or confuse your implementation of a strategy. There is only so much to be learnt - how to apply an effective strategy, along with the psychology or discipline to implement it consistently. It is not complicated. You are then ready for the market.
What has this to do with trading? Well, psychology plays a vitally important role in trading, and it is extraordinarily easy to move rapidly between these three points, often with disastrous consequences as far as one’s trading account is concerned. Typically a new trader will be likely to start cautiously. They may invest in training that will teach them strategies and rules and emphasise the importance of discipline. This may get them on the road to some winning trades and an important building of confidence. Confidence however at this stage is fragile and easily derailed.
If the early phases have been successful then different scenarios can present themselves: a desire to up the tempo, trying out different strategies or managing risk differently, all of which is understandable. In the hands of a seasoned professional a change of tack will only be explored using due protocol, such as rigorous back testing, before going anywhere near the market with their hard earned money. With someone new to trading who has tasted success however, it is more likely to be a case of jumping in to see what happens.
What happens can often be painful causing the trader to withdraw to lick their wounds. They have moved from confidence to over-confidence and are now on the axis towards self-doubt. A different scenario but one with a similar result may be that after tasting success early on the back of a series of winning trades, they are then hit by a string of losing trades. This scenario is not uncommon in trading but if you are not aware of it, it can derail fledgling confidence, particularly if the trader hasn’t changed their tack and there is no tangible reason for the change from winning to losing.
The galling thing for these two traders is that they both tasted success, it had been within their grasp, and now that touch seems to have deserted them. In an effort to regain it they may find themselves going back to the drawing board to discover if there were any hidden traps out there that caused the turn about. Of course in trading there is no end of information and different trading styles that can be dug up to improve one’s trading chances. The list is literally endless. And as one wades deeper and deeper into the mire of information and alternative options, trying in vain to assess everything in order to maximise the chance of success, the reality is that one is getting further and further away from an effective means of trading, which is quite simply to keep it simple.
Less is more. A simple, effective strategy applied consistently according to a well-observed set of rules is all that is required, along with the discipline to implement it properly. For this to happen successfully and consistently it is important to have a clear head devoid of clutter, conflicting variables and information that only serves to keep you out of the market or confuse your implementation of a strategy. There is only so much to be learnt - how to apply an effective strategy, along with the psychology or discipline to implement it consistently. It is not complicated. You are then ready for the market.
Editors’ Picks
EUR/USD hovers around nine-day EMA above 1.1800
EUR/USD remains in the positive territory after registering modest gains in the previous session, trading around 1.1820 during the Asian hours on Monday. The 14-day Relative Strength Index momentum indicator at 54 is edging higher, signaling improving momentum. RSI near mid-50s keeps momentum balanced. A sustained push above 60 would firm bullish control.
GBP/USD holds medium-term bullish bias above 1.3600
The GBP/USD pair trades on a softer note around 1.3605 during the early European session on Monday. Growing expectation of the Bank of England’s interest-rate cut weighs on the Pound Sterling against the Greenback.
Japanese Yen sticks to gains as bears remain on the sidelines amid intervention talks
The Japanese Yen is looking to build on its strong intraday move up amid speculations that authorities will step in to stem weakness in the domestic currency. In fact, Japan’s Finance Minister Satsuki Katayama stepped up intervention warnings and confirmed close coordination with the US against disorderly FX moves. This, along with some follow-through US Dollar selling, triggers an intraday USD/JPY turnaround from the 157.65 region, touched in reaction to Prime Minister Sanae Takaichi's landslide win in Sunday's election.
Editors’ Picks
EUR/USD hovers around nine-day EMA above 1.1800
EUR/USD remains in the positive territory after registering modest gains in the previous session, trading around 1.1820 during the Asian hours on Monday. The 14-day Relative Strength Index momentum indicator at 54 is edging higher, signaling improving momentum. RSI near mid-50s keeps momentum balanced. A sustained push above 60 would firm bullish control.
Gold sticks to gains above $5,000 as China's buying and Fed rate-cut bets drive demand
Gold surges past the $5,000 psychological mark during the Asian session on Monday in reaction to the weekend data, showing that the People's Bank of China extended its buying spree for a 15th month in January. Moreover, dovish US Federal Reserve expectations and concerns about the central bank's independence drag the US Dollar lower for the second straight day, providing an additional boost to the non-yielding yellow metal.
GBP/USD holds medium-term bullish bias above 1.3600
The GBP/USD pair trades on a softer note around 1.3605 during the early European session on Monday. Growing expectation of the Bank of England’s interest-rate cut weighs on the Pound Sterling against the Greenback.
Bitcoin, Ethereum and Ripple consolidate after massive sell-off
Bitcoin, Ethereum, and Ripple prices consolidated on Monday after correcting by nearly 9%, 8%, and 10% in the previous week, respectively. BTC is hovering around $70,000, while ETH and XRP are facing rejection at key levels.
Japan's Takaichi secures historic victory in snap election
In Japan, Prime Minister Sanae Takaichi's coalition secured a supermajority in the lower house, winning 328 out of 465 seats following a rare winter snap election. This provides her with a strong mandate to advance her legislative agenda.
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