Psychology Articles

What Do You Believe About the FX Market?

Because contrary to popular belief, pardon the pun.  You don’t actually trade the markets, you trade your beliefs about the markets.

“The trend is your friend until the bend at the end!” is a belief that trend traders have.  “Let your profits run and cut your losses short.” Is also a popular belief but not very helpful if your trying to scalp the forex market?  Maybe a better belief for scalping would be to “take the money and run for the hills” in other words take the profit before the market retraces.

 

Market Beliefs

This is useful to understand because it will help you determine what kind of a trader you should be.  A lot of traders believe it is their circumstances that decide how they should trade.  They have a small capital so they nee to scalp to grow their capital…

Sounds like a perfect plan in principle, but then they have a deep-rooted fear that all brokers are untrustworthy and know where their stops and limits are.  Our fast thinking trader then decides to place the stops and limits in his head believing that he is capable of sticking to his/her rules in the heat of battle.  No chance.

If they could they would all be millionaires.

So, you need to understand what your beliefs are which means asking yourself some questions.

 

Trend Lines or Moving Averages

It would be incredibly confusing if you believed in both. Could you imagine your charts? … No then have a look at this!

chart belief

 

Maybe you don’t believe in either perhaps you have a belief about…

 

Support and Resistance (Supply and Demand)

Some traders believe not in trend lines or moving averages but in support and resistance.  And then of course there are those that believe in both.  Which when added to the previous chart looks a bit like this…

messy chart

Indicators

And let’s not forget the Indicators. Some traders swear by the Stochastic and some like the RSI.  Williams percent, and not forgetting MACD.  And we had better throw in a volume indicator for good measure.  Let’s include fractals so that we can easily see the highs and lows.  Zig zag we help identify our waves…

more messy chart

Candlestick Formations

A price action trader will also be on the look out for candle stick formations at areas of significance.  Pin bars, continuation bars, test bars, hammers, stars and engulfing to name but only a few.

 

Fundamental Announcements

Whether you’re trading the smaller time frames or not it may pay to have an indicator to remind (or warn) you of fundamentals that may possibly move the market… a lot!

chart

 

World Economics or World Fundamentals

Now you have the charts set up all you need is the constant buzz of Bloomberg in the background to keep you up to date with current financial affairs, what may move the market.

 

Is that Clearer for you?

For those of you that follow my blogs and are starting to understand the way the mind and brain work will know that this is just too much information.  And you may say to me that everyone will understand that this is just too much information…

And I’ve not even started really.  What about Seasonality surely that’s important to every trader and then there’s the COT report.  It has only got to help to know what the banks and the commercials are doing.  And could I fit one or two more indicators on that chart.  Fred told me he is having great success with CCI, Jane said to use the Alligator.  Did I miss some.

Our brains when functioning at their very best can for some process 7-9 chunks of information.  For most of us that reduces to 5-7 because we haven’t practiced enough.  Trading your own money is inherently stressful leaving us with 3-5 chunks of information depending on how protected we are against stress.

Anxiety/worry is a form of the fight/flight response which requires about 2 chunks of processing capacity.  Which leaves average Joe the trader 1-3 chunks of processing capabilities when looking at the chart… Doesn’t work does it.  Especially when you add to that mix the dodgy money belief lurking under years of reinforcement.

“You have to work hard to deserve your money!” or “Money is evil”

 

Check Your Beliefs

Now your 1 chunk of processing capability is working on the fact that money is evil, and the majority of traders do not want to be evil.  Therefore, what you are really saying to yourself is “Find me a losing trade so I can feel good about myself and not be evil” and our subconscious loves to make us happy.

This is why I study NLP, it’s like the instruction manual for the minds.  The most important point it teaches us is that it is our beliefs that give us our reality.  That’s why some traders can be successful with trend lines but unsuccessful with moving averages.  And different indicators work for different traders all based on their beliefs about those indicators.

New traders think that we are hiding a secret sauce and that most of the indicators don’t work and some long timers believe the same too.  However, it couldn’t be further from the truth, most indicators work for the person who truly believes in it. If you truly believe in supply and demand and you design your trading system around that premise it will work for you.

But if you have any doubts in your head or deep-rooted beliefs that go against trading or parts of your trading system… you will never be successful.

 

Understand Who You Are

That will tell you what sort of trader you are and what sort of system you need.  When researching and testing different indicators listen for inside confirmation and when something resonates with you, test it, know it.  Then you will truly believe in it.  Now you can take it to market.

 

Sounds Simple Doesn’t It

And for a few it maybe.  But for most trades you are going to need help, first to make sure we clear out any limiting beliefs that are holding you back.  Then we will deal with those unwanted high-level beliefs that you only find out about as you go through the process of becoming a trader.  And we show you how to design and test your own strategy that fits the beliefs that you have and will give you the results that you require in order to not only reach your goals but smash them.  We only have a few spots left on our revolutionary course… The Elite Trader Program.

Contact me and lets arrange a strategy session to see if we are a fit for each other. callum@specialfxacademy.com


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Callum McLean

Co-Founder and Trading Psychologist at Special FX Academy
Trading Psychology Coach and Certified NLP Coach. It is my belief that trading is 99% Psychological. And it is by understanding and improving your psychology, that you can be a successful trader. Success is a formula that everyone can and should learn.

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