I need to catch my breath. I'm so amazed at the stupidity I've just read on Twitter.
A new Forex trader bought the Great British pound to the US dollar. And he sent a tweet saying this.
“I just bought the Pound against the dollar and I'm hoping that the Pound goes up now.”
Next, I read a reply from some other trader.
RT: “Don't worry, just think positive thoughts and you'll make good money.”
Either I'm living in a Twilight zone or someone knows that I am going to freak out and write an article about this ludicrous “advice” he just gave.
Either way, today I'm going to tell you why thinking positively with your Forex trading is probably the worst thing you can do.
Let me explain…
The Forex market doesn’t care about you or your emotions
Let’s get through with the obvious.
In a 5.3 trillion dollar a day industry with countless institutions and traders, the Forex market does not regard any of your feelings and decisions what-so-ever.
If for some strange reason, the Forex market did have some form of remorse for your trading, then 98% of traders out in the world would not have blown their portfolios by now.
Next, we need to take into account, the technicalities of how the Forex market works.
Why there is no up and down direction with Forex
Let’s first talk about shares.
When you buy a share, you’re buying a part of a company with the anticipation that the company will grow in value which will send the share price up.
This means, the share price is influenced by two things. What the share price is valued at according to the company. And what the share price is valued at according to its shareholders.
With currency trading it’s completely different.
When you trade a currency, you can’t just decide to trade ONE CURRENCY e.g. the US Dollar.
It’s not like shares because one share is not measured against another share.
With currencies, there are always two currencies in a currency pair.
When you buy one currency, you’re simultaneously selling another currency.
Let’s look at the most heavily traded currency - the Euro or the EUR/USD.
The Euro versus the United States dollar, at the time of typing this, is at €1.1200.
This means that if you buy one US dollar you need to pay €1.1200.
Take a look at the chart of the EUR/USD…
Which direction is the EUR/USD going?
EUR/USD - Daily Chart
You can see that the EUR/USD is currently going up in value…
Which should theoretically tell you that the USD/EUR is going down?
Well, let’s see if you’re right…
Which direction is the USD/EUR going?
USD/EUR - Daily Chart
And what if you wanted to buy 1 Euro worth of US dollars?
Well you’ll simply do the opposite.
You’ll buy 1 USD/EUR which is valued at $0.8900 (1 ÷ 0.8900).
We have countless institutions that are buying EUR/USD for €1.1200. and at the same time we have countless intuitions and traders buying USD/EUR at $0.8900.
There is no win-win situation for currency pairs in a nutshell…
When one currency pair goes up, the opposite goes down.
So if you shouldn’t have positive thoughts with Forex trading what should you have?
Be a confident trader not a positive thinking fluffy bunny
Here’s a mantra I want you to say first thing before you trade…
“I am confident in my trading strategy. I am confident in keeping strict discipline to my trading rules. I am confident to take my winners and losers as per my trading strategy. I am confident not to listen to any trader or person when I make my trading decisions.”
You are what you do, not what you say you’ll do.
“Wisdom yields Wealth”