Forex Trading Tips: The Mind Games of the Market

The Mind Games of the Market

Imagine you are standing three feet away from the cup. The ball is perfectly aligned and all you have to do is tap it into the cup to close out the hole and win the round against you buddies. You saunter over to the green with a smile on your face basking in your glory, but before you get a chance to set up one of your friends comes up to you and whispers in your ear, “I bet you a thousand bucks you can’t make the putt.”

The smile quickly disappears as you consider the possibilities. This is an easy shot, but a thousand bucks is a lot of money. You are about to leave for a week’s vacation with the family and the wife would be furious if you lost the spending cash that you’ve saved up for the trip.

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“No thanks, “ you reply.

“Really?” Your friend whips out a fat roll of fifties and hundreds and fans then out with his left hand. “I never know you were such a wuss. You must really suck at golf if you can’t even make a three foot putt.”

Now he is questioning your manhood in front o f everyone and you get pissed. “Screw you. I can make this putt with my eyes closed.”

Suddenly you friend brightens, “Ok superstar. Go ahead. Do it with your eyes closed. We’ll just make it a gentleman’s bet.” The rest of your foursome is now looking at you in with keen interest. You approach the ball, teeth clenched, align the shot, close your eyes and promptly miss the putt.

Your evil little friend is of course Mr. Market and he will do everything in his power to knock you off you game. Note how in the prior example a simple 3 foot putt turned into a contest of wills that sabotaged the whole round of play. How many times have you had a simple 10 point trade turn into a 300 point loss after some unexpected even in the market forced you to change your game plan?

In FX our obstacles are almost infinite. Unexpected news, that creates massive gaps in price that blow through our stops hundred points away. Brokers that freeze the feeds executing us at our Take Profit targets and then promptly stopping us out on the quick retrace. Trades that move to within a pip of our target, but do not get executed because of the spread.
There is no point at throwing temper tantrums. The markets are inherently unjust. You are competing against everyone else for their money and they will try to use every trick in the book to take away yours. More importantly, the market will always try to knock you off your game by forcing you to lose it all in one single trade. For poker players and FX traders, the grim “all in” scenario is much too familiar.

That’s why it’s so important to ignore the market’s noise, but you can only learn to do that with experience. I believe successful trading is more a function of time than anything else. The reason most traders who’ve been in the game for three years or more are better than novices, is simply because they’ve been in the game for three year or more. Their strategies aren’t any more complicated, their analytics aren’t really that much better, but like jaded New Yorkers, who’ve seen all the cons, the experienced traders simply know the mind tricks of market and try to ignore them as they focus on making the 3 foot putt every day.

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