It's hard, right? Even for the most experienced traders, it's hard to put money out there and wait for it to run its course. This is especially true for those who trade on the Forex. The Forex, or Foreign Exchange, market is where countries, investment banks, and other investors come to trade currencies. The Forex is the largest and most active market in the world. In a 24-hour trading period, nearly two trillion dollars change hands. The market is open 24 hours a day, Sunday through Friday. Investors love the Forex because it is easy to understand and has a lot of ways to make money because of its volatility.
But while changes in exchange rates can bring in a lot of money, they can just as easily wipe out an account. In fact, because Forex accounts are often highly leveraged—as much as 100:1 or even more in some cases—they can cause losses to grow even faster than possible gains.
Fear, greed, and even faith are all very basic and real human emotions, and they all play a big role in how investors decide what to do. Fear of loss is a real and useful human emotion that helps us avoid danger and stay alive. However, if you trade on the Forex, it can kill you.
Every single person who trades on the Forex will lose sometimes if they do it long enough. The market is always right, and no one, not even investment experts like Warren Buffet, can ever reach this level of perfection. Investing is a risk, whether you like it or not. Investors can improve their chances of making money on the Forex by finding the most profitable currency pairs with the least volatility. They can then add stops to their orders to protect themselves from a huge loss.
But a loss is going to happen, no matter how good your technical analysis is or how good your investment plan is. Fear can hurt investors in two ways at this point: it can scare them away so they don't invest again, or it can push them to "get back in" on a position quickly so they can make up for their losses. In both cases, people are making investment decisions based on fear, which will cause them to miss out on opportunities and possibly lose more money.
Backtesting is a strategy that many of the best traders on the Forex market use. To do this, an investor makes a hypothetical history of how a portfolio has done. This is done by using the current asset criteria on the hypothetical portfolio and then judging how well the strategy worked. How good is it at predicting how prices will move? If you can use the strategy to find long-term trends at least 70% of the time, then the theory has some value.
You don't have to backtest forever before you invest again, but you should keep doing it while you trade on the Forex to improve your strategy and test how well it works. No matter what you do, don't let fear make you do the opposite. That's called over trading. A string of small losses will add up to a big loss in the end, so don't get into a position unless the charts say it's a good idea. Even if you lose sometimes on the Forex market, if your strategy is good and your charts are accurate, you will still do very well.
