Its tough, isnt it? Having an investment out there and being patient enough to just let it run its course is something that is difficult for even the most seasoned of veteransbut especially so for those trading on the Forex! The Forex, or Foreign Exchange market, is where nations, investment banks, and other investors come to exchange currencies. Nearly two trillion dollars exchange hand in a given 24-hour period of trading (the market is open 24 hours per day, Sunday through Friday) making the Forex the largest and most fluid market in the world. Investors love the Forex because it is simple and has plenty of opportunity for profit thanks to its volatility.
However, while those fluctuations in exchange rates can lead to large profitsthey can just as easily zero out an account! In fact, they can cause losses to mount even faster than potential profits because Forex accounts tend to be highly leveragedas much as 100:1or even more in some cases!
Fear, greed, even faithall of these very basic and real human emotions play very huge roles in the decisions made by investors. The fear of loss is a very real and valuable human emotion meant to help us evade danger and survivebut it can kill you when it comes to trading on the Forex!
Every investor on the Forexevery single onewill lose from time to time if they trade long enough. The market is always right and we humans can never achieve this level of perfectionnot even the investment gurus like Warren Buffet get it right every time. Like it or not, investing is a gamblea calculated risk. Investors increase their odds of success on the Forex by identifying the most profitable currency pairs with the least volatility and then place stops with their order to insure against catastrophic loss.
However, even with brilliant technical analysis and the best investment strategy, a loss is going to happen. Fear can play two damaging roles at this point: Fear can either scare the investor away into not investing again; or, it can compel the investor to get back in on a position quickly in order to make their losses back. In both cases, fear is now guiding investment decisions and will ultimately lead to missed opportunities and potentially greater losses.
Backtesting is a common tactic practiced by many of the top investors on the Forex market. To do this, an investor creates a theoretical portfolio performance history. This is accomplished by applying current asset criteria to the hypothetical portfolio and then evaluating the accuracy of the strategy. How accurate is it in predicting price movements? If you can consistently identify long term trends using the strategy at least 70% of the time, then the theory has merit.
You do not need to backtest forever before investing again but definitely continue this practice while investing on the Forex in order to further refine your strategy and test its effectiveness. Whatever you do, avoid allowing fear to compel to you to do the oppositethat is over trade! A series of small losses will eventually add up to a big loss so never enter a position unless the charts indicate it is wise to do. If your strategy is sound and the charts correct, then you will be very successful on the Forex market even when the occasional losses are factored in!