Forex Trading Strategies and the Trader’s Fallacy
The Trader’s Fallacy might sound like a complexed term for the newbies out there, but do not worry one bit. We are here to cater to all your Forex Trading queries! The Trader’s Fallacy is among the most common yet clever ways Forex trading can go wrong. This is a massive downhill ride when using any manual Forex trading system.
Commonly also referred to as the “gambler’s fallacy” or “Monte Carlo fallacy” from gaming theory and also called the “maturity of chances fallacy”, this is any Forex Trader’s worst nightmare. We will tell you what it is in detail and how you can avoid it.
The Trader’s Fallacy is a strong desire that takes many different shapes and sizes for the Forex trader. Any experienced gambler or Forex trader will be a veteran of this feeling. It is that very instinct that because a particular roulette table has just had 5 red wins in a row that the next spin is more likely to come up black. Rings a bell?
The way trader’s fallacy really does the damage in a trader or gambler is when the trader starts believing that because the “table has a lucky charm” for a black, he or she ups the bet to take possible benefit of the “increased chances” of success.
This is a damaging jump into the ifinite black hole of “negative expectancy” and a journey down the road to “Trader’s Ruin”.
“Expectancy” is a technical statistics term that implies quite an easy concept. In the case of Forex traders, it is basically means if or if not any particular trade or series of trades is certain to make a profit.
Now that expectancy is explained, lets talk abouut Positive expectancy. Positive expectancy, in the simplest of words in the Forex Trading world is that for any particular Forex trading system, there is a chance that you might end up making more money than you will lose.
“Traders Ruin” is the statistical chance in gambling or the Forex trading market that the player or trader with the larger bankroll is more likely to end up taking all the money home. Since the Forex market has a functionally neverending bankroll the mathematical certainty is that over time the Trader will inevitably lose all his money to the market. Yes! That will happen even if the chances are in the trader’s favor!
Though, dont get freaked out, because learning these freaky and complexed terms are part of our journey to becoming a guru. Thankfully, there is a series of steps that the Forex trader can take to prevent getting robbed in the forex trading world.