Do you believe in beginner’s luck?
A fundamental lesson that any trader should learn early on in his trading career is that experience is more important than any other factor.
You may have read every book on the topic, from “Currency Trading for Dummies” onwards, and see the world through a set of imaginary charts or be able to reel off the closing prices of your instrument of choice going back weeks – but unless you’ve been involved in the markets and seen both wins and losses, you’ll have to admit that you don’t know anything. Not at all.
But when you’re just getting started and doing better than you thought, that kind of thinking can be difficult to maintain.
Maybe you’re born with it.
Perhaps you’re a real-life trading prodigy.
No, you’re not one of them.
You’ve just seen a classic case of beginner’s luck, and your false optimism won’t help you when you continue to trade.
A false dawn is another word we use to characterise this erroneous sense of invincibility.
In forex trading, be careful of false dawns.
A false dawn is a light that appears before the actual dawn in many regions of the world.
It gives those who are waiting out the night the false hope that daylight is approaching.
So, how does this relate to forex trading?
Consider true dawn to be proper enlightenment of useful trading wisdom (which comes from experience).
False dawn is the unearned faith a rookie trader might feel when they make a large profit or a string of wins in a row, and they believe it’s a sure sign of bigger things to come.
They think to themselves, “Wow, everyone else is an idiot; this forex trading thing is easy.”
Why is there such a ruckus about various methods and strategies?
Why don’t they just do what I do and become wealthy?
It’s good to be trained. When you fall from such a great (unsupported) height, the problem arises.
A loss is unavoidable, it is how well you plan to cope with disappointment that decides how effective you will be as a trader over time.
It’s difficult to recover from the big ego blow that comes with realising you’re not indestructible.
When it comes to good trading, battle-tested traders know the unpalatable truth: chance matters more than others are willing to admit.
And having the experience to recognise it for what it is is the best way to deal with the confusion of not knowing if Lady Luck is smiling down on your next trade.
When you don’t have months or years of business exposure under your belt, it’s easy to get carried away and mistake beginner’s luck for natural talent.
When the line between professional judgement and random chance becomes totally blurred, the novice trader who convinces himself that luck has little or nothing to do with his wins is facing false dawn and is in grave danger of losing big trades in the long run.
How to deal with false starts
That’s why getting off to an unqualified efficient start when trading isn’t always a good thing.
What happens when you ride the bull, face down the bear, and win big?
Assume you can’t lose if you don’t plan ahead?
Keep your guard up and think of it as a once-in-a-lifetime occurrence that you hope to replicate, but don’t plan to right now.
So much for a positive outlook.
In practise, don’t raise your leverage or your trading portfolio’s number of financial instruments (until you understand how those markets work).
Maintain a steady pace until you’re certain that your beginner’s luck is over.
You’ll be on the way to being able to distinguish between good and poor luck, as well as good and bad decisions, once you’ve flexed your trading muscles in various situations – won some, lost some.
What’s the rush if it turns out you’re the self-taught trading prodigy we said you’re almost definitely not?
If you have a natural talent, trade with caution and profits will come in time.
And if you’re making a lot of money but can’t understand why your decisions were sound in the circumstances, you should agree that Lady Luck, not you, is in control.
In other words, of course, luck will always play a role, especially at the start and during short bursts of success.
However, with practise, you’ll be able to monitor your own feelings and responses to lucky streaks.
This methodical approach to market analysis will serve you well in the long run.
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