The Power of Beliefs and How They Affect Your Forex Trading Strategies and Outcomes

Trading in the short-term is more profitable that trading in the long term.

You can only predict the market correctly in the long term.

The stochastics is oversold so the market is bound to go downwards.

Forex trading is difficult.

Forex trading is easy.

Online forex trading is lucrative and worth every single shot.

Technical analysis is the best way to figure out the markets.

What do all the above statements have in common?

All of them are beliefs about the forex market. All of them shape what we call the trading psychology of the person who holds the belief.

Can you identify any belief that you subscribe to from the ones listed here?

I will let you into a secret about any kind of belief.

Beliefs are hard and painful to let go. Some of our beliefs are formed from traumatic experience that we’ve had. These beliefs and perceptions may not be necessarily bad, but how do they affect your forex trading career.

Online Forex Trading is all Beliefs

Online forex trading allows you maximum freedom to do as you wish.

There is no teacher to cajole you from taking a certain trade.

You have the freedom to decide which trading session you will use to place your trades.

You decide the currency pairs that you will trade, and

You choose the maximum or minimum lot size you will trade

So, if the forex market accords you all this freedom, what dictates your trading decisions?

The simple answer lies in beliefs.

You may think that your forex trading decisions are determined by a piece of news or a movement of a technical indicator on the charts, but it is not. It is your basest belief about the news or the technical indicator that influences you to make whichever trading decision that you make.

You can trace back the path to every trading decision you have ever made on your beliefs.

For instance, why do you prefer to trade a certain currency pair and not another one?

Or why do you use the particular trade setup that you use?

If you trace back the answer to the above questions, you will be shocked to realize that these decisions emanate from a strongly held belief.

Becoming aware of the beliefs that shape your trading decisions is the first powerful weapon you have in your trading arsenal.

What are your beliefs about online forex trading?

Let us do something practical here. Take a pen and paper and see if you can list at least 7 trading decisions that you have.

Here are mine:

  • I must always trade using a predetermined trade plan
  • Forex trading is as risky as any other investment you decide to make
  • I must have a risk/reward ratio charted out before I place any trade, and this must always be 3:1
  • Support and resistance levels are extremely crucial when it comes to predicting and analyzing the market
  • Trading the forex market is all about beliefs!
  • And these are not all…

Looking at the above, I can already see how each one of these beliefs shape my trading decisions. Can you see the same when you look at your 7 beliefs?

Where Do Your Beliefs Stem From?

I have already mentioned that most beliefs are formed after going through a traumatic encounter, but this is not the only source of your beliefs.

  1. Nature/Evolutionary

At the most basic level, beliefs are evolutionary. They are programmed into us as part of fight or flight that has evolved for over thousands of years. Beliefs, just like emotions, are hardwired into our DNA, our very fabric that makes us human.

  1. Environment

Most of your other beliefs are a byproduct of your upbringing. Would you have different beliefs if you grew up in the USA’s city of New York as opposed to some estate in Kenya? Definitely Yes.

  1. Indoctrination

Other beliefs are indoctrinated into us. To a certain degree, a lot of people (apart from the truly enlightened) accept commonly held beliefs. As we grow up, our subconscious collects, accepts and stores a set of beliefs without questioning them.

  1. Identity beliefs

Some beliefs are as a result of whom we believe ourselves to be. “I am technical trader” is an example of an identity belief.

Are Your Beliefs About the Forex Market Useful?

“We trade our beliefs about the market”~ Van K. Tharp

There are a lot of different approaches to the market as there are traders. This is because every trader has a different beliefs about the market.

In a nutshell, we all see what we want to see.

The good news is that we get to choose our own beliefs. No one can impose a belief on us. And this is where the real power of beliefs about the FX market is realized.

We also get to decide whether the belief is useful to our trading. We can safely disregard and discard the beliefs that are not helping our trades. For instance, I believe that when the %K and %D lines of the slow stochastics cross below the 20-level mark, it becomes a signal to go long on my favorite currency pairs.

Although I know that the two stochastics lines do not have any influence on the forex market, I still choose to believe them. Right now, it serves me to hold on to this belief. If a day comes when this belief no longer holds true, I will easily abandon it.

Here is the thing. If your current beliefs about the forex market do not serve your best interests, you need to let go.

What are the beliefs of top forex traders?

If you take one thing out of this article, let it be this: You can take beliefs on and off. You should take off the beliefs that are contributing NEGATIVELY to your career and put on the beliefs that will help you become the next successful forex trader in Kenya.

During my few years of trading the forex market, I have interacted, studied and analyzed the beliefs of many successful traders. Most of them tend to have a set of similar trade beliefs:

  1. They take full responsibility of their actions in the market
  2. They understand that position sizing is the key to scoring their FX trade goals
  • Although they might be wrong more times than they are right, they still make money on the forex market
  1. They take trading seriously. Their investment in the forex market is a business, not a hobby.
  2. They realize that losses are part of the business, and they are ready to face their losses, pick themselves up and look for the next trading signal
  3. They diligently record their results.
  • They are comfortable with taking carefully calculated risks
  • They understand the importance of risk-reward ratios
  1. They believe that they can make profits in the forex market
  2. They have full confidence in their forex trading strategies.

Do any of these beliefs compare to the ones that you already have? If none of them does, it is probably the high time that you started reevaluating your forex trading beliefs.

How to reorganize your beliefs about online forex trading

Have you ever observed that you can have conflicting beliefs at the same time? This is because you are a mixture of conflicting parts.

Inside you, there could be any of the following parts:

  • A trader part
  • A rebellious part
  • A caring parent part
  • A gambler part, and
  • A fun part, just to mention a few

Each of these parts form who you are. Each one of them can have a great impact on how you approach online forex trading. For instance, the fun part may dictate that you open a position in the market out of boredom, whilst the trader part warns you that you should wait until you see a clear entry signal.

Fortunately, the process of reorganizing your beliefs is a simple one.

Firstly, you need to realize that you want to acquire a certain belief. For instance, if you believe that position sizing is a significant part of your forex trading strategy (and if you were not calculating position size before), then you can learn about position sizing and apply it on the next trade you place.

If there is no negative charge impeding the adoption of the belief, and if you continue to consistently take action, you will easily acquire this new belief.

However, if there is a negative emotional charge that is impeding the adoption of this new belief, such as the gambler part tempting you to take exceedingly bigger positions in the market, then it will be difficult for you to acquire this belief.

Van K. Tharp in his book, Trading Beyond the Matrix, gives 2 suggestions that you should try:

i.             Feelings Release:

The feelings release process involves completely changing the way we react to negative feelings and thoughts.

Instead of continuing to resist them, you embrace them fully. This serves to dissipate the power that that feeling has over you. After some time, the feeling fizzles out.

ii.           Parts integration:

Parts integration involves letting the different parts of yourself negotiate and make mutual decisions. For instance, the fun part of you may enter into discussion with the trader part of you. The fun part decides to give way to the trader part in exchange for the trader part stepping aside for the fun part during the weekend.

This may sound weird, but trust me, the moment I tried it with one of my nasty beliefs, I experienced transformational effect in my career.

iii.          Create a Self-Improvement Routine for your trading beliefs

Becoming a successful forex trader requires constant and consistent refinements.

The best athletes work on their mental part of performance as much as they work on their physical training and physique.

The same applies to successful forex traders. They work on their psychology as much as they work on refining their trading techniques.

As beliefs are a central part of your forex trading psychology, you should considering having a beliefs self-improvement routine.

Your beliefs improvement routine can include:

  1. Listing your current beliefs about forex trading in paper and pen
  2. Listing your current beliefs about your forex trading strategy

A powerful beliefs system will help to shape your trades for the better.

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