I love this question. And the answer is longer than you’d expect…
Okay. Let me start off by saying I am a profitable trader and have been for a long time. I trade multiple strategies, on multiple currencies and time frames so I have a good understanding of a wide variety issues that comes up with forex trading.
Let’s start off by saying there is luck involved. Ofcourse there is, otherwise we wouldn’t need to work so hard at managing our trades and our success rates would be higher than they are! But there is also a lot of strategy. Far more strategy than luck.
Imagine you were to just pick a random direction, up or down, and place a trade based on that with no information whatsoever. In that event there is loads of luck involved. But now lets say you know some more information, like you know the larger trend is bullish (going up) so now you decide to buy. Well, now your chances are slightly better than 50/50. For argument’s sake lets say now it’s 55/45 in your favour.
Now with some more information, lets say a news event came out that confirms your buy trade. Well, things are looking more in your favour for the trade to head in that direction, lets say you’re now at 60/40 in your favour.
But now your crossover strategy ALSO lines up and tells you its time for a buy. Stochastics says yes, and other technical analysis all agree. Now you’re at 65/35.
There is always an element of luck and chance involved. But the more you know the more you can stack the odds in your favour.
Strategy doesn’t end there though. Strategy will allow you to cut your losses early, and to see when your winning trades will keep going to maximize your profits.
So even if you’re at a 50/50 chance but you have a good strategy to chase profits and cut losses, you can still be profitable. All of these factors come in to play, and strategy allows you to reduce the amount of luck needed as well as to capitalize on the “lucky” trades.
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