Forex mathematics is very critical to successful trading in foreign exchange market. By understanding the forex probability concept, you will have a higher chance to success. It is not easy to be successful in forex trading without the skill and ability to interpret forex mathematics accurately.
Today, we shall demystify the concept of probability in forex trading.
Forex Market Probability Concept
Probability deals with the likelihood of an event happening. Forex probability indicates a possibility at a specific time. This is because the forex market is highly volatile, and predicting future events affecting it is impossible.
You could be lucky at times in your predictions, but no one is 100% correct all the time. When thinking about probability, a coin toss always comes to the mind of many people. A coin toss has a probability of a 50% chance for every toss.
Can this simple reasoning be applied to forex trading? The answer is no. Forex markets have trends; thus, using a 50% chance or gamble fallacy exemplified in a coin toss is not valid in forex or any other financial trading. Heads or tails outcome streak while tossing a coin does not mean the next toss is going to be a head or tail.
Probability In Forex Series Trade
While considering a trading strategy to use, it is best to select the one with a high probability of making you money. Forex probability of a trading strategy in a forex series trade is straightforward and quick to calculate. Simply, sum up all the wins and losses within a particular time and then divide it by the number of trades.
If the trading strategy is profitable, then the result will be positive. But if the answer is negative, then the strategy is losing you money. To test a forex trading strategy conclusively, you will require at least 30 trades for a sample size. But the higher the sample size in random forex, the more reliable the test.
Hence with a positive trading strategy, you will make profits after trading consistently for long, even if you incur some losses. With luck and probability on your side, you will be a winner in the end. Even the robotic trading systems and expert advisors (EA) have no secret or magical forex success formula. They use a computer algorithm using probability in trading to determine market probability.
High Probability Trading
High probability trading simply implies entering trades that appear to be successful only. Statistically, most traders average a 40-60% success rate, while the high probability trading has a success rate of 60-80%.
The high probability trading system is characterized by
(1) bigger time frames like monthly and weekly and
(2) support and resistance levels. Successful traders understand that using probability in trading with a few wins with a good risk/reward ratio, and you will be a winner.
Conversely, if you are not careful, a single trade could easily wipe out your account without risk management practices.
Predicting price movement in forex trading purely relies on forex probabilities. The price may move against you or in your favor. Consistent and successful traders have developed technical skills to analyze charts, trends, and fundamentals to increase the probability of success in the odds market.
Forex Game
The new beginners can learn and develop their forex probability skills while playing forex game – free online forex trading game simulation. Before you start forex trading, it wise to try the forex trading game. While enjoying the forex game, you will learn market analysis and the basics of forex trading.
Trading Is A Probability Game
Forex trading is a probability game, hence understanding the concept of forex trading is the path to success. You do not need to learn complex or advanced mathematics to track price movements or do a proper analysis.
But, basic knowledge in mathematics, forex trading, probability, and statistical analysis will help you develop a high probability trading system. Furthermore, you will analyze charts and trends better with minimal errors with the high probability trading system.
Experienced traders think of forex trading in terms of chance and probability and not a sure trade or investment. They back up their decisions on analysis to increase their chance and probability of success.
The experienced trader does not worry so much about losing or winning trade. They know that profitability comes from consistent trading for some sometimes and maximize their profits by using a high probability forex system.
High Probability Forex System
Using a high probability forex system is beneficial psychologically. It helps the trader to be calm, patient, and disciplined while relying on his or her trading strategy to succeed. Besides, using probability in trading, the trader will control the emotions in forex trading such as revenge trading, overtrading, fear of losing, and greed, among others.
Even with the best analysis, forex probability understanding will let you know that you will either lose or win a trade. You are not sure what chance for success the next trade might be in store for you, despite knowing the most probable price movement direction in the market. However, profitability in forex trading is long term activity greatly enhanced by probability based trading.
Understanding random forex and forex series is the first step in learning forex probability. By learning the concepts of forex probability, traders will easily set financial goals and express them in mathematics figures. And in the end, you will realize that nothing is guaranteed in the forex game, but you need to learn more and more to be a winner.
Conclusion
Understanding the forex probability concept in trading and applying it correctly will accord you better chances towards achieving your trading objectives. Nevertheless, you will trade with ease without any emotions while being objective.
Forex probability entails selecting a trade while applying a forex trading strategy with a higher chance and probability of success. While many searches for a forex success formula, consistent traders simply have a trading plan with a high chance of success in conjunction with proper risk management.
Always remember that trading is a probability game, and for every trade that you execute may either make you money or a loss. The key is to understand its significance and use it fully in forex trading.
Are you using probability in trading to improve your chance to success?