Many things in life are all about probabilities, forex is no different. The most well-known game of chance is the simple coin flip, it is thrown up into the air and you need to say whether it will land on heads or tales, a 50 50 chance, breaking down the markets into their basic form, there are only two possibilities on the direction that the markets will move, there is a 50% chance that the price will rise, and a 50% chance that the price will fall, but it isn’t that straight forward.
Every aspect of analysis within the forex markets adds a little probability one way or another, so the analysis is all about finding all the possibilities that there are and putting them on either the buy-side or the sell-side.
So what sorts of things could be seen as these probabilities? Well, everything, the current trend, news events that are coming up, the market sentiment, any analysis tools that you are using such as Bollinger Bands, Fibonacci levels and so forth all add to the probabilities that you have.
Probabilities also come into your trades, you have spent time creating that strategy that you are using, it has a 70/30 win/loss ration, so with the current market conditions you have a 70 probability of a win, you may lose two or three trades in a row, but the law of probability will dictate that you will win enough to bring your ratio back up to 70/30. One bit of newbie psychology is that a lot can put a dent into your confidence and can make you doubt the strategy, but looking at it from a mathematical perspective, you are in good shape for profits and will continue to win.
Being able to think of trading as a game of numbers rather than your actual money is the best way going forward, this will allow you to concentrate only on those probabilities in the long run and not individual wins and losses. Professional traders are not worried about the next trade winning or losing. What they care about is making money long term and over time. They want to maximize their profits by thinking in probabilities. Your edge, applied with consistency, should allow you to inch the probabilities of a winning trade slightly in your favor, this alone is what will allow you to win over time.
We know it is hard, but look at trading as small sections of probabilities, it will help to improve your trading and also help to take some of the emotion out of it.