Most novice Forex traders believe that once you discovered that elusive winning strategy, you are destined for success in the currency markets.

Unfortunately, nothing could be further away from the truth.

This might come as a surprise, but achieving trading success actually requires 3 major components and having an effective trading strategy is only a third of the equation.

I personally believe that the “Psychological Mindset” of a trader is more important than both “Money Management” and ”Strategies” combined, in other words :

Trading Success (100%) = Trading Strategy (15%) + Proper Money Management (30%) + Trading Psychology & Mindset (55%)

Without a properly trained trading mindset, even if you are equipped with the most updated and relevant markets information, it can be still be misinterpreted and distorted, resulting in huge losses in your trading account.

Perhaps many novice traders who have not gone through the mill might disagree with me, so allow me the opportunity to better explain this by examining each component in greater detail.

Trading Strategy

Most newbie traders reckon that the key to reaping huge profits in the Forex markets is to formulate the so called “Ultimate” trading strategy.

They are always on the lookout for the “Holy Grail” and have the tendency to clog their screens with every available indicators they can find.

Some even spend countless hours researching various financial websites trying to figure out where the latest economic trends are heading.

While others just blindly purchase any “Get Rich Quick” trading products they can get their hands on.

In fact, excessive market information sometimes doesn’t really help if you can’t put it into perspective (conflicting advices) and may even hurt your overall trading results.

Proper Money Management

When you understand that everyone loses from time to time, even the pros, it is easy to see why proper money management is essential.

Successful traders are only willing to risk a certain percentage of their account (usually 3 to 5%) on any single trade.

This ensures that they are able to stay “Longer” in the game even if they encounter a string of losses.

Novice traders on the other hand are willing to risk it all just for a quick buck.

Mathematically speaking, it is twice as hard to “Earn” back what you lose just to reinstate your trading account to its original value.

That is precisely why  money management is an important component of a trader’s success, but not the most essential aspect yet.

Trading Psychology & Mindset

Now, don’t get me wrong, you definitely need to have some form of analytical trading strategy with a good winning ratio coupled with prudent money management in order to profit from Forex trading in the long run.

On the other hand, prudent money management without an effective trading strategy will only mean that you lose your money more slowly.

And plain trading without proper money management will create a serious dent in your account equity as you never know when your next string of “Unfortunate” and sometimes inevitable losses might come.

So what’s the “Missing” link to ensure our long term Forex trading success?

No prizes for getting this one right.

The bottom line is that without a properly cultivated trading mindset, it is nearly impossible to continue to get good trading results in the long run.

The Big Picture

In my book, the biggest test of a trader’s psychology and mindset happens during a draw down.

For those who are not familiar with the term “Draw Down”,  it is a period where traders experience a reduction in their account equity resulting from a series of “Bad” trades.

Keep in mind, draw downs are completely normal, it happens to the best of us.

Everyone experiences them from time to time, the key here is how we react during these “Nasty” draw downs.

For the novice trader, the natural reaction during a draw down is the doubt that arises when their so called “Ultimate” strategy loses them money.

They have the unbearable urge to change their usual trading strategy for a desperate chance to recover their losses.

And in order to do so, they are “Willing” to risk more per trade in order to make up for those “Hard Earned” profits that has been eroded away.

Unless lady luck is standing over their shoulder, we all know that by doing so, most usually end up losing even more.

In a nutshell, if your trading strategy has worked for you in the past, there is no reason to change anything during a draw down.

On the contrary, that is the most appropriate step is to go back to the basics, stick to what works.

Statistically speaking,  most traders only become successful after they are able to put together a strategy that gives them an high win-to-loss ratio, prudent money management, and proper trading psychology.

Remember, a poor mindset can sabotage even the best trading strategy or money management methodology.

Have a safe and profitable trading day ahead.

* Forex Singapore – My Forex Trading Success Begins Here!