When a person starting to trade thinks about winning or losing in the currency market they will usually attribute the outcome to some kind of luck. It often is at the start, but a seasoned trader should be focusing more on Forex Probabilities. As you more clearly understand the market, you will start to figure out that the "luck" mindset is not conducive to your trading success.

I would like to discuss the different aspects of trading on probabilities. There are some requirements to be able to trade on probabilities. First of all, you have to know what you are doing, at least at some level (which excludes the beginning trader). Second, you have to have tested techniques and strategies so you know what you can anticipate in different market conditions. Third, you need to be able to control the emotions that throw the positive effects of Forex probabilities out the window. When you have mastered these three things then you can start to "Trade on Probabilities".

You will want to know the rough probabilities for a couple of key elements: Your Risk/Reward Ratio and your Win/Loss Ratio. Understanding what your Win/Loss ratio is on any strategy you are trading helps you trade more profitably over the long run. When you combine that understanding with a positive Risk/Reward ratio it will only help boost your profits. Here is an example:

If I had a trading strategy that has returned a 70% winning record over 3 months, then I can safely expect that 7 in 10 of the trades I place will be winners. That is, as long as I have clearly defined entry and exit rules and follow those rules. This might sound good to you, but you need to understand the Risk/Reward ratio before you can determine if it is a solid system. If the losses are twice as big as the gains, then you will end up poorer at the end of the month for trading it. So a high probability strategy incorporates both W/L & R/R.

It is possible that your emotions and your mindset can get in the way of a profitable system. Let's say you find a strategy that is only 30% successful, meaning that you have lost 7 of every 10 trades using it. Almost anyone would throw it out the window... Click the link below to find out why you might reconsider.