Game Theory - Forex Is All About Perspective
Forex Trading, Poker, Black Jack. To be consistently successful at these, you need to have a basic understanding of Game Theory. What is Game Theory??
“Game Theory is the study of mathematical models of strategic interaction among rational decision-makers” – Wiki. Basically a calculated approach to a game of 2 or more people where there are rewards and risks at play. In Forex trading, we can almost bet on newbie traders being irrational. Making it very predictable behavior and in a sense “rational”. Stick with me here…
Wanna Play a Game?
Successful Forex Traders realized a long time ago that Forex trading became a big fat casino when retail traders were first allowed to trade currencies back in the 90s. But, still the “casino” in the world that lets you pick your odds. The first step in winning any game like this would be to only pick a scenario that has a higher probability of working out in your favor.
Why? Why would a “casino” let it’s participants pick their own odds? They know that most of em won’t even bother working an edge. Between that and straight-up not being disciplined enough to ONLY play with an edge, they, the “casino”, are almost guaranteed to win.
That! my friend is good news for you. That is excellent news! ALL YOU HAVE TO DO is not play without an edge. That’s where the game is won or lost. You need to have an edge. ALWAYS.
Hopefully, now you understand that after you find an edge, all you have to do is work that edge up, down, and sideways. That’s the perspective you need to play the game successfully. Any edge you have will need to time to prove consistent. A string of losses shouldn’t shake you up if you know you have an edge because in the long term you will win. You might not even have to wait long-term if you have a super edge. But you would have to stress-test your edge and make sure it isn’t temporary.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.