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How to Get Rid of the “Doom Cycle” in Trading?

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1. What is the doom cycle in trading?

What is the doom cycle? let's give an example:
Assuming you recently started trading, you have an appropriate strategy. With this strategy, you start investing real money in foreign exchange. Everything went well in the beginning, you are making money, and your strategy seems to be effective.
Then, the inevitable happens and you start to see losses. This strategy once seemed effective, but now it seems to be making you lose money.
The most common thing people do at this point is to doubt their own strategies. These doubts led to fine-tuning and changes to the strategy. There will be some subtle changes to the strategy before you start to make some money.
Then, it will inevitably happen again! You are losing money.
The fact is that it is basically inevitable that a strategy will experience losses at some point. However, for many people, this loss makes them doubt their strategies again, which leads to more adjustments until they start making money again.
At this point, you may see this cycle begin to repeat. Ultimately, after going through some of these cycles, you may not trust this strategy at all. You might abandon it altogether and look for a new strategy.
Then, the new strategy will be fully adopted, and the cycle will start again! It might look like this:
New Strategy>Loss>Adjustment>Loss>Dump Strategy>Find New Strategy
Many people keep repeating this cycle, hoping they can find the holy grail of strategy so that they can obtain stable profits again and again.

2. How to avoid falling into the "doom cycle"?

1. You need to be confident in your strategy
In order to develop an effective strategy, it must be something you have confidence in. If you do not have confidence in something, then you most likely will not follow it, or even give it the initial chance of success.
How do you gain confidence in the strategy?
Therefore, we can see why confidence in strategy is important. However, the question becomes, how can I be confident in this strategy? There is one thing that will make you full of confidence in a foreign exchange trading strategy, that is, it is an effective strategy.
You can gain this knowledge by backtesting the strategy. You need to incorporate the strategy into all possible historical data. In this way, you will understand the characteristics of the strategy. You know its performance during the winning period, and you know its performance during the losing period.
In short, knowledge is power!
Through this backtest, you know that even in the period of failure, you will not lose confidence in your strategy, because you will have an understanding of the period of failure.
2. Have the right expectations
Another reason why so many traders have entered the market and failed is that they have completely wrong expectations. They have read the book and hyped the trader's lifestyle, you can quit your job on the beach.
This is simply unrealistic. You will not become a trader overnight. Learning the skills required for success requires a lot of research, analysis and patience.
Many new traders also believe that they will start with a small amount of money and turn it into a million dollars overnight!
Again, this is not a realistic goal.
Successful transactions require time, patience and a lot of work. In order to be successful in this field, you need to incorporate these expectations. If you are not prepared for the time, learning, and investment required to succeed in this field, then you are prepared for failure.
3. Be realistic about the market
The fact is that most traders expect a 25% return within a year. Therefore, if you enter this market for $500 and think you will make a fortune, you only need to readjust these expectations. A 25% return of $500 is $125, which is a good return.

3. Don't risk investment

Often, due to their high and unrealistic expectations, novice traders will chase very risky investments in order to obtain the high paydays they believe are necessary for successful trading.
Their high expectations have destined them to pursue high-risk, volatile investments. This additional risk in their portfolio makes them more likely to fail.

Concluding remarks

There are many pitfalls to avoid when investing. They are not limited to the foreign exchange market. This "circle of doom" can indeed apply to any investor. The key is to choose a strategy that you have tested and known to be reliable.
In this article, we provide you with some precautions to avoid novice investors getting into trouble. But you will notice that they all revolve around similar themes. You need to be smart, conduct research and set realistic expectations.
With these things alone, you can enter the foreign exchange market with a successful attitude!
(by Max Norbury)


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