This is the sad story of trading with the "It’ll come back...." method.

Also titled: "How to lose the most amount of money in the shortest possible time." It's the ultimate combination of the trading salad buffet ingredients of: Fear, Greed, and Hope.

And, because it’s so much fun, it’s why we keep doing it!

The story goes something like this: you're in a losing trade, and — for whatever reason — you move or eliminate your stop because you hear the Siren's song of: "It’ll come back...."

But it doesn't come back. It's — in fact — never going to 'come back'.

So then: why do we continue to do this quite stupid thing?

We do it because of two flaws in our psychological makeup as humans delving into the sometimes black art of currency trading:

1. Greed when we should be fearful.
2. FOMO — the fear of missing out.

Of note is that to this post, I have a companion video of the same title: Trading FOREX With The It'll Come Back Method that puts all of this together from a different view point.

If you've come from watching that video, then press on here. However, if this is your starting point, I might suggest that you read through this before watching the video. Or, if you want, you can skip to the bottom of this post to watch that video now.

Let's take a clinical — as opposed to an emotional — look at each of those, and see what we might learn.

We got into the position because we thought (could be hoped...) that price would surge forward to our profit target. And, perhaps, for awhile that's exactly what happens.

But then, for some reason, it swung around against us, and we're facing a very negative view of our greed that initiated the trade in the first place.

Now, it's fine to have greed, but that greed has to be based on more than supposition, or our breath shortening in the excitement of the big win, the big kill, before us. Once that trade goes on, you have to switch your view from greed to that of fear. And if that trade is not working out in the manner you expected from your analysis, then you must — as in must exit.

And that exit must — as in must — be an already in place stop order, and not — as in not — some malleable mental area that you will make a decision as to what to do if price gets to that point.

"But," you exclaim with almost despair in your voice, "that's fear based trading! You shouldn't trade when you're afraid! You have to trade with confidence!"

Sure, sure, sure you do. Yup. You do have to have confidence, but that confidence has to be in your ability to immediately acknowledge that you've perhaps made an error in your entry analysis, and that the rule of the game then is to exit, wait, and re-evaluate conditions.

Responding correctly to a trading situation that causes you to be afraid is far different than being fearful to act. Trading isn't like driving a car where you can mitigate your risk exposure by wearing a seat belt.

In trading, you enter on your best analysis, and you exit immediately, and totally at the first sign of danger.

You don't wait for the air bag to deploy....

Now, what about this FOMO — the fear of missing out aspect?

Look, this concept is covered in almost every educational resource out there. Even a trader with only 3 days on the boards can puke that shit out.

Well, if that's the case: then why is it that a large retail FOREX broker's analysis of 43 Million client transactions revealed that 90% lose 90% of their account in 90 days? Why is that if such pearls of wisdom are so well known?

I believe it's because new traders — hey, even experienced ones — do not consider the psychological implications of trading, but rather just focus on what they can 'understand', so-to-speak; stuff like flag patterns, or pin bars, or silly moving average cross over systems.

As you know if you've read my bio, I've been involved in the martial arts for over 50 years, beginning in 1968. At an advanced level, good martial arts progresses from being simply a combative art to one of deep philosophical and psychological study, analysis, and training. That advanced study can't be broken out and taught to a non-martial artist because it's all foundationed upon the physical aspects of the work the student has trained in for somewhere in the 3 to 5 year time frame.

I preface this advanced study by asking the student a simple question: "If I punched you in the face, could you state on a scale of 1 to 10 how much that punch hurt?" The answer of course is certainly 'yes'.

I then ask, "If I now were to ask you how happy or sad you are, could you state on a scale of 1 to 10 just how happy or sad you are?" The answer of course is obviously not so easy. Why?

Well, we could say that the punch in the face is a 'concrete' type of event: there's no disputing it. It's as Iron Mike Tyson puts it: "Everybody has a plan until they get hit." So, if your attempt at using a stupid moving average cross over system fails, it's easy to point at that and say: "That shits useless."

But that fails to address the true failure. It isn't the trading system that didn't work: its the trader that believed in the system without doing the proper investigative work necessary. And, because of that failure to analyze the true issue, the trader is more than likely to either keep trying that system, or constantly moving from one system to the next looking for that 'concrete' truth, that 'Holy Grail' that's sure to be out there.

What's at the root of all of that is FOMO. If you don't have a clear view of yourself, you certainly can not have a clear view of the emotional and psychological aspects of trading.

The Chinese philosopher Lao Tzu put it this way: "To know oneself is to know the Ten Thousand Things." In Chinese thought, the 'Ten Thousand Things' is a metaphor of all of life, all of what is referred to as 'Nature'. Nature is simply a non-theological reference to all that there is, similar to St. Anselm's Ontological Argument for The Existence God which says, in a nut-shell, that: "God is that than which nothing greater can be conceived in the mind of man."

So, FOMO is created not by a lack of study or understanding of some arcane secret trading truth, but rather a deep seated psychological aspect of us as human beings which we may not even know to take the time to investigate. I strongly suggest that a reading, even if only a cursory one, of Mark Douglas' book, "Trading In The Zone" should be had before placing that first trade in a live account.

Failure to comprehend not only the origin of FOMO, but its deep psychological ramifications in trading will prove to be a costly mistake.

FOMO combined with misinterpreting the correct time to be greedy with that of being fearful is probably one of the more toxic trading combinations confronting us. Neither have a concrete component that we can use to base a trading decision upon. Because of that, we fall back onto our 'instincts'.

I put 'instincts' in quotes because our 'normal' (also in quotes) instincts protect us from 'normal' danger, like the tiger slinking through the weeds along the open field where its future meal grazes, or making sure our seat belt is securely fastened, or the ladder is supported safely.

But those instincts are not appropriate in trading; they don't work. That's pretty blunt, but do some study on this from reputable sources before casting the concept off to the side of your learning path. And if the educator or educational source that you are using doesn't address this issue, then find someone, or something that does.

Any dumb-ass can teach you what a pin bar is, or how to recognize a trade entry setup. But learning this stuff about instincts, and about the psychological aspects of the trading mind is critical to your success. Anyone who tells you different, or who doesn't have anything to say about this in a practical way, should be avoided as an educational trading reference source.

Understanding fear, greed, hope, and the fear of missing out (FOMO) must be critical components of your trading plan. But how do you quantify such non-tactile psychological constructs into concrete trading rules?

Well, quite frankly: you can't.

Wow.... That's helpful, isn't it?

How do you touch a cloud? Well, you can't even though it's there and you can see it. You can wave your hand through it, but are you 'touching' it? No, you're not 'touching' it. You may be touching wet particles, but that's touching wet particles, not touching the cloud....

How about if you hold your hands up in front of you, and cross your index fingers into an 'X' pattern. Does that 'X' exist as a concrete, physical entity? No. Well, what is it then, and what is the cloud?

There is a branch of mathematics called Information Theory proposed by Claude Shannon toward the middle of the twentieth century. Information Theory is at the heart of so many of our 'modern' discoveries: statistics, biology, behavioral science, neuroscience, and statistical mechanics. What this theory says about the crossed fingers is that though the crossing of the fingers is a physical, concrete action, the creation of what we call an 'X' is not. Rather, that 'X' is perceived as information.

So too is the 'cloud'. There is no cloud. There is a collection of wet particles that form the cloud, but the cloud itself is information that there is a cluster of wet particles. The wet particles exist just like each crossed finger exists. The cloud that is created by those particles, and the 'X' that is perceived by the crossed fingers are both 'information'.

Fear, greed, hope, and FOMO are all just information. Because information must be based upon some thing (even "...that than which nothing greater can be conceived in the mind of man."), then what is it that forms the basis of that fear, greed, hope, and FOMO?

It's simple. Can you figure it out before reading the next line?

It's price action. Well, even price action is like a cloud: there's really no 'price action' itself. Price action is created by people/traders — which are concrete things — placing orders — also concrete things. That's what causes price to move.

When price moves, it leaves tracks. We call those tracks that appear on a screen or chart 'price action'. As the Dakota Native American Proverb goes: "We will be known forever by the tracks we leave."

So, what all this is saying is that our non-tactile feelings of fear, greed, hope, and FOMO are based upon the also non-tactile price action tracks we observe but which are based upon the real, and very tactile, traders and the orders those traders are injecting into the market. Thus, to understand price action, we must — as in must — understand the motivations, the psychology, of traders initiating those orders.

And who are these traders?

'These' traders are.... you! Since we're all basically the same, with the same fear, greed, hope, and FOMO, then to understand yourself psychologically is to understand all other traders. This is, again, totally in harmony with Lao Tzu's "To know oneself is to know the Ten Thousand Things."

Sorry to take you on such a circular loop of discussion, but it's essential that you understand that your success in correctly managing your fear, greed, hope, and FOMO are, unfortunately, all up to you.

I said 'unfortunately' because I wanted you to nod your head that would be a lot of work. But it's not really 'unfortunate'; it's really fortunate that the responsibility for your success as a trader rests with you. Just you, and you alone is responsible for your success.

In currency trading, you have no dependencies upon anyone or anything else. It's not like real estate where there are sooooo many dependencies: tenants, bank loan officers, the Fed, town building codes and inspectors.... the list is long.

In currency trading: it's all up to you. And that's a very, very fortunate thing.

Well, it is a fortunate thing as long as you're not a closed minded person who will refuse to acknowledge information that will require you to change the way that you think about trading from the way that you most likely currently do. The only change this implies is switching your focus from fear, greed, hope, and FOMO of price action to that of your fears, greed, hopes, and tendencies toward FOMO.

Those things — fear, greed, hope, and FOMO — don't really exist. They only exist as a manifestation of you, just as the cloud exists as information about the wet particles a cloud is comprised of.

So, if — as in if — you can change the way that you think, then you can change your fear, greed, hope, and FOMO into useful tools as opposed to negative impacts, tracks, on your life.

Video: Trading FOREX With The It'll Come Back Method