Whether you are interested in foreign currency and Forex trading or any other type of trading, it is always going to be a matter of probabilities. Trading in general is a matter of probabilities and this is something that people don’t really understand at times. While the most important thing a person needs to be a successful trader is discipline, close behind that is a working knowledge about the theory behind the type of trading they are going to do. The theory behind all kinds of trading, regardless of the specifics, has to do with probability.
If you are familiar with terms like return on investment, risk versus reward and all of the synonymous phrases, then you are probably familiar with the fact that they refer to probabilities. If the probability of a trade reaching a certain level is x percent and the return on that trade is y percent, then you should go for the trade if y is greater than x. In other words, if the reward outweighs the risk, then you go for it. This is the basic principle of all kinds of trading but for some people, they are not interested in pursuing every net plus opportunity. They only want to be involved in high probability trading.
High Probability Trading - 67% success rate
There are many different kinds of trading around as previously mentioned, but high probability trading is one that many people love and use exclusively even to this day. The point of high probability trading is to enter a trade only when you feel that it will be very close to a sure thing. What people define as high probability differs from trader to trader but generally you will find that the more liberal traders will define a high probability as being successful two out of three times (around 67% success rate) and the most conservative traders will define a high probability as being successful four out of five times (around 80% success rate).
It really is up to you as to how you define high probability, and what seems like a risk to some, may not seem such a risk to others.
Factors Affecting high Probability
There are many factors that can affect high probability trading. Two are briefly discussed below.
The first factor is the length at which you are going to trade your Forex currency. A general rule of thumb to follow in this would be that the longer a trade goes beyond your expected point, the lower the probability becomes. This is not always set in stone however as even a trade set on minutes could take a week to get to the point you want it to reach. But there is a very general relationship with trades that go longer than expected and a decreasing probability.
The second factor is the distance the price has to travel. In other words, if you are entering a long position trade with a profit objective of 40 pips, generally that will carry a higher probability of success than a profit objective of 60 pips on the exact same trade.
Why High Probability Trading?
The most apparent reason for high probability trading is primarily one of psychology. Some people really do not like to lose many trades, even if those trades have a positive expected value to begin with. To that end, many people will only take very high probability trades in the hope that they limit the number of times their trades go down.
