The number of forex traders keep rising in a geometric terms why the survivors gets slimmer and slimmer. So much noise about making millions on forex trading but are the noise makers really making the millions. A study conducted by brokers has shown that only 5% of forex traders makes money consistently from the market. Then, what happens to the rest 95% and why can't they join the big boys? This post is meant to explain the reasons behind the failures of most traders and help give corrections for better trading.
LACK OF A SOUND FOREX EDUCATION: Another fact is that many traders have simply not had appropriate forex education or training, and as a consequence, eventually fall on their sword having confronted the realities of this unforgiving market. Note that I am not talking about general education here, I am talking about forex education. Currency trading is like any other trade or profession - you simply cannot just start to trade forex successfully without any kind of appropriate education, practice or training, but people think they can, and soon learn otherwise. It is trench warfare out there and one simply needs to be prepared! If you are serious about being a successful trader, get forex education. There are loads of good free forex educational resources and web sites on the web, as well as formal, paid-for courses.
INAPPROPRIATE TRADING SYSTEM: The lack of a forex trading system, or using a poor or inappropriate one, are other contributing reasons why many forex traders fail. Trading systems exist, or are developed, to help the trader to trade more objectively and systematically through the use of statistical indicators to help the trader assess risk or probability. Like so many other things, some forex trading systems are better than others. But, another issue with them is that they must fit with a trader's own personal style of trading to be of much good. What works for one trader, won't necessarily work for another. If, for example a trader prefers intra-day trading, they should use an appropriate short term system. Likewise, a longer term trader should use, say, a daily trading system. Matching of trader and trading system is thus another key to trading success or failure.
WRONG BELIEFS: Believing you're in some kind of competition, your perceived opponent being "the market". Believe me the market is enormous, it doesn't care. It's in competition with no one. A belief in "luck" & a superstitious attitude. Is your computer screen surrounded by lucky charms? Trading isn't based on luck or the planets being aligned. Again, Believing that great results from "paper trading" will translate into the same in the real world - they won't! You may be worth millions in Toytown currency, but the real world is different from a game of Monopoly. Also believing in the use of products like trading robots to rake the market is really a way of adding your self among the 95% losers in forex market. Those things don't work over time if so, all these big banks that trade forex will move to them.
IMPATIENCE: the inability to NOT trade when conditions are unfavorable. Sit back, don't feel you have to have your "nose to the grindstone" for 8 hours a day. Only trade when it's the right thing to do. Recognize your chance to strike but also recognize when it is necessary to withdraw.
INCONSISTENT METHODOLOGY: One of the biggest mistakes, it might work now and again, then again if you have no method, you are just guessing. Forex trading is not a guessing game so get a good method of trading and follow it consistently.
A WRONG MINDSET: feeling that the market is "out to get you". Do you get angry at "the market"? do you try to get your own back? Don't waste the negative energy, the market is bigger than any of us and to be honest, it just doesn't care! Don't get back at the market for the yesterday's loss rather follow your trading plan.
LACK OF SELF RELIANCE: taking personal responsibility for one's actions. Don't blame your poor results on anyone or anything else. It's all down to you. It's lonely out there, get used to it. Too much willingness to listen to news items and to believe others know more than you do, seeking out "hot trading tips" for example. These days we are bombarded with info overload - TV, radio, internet, newspapers, magazines - all packed full of so called experts. Don't listen to the noise! Follow your system, trade when the signals are favorable not when the latest "TRADING GURU" gives you a hot tip.
Again feeling of low self worth. Profits made are quickly lost again due to a feeling of not being deserving of them. The old work ethic rears its ugly head. Does working for only a couple of hours a day somehow make you feel guilty.
TRADING UNDER PRESSURE: Trading with money you can't afford to lose will definitely put you under pressure to trade against your trading rules. Decide how much you can afford to lose, accept that you may. There are some people i have seen who do well in trading their own capital in forex but the moment they start collecting money to trade for others, they end up loosing their stand and their trading capital. Avoid trading under pressure, relax and do your thing.
TRADING WITH EMOTIONS: Another major reason for failure is that many people are too emotional when it comes to trading and let their hearts rather than their heads do the trading. Forex is a numbers game in many ways, and one needs to apply facts, logic, commonsense and experience, rather than letting killer emotions of greed, fear, hope, anger and pride wreck their trading accounts. Scared of losing, scared of winning. Driven to make millions - all of these stop you being "an amused bystander". Again keep emotion out of the equation. Never try to double your losses. Stick to your system, start and exit your trades in line with your system. You won't win them all, get used to it. Inability to let profitable trades run can be due to emotions at trade. Have confidence in your system, follow it, don't get scared and grab the money and run.
IMPROPER USE OF MONEY MANAGEMENT RULES: You may only need to work a couple of hours a day but it needs to be a well organized, focused couple of hours. It's important to know at any given moment how much you should trade, when to enter and when to exit a trade. Before you enter any trade, you must know how much you can afford to loose in case the trade go against you and it should not be more than 3% of your trading capital. Check our post on money management for better understanding and the use of the principle
GET A MENTOR: the road you are walking on, there are people who have passed it. You need somebody to learn from. Forex is easy only when you learn from the right person and start doing the right thing.
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