Other reasons why forex traders fail.
Forex trading involoves significant risk of loss and is not suitable for all investors. FDM Public Disclosures & Risk Warning. The National Futures Association (NFA) requires Futures Commission Merchants (FCMs) and Forex Dealer Members (FDMs) to disclose specific information on its website. our Active Trader program customers have. Why Most Forex Traders Fail: Do You Have What It Takes? Why Most Forex Traders Fail: Do You Have What It Takes? Why Most Forex Traders Fail: Do You Have What It Takes? In essence, any forex trader that wants to be in the business over the long term needs to think of their trading activities more as a business, than as a gambling game.
Does the trading software suit your expectations? How efficient is customer service? All these must be carefully scrutinised before even beginning to consider the intricacies of trading itself. In continuation of the above item, it is necessary that we choose the account package that is most suited to our expectations and knowledge level. The various types of accounts offered by brokers can be confusing at first, but the general rule is that lower leverage is better.
If you have a good understanding of leverage and trading in general, you can be satisfied with a standard account. In general, the lower your risk, the higher your chances, so make your choices in the most conservative way possible, especially at the beginning of your career. One of the best tips for trading forex is to begin with small sums, and low leverage, while adding up to your account as it generates profits. There is no justification to the idea that a larger account will allow greater profits.
If you can increase the size of your account through your trading choices, perfect. The world of currency trading is deep and complicated, due to the chaotic nature of the markets, and the diverse characters and purposes of market participants. It is hard to master all the different kinds of financial activity that goes on in this world, so it is a great idea to restrict our trading activity to a currency pair which we understand, and with which we are familiar.
Beginning with the trading of the currency of your nation can be a great idea. Simple as it is, failure to abide by this principle has been the doom of countless traders. Do not trade on the basis of hearsay or rumors. While this is just common sense, ignorance of the principle, or carelessness in its employment has caused disasters to many traders in the course of history.
Nobody knows where a currency pair will be heading during the next few hours, days, or even weeks. There are lots of educated guesses, but no knowledge of where the price will be a short while later. Thus, the only certain value about trading is now. Nothing much can be said about the future. Consequently, there can be no point in adding to a losing position, unless you love gambling.
A position in the red can be allowed to survive on its own in accordance with the initial plan, but adding to it can never be an advisable practice. Yet traders are human beings, so it is obvious that we have to find a way of living with these emotions, while at the same time controlling them and minimizing their effect on our lives. That is why traders are always advised to begin with small amounts. By reducing our risk, we can be calm enough to realize our long term goals, reducing the impact of emotions on our trading choices.
A logical approach, and less emotional intensity are the best forex trading tips necessary to a successful career. An analytical approach to trading does not begin at the fundamental and technical analysis of price trends, or the formulation of trading strategies.
It begins at the first step taken into the career, with the first dollar placed in an open position, and the first mistakes in calculation and trading methods. The successful trader will keep a diary, a journal of his trading activity where he carefully scrutinizes his mistakes and successes to find out what works and what does not.
This is one of the most importance forex trading tips that you will get from a good mentor. We already noted the importance of emotional control in ensuring a successful and profitable career.
In order to minimize the role of emotions, one of the best of courses of action would be the automatization of trading choices and trader behavior. This is not about using forex robots, or buying expensive technical strategies. All that you need to do is to make sure that your responses to similar situations and trading scenarios are themselves similar in nature.
Let your reactions to market events follow a studied and tested pattern. Surprisingly, these unproven and untested products are extremely popular these days, generating great profits for their sellers, but little in the way of gains for their excited and hopeful buyers. The logical defense against such magical items is in fact easy.
If the genius creators of these tools are so smart, let them become millionaires with the benefit of their inventions. If they have no interest in doing as much, you should have no interest in their creations either.
Forex trading is not rocket science. There is no expectation that you be a mathematical genius, or an economics professor to acquire wealth in currency trading. Instead, clarity of vision, and well-defined, carefully observed goals and practices offer the surest path to a respectable career in forex.
To achieve this, you must resist the temptation to over explain, overanalyze, and most importantly, to rationalize your failures. A failure is a failure regardless of the conditions that led to it.
In general, a beginner is never advised to trade against trends, or to pick tops and bottoms by betting against the main forces of market momentum. Join the trends so that your mind can relax. Fight the trends, and constant stress and fear will wreck your career. Forex is all about risk analysis and probability.
There is no single method or style that will generate profits all the time. The key to success is positioning ourselves in such a way that the losses are harmless, while the profits are multiplied. Such a positioning is only possible by managing our risk allocations in accordance with an understanding of probability and risk management.
Such an attitude will surely be ruinous on your career eventually. In many cases, inexperience is the first culprit. Unfortunately, many trading novices seem to choose especially volatile times to break their own rules, just when they should not.
This can put the trader firmly out of business regardless of their previous trading success and experience. One of the pitfalls of not having a trading strategy or ignoring a well-developed one is following your emotions when making trades. Fear , along with greed and hope are the main trading emotions that make the forex market move.
In general, the emotion of fear arises from a perceived threat and developed as a natural defense mechanism in most animals. While losing money is the apparent cause for fear, the root cause is a fear of poverty; no one wants to be poor.
The fear of poverty is another deep-seated fear that society has programmed into its members and directly affects the trading community. Several types of fear arise often in the course of trading whether consciously or unconsciously, these emotional responses include:. The fear-based emotional responses cited above find their expression daily in the markets and often contribute to trading losses unless appropriately managed. Nevertheless, fear can be extremely useful in the event of calling the market wrong, as W.
Many professional traders will admit to allowing the gut feeling of fear to give them an indication as to the right time to get out of a trade. This applies to situations where the trader is either taking a profit or cutting losses short. Another Gann quote on fear sums it up nicely: Having a great trading system and all of the technical and analytical tools for success in trading will not suffice to be successful; a trader has to have the right mindset. This can only be accomplished by learning to control emotional responses when trading and in all trading situations.
An emotional response which can adversely affect a forex trader involves fear impeding the trader from taking action. This can be especially damaging if the trader has a losing position and finds themselves paralyzed while the market continues moving against them. This type of response may also impede a trader from taking advantage of a trading opportunity going against their own trading plan and allowing fear to prevail over their own instructions.
Another instance of fear which arises during forex trading tends to happen after the trader has made a losing trade. Because of a lack of confidence caused by the previous losing trade, the forex trader might be too afraid to jump back in regardless of an opportunity to make back the money lost on the losing trade. Fear will also cause a person to exit a profitable position earlier than would be necessary.
This reduces potential gains and makes you unable to absorb inevitable losses longer. It is important to be able to absorb these losses long enough for your gains to outweigh them. Basically, when dealing with fear, keep in mind that fear relates almost exclusively to future events.
This could take the form of prolonging an unacceptable situation or of making a present situation worse. A good way to deal constructively with fear is using fear to replace hope which can be extremely detrimental to a trader.
Basically, if you can be disciplined and able to trade with a sound trading and money management system, fear and other emotions can easily be controlled. Like fear, the emotion of greed is common throughout the forex market, and it basically is the excessive desire for more than you need. In many cases, greed can manifest in the common trading errors of overtrading and running winning trades into losers.
Greed can also cause a person to stay in a losing position beyond the time when an objective trading strategy would call for an exit. This obviously results in a larger loss which then ultimately exhausts your capital.
Most people do not have any idea of how greedy they really are until after they start trading. Having a clear profit taking component of your trading plan can help overcome this emotional obstacle to success. The market has already proven the trader wrong, but hope makes them stick with the losing trade, often leading to disastrous results for their trading portfolio.
In fact, the hopeful trader would be far more reasonable in fearing losing more money on a losing trade. Nevertheless, hope can be used constructively by traders when they hope to make more money on a winning trade and therefore let their profits run on. Letting the emotions of greed, fear and hope dictate your trading activity is one of the major reasons why most forex traders fail.
The emotion of excitement can often arise after a trader has made a winning trade or when the market moves sharply when a trader has a position causing a burst of adrenalin. At this point, the trader needs to remember in the heat of that excited moment, that their success in trading over the long run will be determined by how disciplined they are in following their trading plan.
Elation will generally arise when the trader has made an impressive unrealized profit on a position. The boost to their confidence may lead them to think they can do no wrong, and that can be when the problems start.
Not only does the elated trader need to take their profits out of the market by liquidating the trade and realizing their profit, but they also need to stick to their trade plan in doing so. Nevertheless, the elated trader may throw caution to the wind and disregard the profit taking portion of their trading plan. This can even have the unfortunate result of them frittering away the handsome profit they had originally seen on the trade. Remember, you cannot take unrealized profits to the bank.
Realizing profits in a disciplined way is an essential part of trading successfully. Lack of discipline leads to emotional trading and is another of the major reasons why most forex traders fail. Losing discipline in a trading situation takes place every day in the market, and any of a number of causes and excuses are used by traders to justify their mistakes.
Unfortunately, more often than not, a trader that loses discipline will eventually lose money as well. That is, unless they are extremely lucky, of course. Still, the fact remains that they are just not playing the odds when it comes to their forex trading activities. At a certain point, the trader who has lost all discipline acts in a way remarkably reminiscent of a gambler, since they have virtually stopped being a business person when it comes to their trading.
Such a gambler might get favored with a long string of winners, only to gamble away all of their winnings and more before leaving the table. Of course, they had ample opportunity to walk away with a profit, but they did not have the discipline to do so.
In essence, any forex trader that wants to be in the business over the long term needs to think of their trading activities more as a business, than as a gambling game. Having a set of rules which are of a purely technical nature, is the ideal method for approaching forex trading in an objective manner.
These impractical goals will either cause a person to take more risk than they should on individual trades, or they will encourage more trades than would be necessary within the bounds of a balanced and objective trading strategy. Forex has caused large losses to many inexperienced and undisciplined traders over the years.
In general, the emotion of fear arises from a perceived threat and developed as a natural defense mechanism in most animals. Each individual trader will have a different answer to the above question.