Why Traders Fail at Forex Trading
While there can be a number of reasons why most traders fail at forex trading, they mainly are a result of poor self-discipline which leads to risking too much, over trading, trading with money one can’t afford to lose, not demo trading first, or using overly complicated trading methods that make trading much more difficult than it actually is.
The primary way to fix these trading problems is to treat your forex trading as a business by developing a trading plan that pre-defines all aspects of your involvement with the market. This takes work, and many people simply don’t want to put the work into creating a functional trading plan because of the temptation to dive into the forex market headfirst and try their luck. The end result of this lazy trading attitude will always be failure, as forex trading success takes effort and time just as success in any other profession does.
• Risking too much and over trading.
Over trading and risking too much are perhaps the two most prevalent trading problems that plague both beginning and experienced forex traders. Both of these problems are a side effect of greed; most people involved in trading the forex market find themselves out of control when it comes to managing their greed, and they may not even be aware of their problem. Many unaware outsiders like to compare forex trading to gambling, while this comparison is a very big generalization and obviously not completely factual, it is partially true. Trading can indeed be very similar to gambling if you do not control your emotions, which is mainly done by effectively managing your risk.
What do most gamblers do that frequent Las Vegas? They go there with the intent on only using a certain amount of money and then stopping if they end up losing that set amount. The problem lies in the fact that once this pre-set amount of money is actually gone, whether in the casino or in the forex market, it can be almost impossible to override the emotional feeling of wanting to make back that money just lost. This is simply greed and addiction in disguise; gamblers and traders alike experience greed when they are on a hot winning streak by overtrading / gambling too much, or when they are on a losing streak by risking too much in an attempt to make back lost money. If you feel like you need or want to make back the money you just lost in the market you are being greedy at the exact moment you need to be patient. Forex trading is obviously more of an art and a skill than any casino gambling game, this means it is easier to throw money at the forex market because it seems relatively easy to read the price action of a chart and make some decent money. However, the same self-control that is required of a gambler in Las Vegas is required of a forex trader in the markets, because just like a casino will do nothing to stop you from giving it all of your money, neither will the forex market. It is up to YOU to cut yourself off and walk away. You may like to read this article Called “Forex Traders Rehab” if you are experiencing these problems.
• Not demo trading first.
Not demo trading prior to trading with real money is simply a result of impatience and, once again, greed (notice how greed is the root of nearly every forex trading problem?). If you think about the logic behind demo trading prior to trading with real money, it makes complete logical sense to practice on demo before going live. Yet many traders only demo trade for a week or two or just skip it entirely because they think that they are somehow going to “outsmart” the market or that they have some special trading power that other trader’s don’t have. Not demo trading also comes from not viewing trading as a business but instead as a get rich quick scheme, another erroneous assumption. Forex trading is at best a “get rich slow” game, if you find yourself making insane amounts of money very quickly in the market than you are doing something wrong that will soon come to bit you harder than you think. Bad trading habits are easy to develop but difficult to kick; sort of like smoking cigarettes but for your bank account. The bottom line with demo trading is that it simply must be done successfully for at least 2-3 months, and if you find your live trading is suffering than stop trading live and go back to demo trading. If you can’t make money on a demo account you won’t make it on a real account either, that’s a guarantee.
• Trading with money they can’t afford to lose.
Trading with money they simply shouldn’t be trading with is another very common mistake amongst forex traders. While many traders begin their trading career aware of the risks involved and using money they might not need at the moment, after losing this initial sum of money many traders inject more money into their trading accounts (greed), and it is often these subsequent deposits that are the ones that really should not be made. Trading with money you can’t afford to lose is a sure-fire way to lose it very fast. When you trade with such money you are already emotionally attached to it BEFORE you even enter a trade. Many traders set themselves up for continued failure in the forex market by committing this cardinal trading sin. Emotion is the enemy of consistently profitable forex trading, and when you trade with money you shouldn’t be trading with, you are going to be overly emotional in every trade, whether you realize it or not.
• Using complicated trading methods and making it more difficult than it needs to be.
Finally, there is an element to trading any financial that market that naturally makes humans feel the urge to over complicate the matter. That is not to say that consistently profitable forex trading is easy to achieve, but most traders spend too much time concerning themselves with trading strategies and systems, which is the part of trading that actually needs to be simple. The difficult part of successful trading is devising a way to maintain self-discipline and keep yourself accountable. Having a tangible forex trading plan will go a long way in helping you achieve and maintain the discipline required to profit consistently in the forex market.
However, having a pre-defined trading plan is not enough in and of itself to make you a consistently profitable forex trader. Forex trading success is largely dependent on thinking about and trading the markets in a simplistic manner. So it goes to follow that employing a simplistic trading method like price action trading, would be the best choice for a forex strategy that helps you maintain simplicity in your trading. Once you commit to a simple trading method like price action, you will begin to realize that reading an indicator-free price chart provides you with just as many signals than any indicator-based method does and that they are actually much more accurate. Beyond this is the fact that learning to understand and trade off simple price dynamics is actually an art and a skill that will help you to better understand all financial markets and global economic scenarios. You are truly developing your own perspective on the market when you trade using forex price action, this is something that complicated lagging indicators and forex trading robots simply cannot and DO NOT provide.