The brutal reality is forex trading has claimed countless victims over the years. At times, this form of investing can be incredibly unforgiving. While figures indicate those who start forex trading usually come up short during the first six to 12 months, the reasons for this are far more obvious than most realise. The following explains why the percentage of successful forex traders is very low, along with the pitfalls you need to avoid next time you log on to trade.
Disregarding the Market
Actually learning how to put through a trade isn’t the toughest task associated with forex trading. What proves difficult for most is becoming fine-tuned to the market; if you aren’t in the right state of mind, applying whatever skills you actually do have becomes increasingly difficult. When you step up to trade a currency pair, it is crucial to listen to the market and understand what is going on around you. For example, take the time to address the fundamental factors associated with the trade, including determining the short-term (and possibly even long-term) impact it will have on your portfolio.
Setting Unrealistic Expectations
If you’ve entered the world of forex trading expecting to become an overnight millionaire, your chances of becoming part of the percentage of successful forex traders have instantly gone from slim to none. Some believe initial losses actually ground a novice trader, but from what we’ve seen, it is these blows that actually scare many away from the market. What a novice trader must accept is that there are simply no guarantees when it comes to forex trading; success comes about through hard work and proper preparation, rather than straight luck. Remember, if you quell your unrealistic expectations, you’ll be a better forex trader for it.
Investing Too Much Capital
The biggest temptation when entering the forex market for the first time is to throw caution to the wind by investing too much capital. While there is nothing wrong with having a healthy account balance, there is something wrong with over-investing. Often referred to as a form of overtrading, by investing too much capital, you are doing one of two things: Either you are putting far too much cash into a single position, or you are stretching yourself thin by establishing a portfolio that is hard to control. Enthusiasm is one thing, but investing too much capital almost guarantees you won’t feature among the top percentage of successful forex traders.
Pride Over Profit
Taking a loss when forex trading hurts; there is no way around this feeling. That being said, you can learn from such an event. What many traders struggle with are not the financial consequences of taking a hit, but the emotional consequences that come with it. Those traders who don’t rank among the top are in the bottom because they often take losses to heart, reacting negatively and being stubborn about learning from mistakes. Choosing pride over profit can trigger a domino effect that is hard to recover from, so always look to learn from losses to come back stronger.
Risk Management Failures
Forex trading can aptly be described as the ultimate thrill ride, as the market is constantly shifting, shaking, and in many ways, evolving. Due to the undeniable excitement, it’s easy to throw yourself into trading without as much as a second thought when it comes to protection. Learn from the methods of successful forex traders: One thing they all share is an effective and direct approach to risk. Risk management failures are what turns what may have been a small loss into a major financial hit, so you must address this matter with the utmost seriousness.
The be-all and end-all of forex trading is profit, as every investor is seeking it no matter his or her budget or skill level. However, the problem with profit is that it can be incredibly intoxicating, with it often leading to greed. Financial greed has the power to push you further away from the percentage of successful forex traders; when you are in the grips of greed, no amount of money is ever enough. Successful trade after successful trade, you need to have control over your desire to obtain profit and not let it cloud what would otherwise be good judgement.
Disliking the Act of Trading
There is an old phrase that reads, “If you love what you do, you’ll never work a day in your life”. This statement really does hold water within the realm of forex trading, as it should be something that investors truly have an interest in. You’ll find that those with a passion for it regularly feature within the top percentage of successful forex traders. If you dislike the act of trading, you’ll probably find that your desire to learn the craft fades fairly quickly, thereby stunting your skill development and ability to find success in the process.
Being consistently profitable with forex trading isn’t going to happen overnight; both time and patience are required to become a forex success story. How you can go about putting your best foot forward is by learning from the common sources of failure, many of which have been explained above. Always remember that ranking among the top percentage of successful forex traders comes down to setting realistic expectations, being open to admitting your mistakes, listening to the market, and most importantly, loving what you do. If you can achieve these things, then forex success will be well within reach.
The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.