It is a commonly known fact that most Forex traders fail at some point of their trading careers. The popularity of Forex attracts traders of all levels, from greenhorns to well-seasoned professionals. Because it is so easy to trade Forex, it is also equally easy to lose money. Although there is no dearth for reasons as to why traders fail, they can be broadly grouped into four categories. This article explores these reasons. The same list can also serve as a guideline for the human follies Forex traders need to be most careful about.
It sometimes surprises Rami that a lot many people still take forex to be a get-rich-quick scheme. They see a sprint in forex, which will get them hefty rewards at the finish line, while Rami describes forex as a marathon with small rewards accumulating as the race goes on.
In forex, success requires mastering the skills necessary to spot trends and profit from them. Many people invest a lot of money in forex before acquiring these skills because of their unrealistic expectations about the market. They fail to see that there is no free lunch.
After becoming successful in any trade, people normally misremember themselves as having been more confident and ambitious as a beginner than they actually were. Rami, however, still remembers the cautiously experimenting beginner in him. He decided to stay in the game only after finding him to be reasonably good at it.
TRADING WITHOUT STRATEGY & DISCIPLINE
Every market is a game where you try to outsmart others. And every game needs a strategy. Good strategies bring you rewards while bad ones fail you. Of his many friends in forex trading, Rami could name many who lost money because of not having a good strategy. Buying cheap and selling high would seem very simple, but that’s not a strategy but only a goal.
You need a good plan to succeed in forex, and it should reflect your goals, your preferred time horizon, and your risk tolerance. You must have a personalized trading plan, and update it as you learn more. Someone else’s trading advice may not work for you as your goals and risk tolerance are different from theirs. Devising a good strategy and sticking to it avoids the usual pitfalls.
What enables you to stick to your strategy is trading discipline, which is mostly emotional stability. Rami knows many people who were swayed by emotions in the face of distress and pressure and made irrational choices. Never ever allow emotions to control your trading decisions.
FAILING TO ADAPT TO CHANGING MARKETS
People looking for that one foolproof system to succeed in the forex market don’t even know how the market works. There is no magic bullet strategy that will make you money in forex as the market is a very dynamic system that keeps evolving.
You need to be able to adapt to the market as it changes. This may require you to adopt a different strategy and revise your risk tolerance level. Good traders acquire the skills to adapt to changing markets, while others refuse to change their ways and fail.
POOR RISK & MONEY MANAGEMENT
Effective risk management is one of the traits that distinguish good traders from the rest. Many traders fail to adopt proper risk management methods. Some do not use stop losses. Many have no idea how much of their trading capital is at risk or what is a portfolio’s risk/reward ratio.
You can be a very skilled trader and still be financially ruined by poor risk management. Your primary task is to protect what you have rather than making a profit. Surprisingly, a lot of people fail at this. Many traders fail to diversify their strategies and currency pairs. Good traders use only a small portion of their account for high-risk trades. They manage the majority of their funds more conservatively. This ensures rare and hence difficult-to-predict events won’t ruin their trading accounts.
YOU CAN BECOME A SUCCESSFUL TRADER
Avoiding these pitfalls can take you a long way towards a profitable career in trading. You cannot acquire these skills in a day or two, of course, but you can over time, as evidenced by all successful traders. Rami can summarize the most obvious mistakes traders make, but he cannot summarize his trading wisdom to a novice. That is because acquiring trading skills is mostly a personal journey of learning by trial and error.
But how exciting it is to learn that a minority of forex traders who follow these guidelines become quite successful in the market and make consistent profits! Rami is one of them. And he is proof that you can too, with enough practice and the willingness to learn.