It is common knowledge that Forex trading is highly risky. But if you look at the statistical facts, trading Forex over long duration with a 1:1 risk reward ratio, even without any strategy or trading edge should be effective at bringing in 50% chance of success. Thus, maximum number of Forex traders should just about breakeven.
But the real picture of the Forex trading market is totally different.
Have you never ever wondered what makes the reality to be so far from the statistical facts then? What are the reasons that are making majority of the Forex traders lose money, if they actually could be breaking even without any loss or profit?
Can Human Factors Increase Risk Of Losses?
Maybe the chief cause for financial loss for most of the Forex traders is their diminishing self-control. Poor self-control also means inability or incapacity to fight the enticement of over-trading and over-leverage.
I personally think that this is especially since they feel that there is no one to be answerable to. Another chief cause that is making Forex traders to lose considerable amounts of money is for the simple reason that they do not stick to their pre-determined strategies at the time of trading the Forex market live. Something or the other happens and they just change decisions at the final moment.
In addition to the above mentioned reasons there are 6 more solid factors that contribute towards your failure as a Forex trader and I have decided to discuss about each one of them in great detail in today’s post.
Playing the Blame Game
Playing the blame game is easier than doing anything else in this world. Owning up to your responsibilities and agreeing to one’s own mistakes is certainly not every person’s cup of tea.
If you find yourself to be encountering a whole lot of losing trades, that too on a consistent basis, then you must agree and accept the fact that the fault indeed is somehow related to you or your behavior. Is there any logic or sense in trying to accuse your trading platform or maybe your Forex broker or the markets or the Forex trading software that you are using?
I am not saying that you are to blame if you have been cheated by some charlatans selling you dubious Forex related products. But if you keep buying such dubious products over and over again and are naïve enough to be taken advantage of every time, then you and only YOU are to blame.
Old Style but High Hopes
Over-trading is the next important factor that undeniably inhibits maximum number of traders from making money in the market. Traders who enter and exit the live trades in the market based on sentiment and greed, will not only encounter a lot more of losses, but they will also have to shell out a lot more of their hard earned money by way of fees for spreads and / or commissions per annum when compared to the other traders who prefer trading in the higher time frames and also do appreciate the importance of restraint and showing patience.
The issue with trading lower time frames is that it often clouds the reality and fools traders into thinking that there are a lot of trading signals worth making money, when in truth all of those are just false alarms.
If you too belong to this category of traders, you need urgently re-evaluate your trading style and try out higher time frames.
Treading a Thin Line
Often times newbie Forex traders get very happy because of back to back wins while trading Forex. Immaturity leads these traders to think that the winning streak is going to continue for ever and they keep risking more money than they can afford in a lifetime, and keep trading more and more.
That is exactly when the tide changes and within a fraction of seconds, they lose a lot more than they made and are now facing more losses than they can handle. Blame it on the lack of maturity and experience or accuse the human factor that comes into play via emotions and greed. But the truth is that you must decide what your answer would be if someone ever asked you,” Are you a Forex trader or gambler?”
Professional Forex traders always aim at mastering price action trading, but it is imperative to bear in mind that this will only give you an upper hand. Simply because you have mastered a particular strategy, does not mean that the favorable conditions will automatically play out during each of your live trades.
In short, you should realize and implement a simple thing and that is to avoid taking unnecessary risks.
It is better for you if you maintain your risk amount as approximately constant when compared to your total account value. The only time you can even think of escalating your risk per trade is if your account value grows, not in any other case.
Ignorance is Not Bliss
The next most important factor that can ruin your chances at making any favorable profit in the Forex trading market is lack of a proper Forex trade management plan. This is a pretty common feature, especially among the amateurs that they do not know a thing about how trade management works or what the heck it is.
And the worst part is that they do not even bother learning about it either. Emotions and negative habits like greed and indecision and lack of patience can all play havoc and jeopardize all you chances of making a winning move while trading Forex live.
Having a Forex trading plan in general and a robust trade management plan in particular, plus maintaining a Forex trading journal are some of the things that need to be implemented with urgency for every Forex trader ambitious of tasting success.
Random Acts of Forex Trading
Traders who do not have a convincing trading method are axing their own feet by entering into live Forex trading. There are numerous Forex trading strategies out there. It is humanly impossible to know and learn about each one of them, but the good news is that you really do not have to do that at all.
You only need to truly master one Forex trading strategy at a time and you will essentially eradicate the monster called fear and eventually will also have more confidence in your own trades.
The crucial point to be noted here is that you have to assert your mastery over at least one effective Forex trading strategy, like for example price action. Most wannabe traders keep hopping from one Forex trading strategy or system to the next one, and this process goes on endlessly. So, finally such Forex traders never ever get a chance to truly excel at any single method.
So, the first prerequisite for a successful Forex trader is to decide from among all of the price action strategies and pick up just one truly effective trading strategy out of them, and then put in sincere efforts at mastering it.
Stop Looking for the Rainbow
Lastly, one factor that is undeniably common to all of those Forex traders who are currently losing money in the markets is that they have impractical hopes. They keep looking for the rainbow even when there is no ray of sun shining out there.
It is one thing to be optimistic and totally another thing to be living in a fool’s paradise. How can you expect a fortune when all you got to trade with is a paltry sum of $500?
Be realistic and keep your eyes, ears and most important of all- your mind open to reality. Also keep conducting reality checks frequently.
Forex money management cannot be overlooked at any point of time as well, because it definitely is among the list of habits of successful traders.