The forex market is the largest and most accessible financial market in the world. It also arguably has the greatest number of participants. However, even with their immense number, not all of them are successful investors. Many traders fail because of many things. Here are some of the biggest reasons.
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Having No Discipline
The biggest mistake any trader can make is to let emotions make the trading decisions. But becoming a successful forex trader sometimes means having a few big wins while suffering many small losses.
Having to face many consecutive losses may be emotionally challenging. That situation can test your patience and confidence.
Trying to beat the market or letting fear take over can push you to cut your winners short and let your losing trades run out of control.
Conquering emotions is achieved by trading within a well-constructed trading plan that helps in maintaining discipline.
Lacking a Trading Plan
Whether you’re trading forex or any other asset class, the very first step in attaining success is to create and follow a trading plan.
The successful trader works according to a written plan that includes the risks he or she may face along the way and the risk management rules. The plan also specifies the expected return on investment.
Following a strategic trading plan can help investors sidestep some of the most common trading risks. In other words, if you don’t have a plan, you’re selling yourself short.
Not Adapting in Changing Market Conditions
You should already have a plan for every trade even before the market opens. If you want to reduce the occurrence of large unexpected losses, you may conduct scenario analysis and plan for the possible moves and countermoves in a potential market situation.
As the market changes, different opportunities and risks present themselves. So, there’s really no one formula that could work in all types of market conditions.
The most successful traders know how to adapt to the market change. They know how to modify their strategies to deal with such changes.
Using Trial and Error to Learn
Certainly, the most expensive way to learn the ins and outs of the currency markets is through the trial-and-error method.
Discovering the right trading strategies by learning from your mistakes is not the way to go. It’s not an efficient method to trade any market.
The most efficient way to become successful in currency trading is to access the experience of other successful traders. You can do this through a formal trading education or having a trading mentor who has a remarkable track record.
Pursuing Unrealistic Goals
Although is has been touted and sometimes misrepresented by many as a get-rich-quick scheme, forex trading is not.
Becoming a successful forex trader—one who can consistently accumulate profits—requires recurrent efforts to master the strategies used in trading.
Forcing the market to meet unrealistic expectations will only often lead to the trader risking more capital than what is necessary. Ignoring trading discipline to gamble on unrealistic gains means abandoning the risk and money management rules that are designed to prevent market remorse.
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