There are many ways to make enormous amounts of profits in the forex market, which is the biggest and the most accessible financial market in the world. However, there are also many ways to fail big time in the forex market. There are just so many things one may stumble upon that will lead him to huge losses. In order to counter that, as a newbie trader, you must be aware of the biggest reasons why forex traders fail to make money in this market.
Not maintaining discipline
The largest mistake any trader can make is to let his emotions control his trading decisions. If you want to become a successful forex trader, you have first to achieve a few big wins, and sometimes that also means suffering many smaller losses.
Experiencing many losses in a row is quite difficult to handle emotionally. It can test your patience and your confidence. You either get strong enough to beat the market or give in to emotions that will plunge you deep into a loss-making nightmare.
One of the most effective and highly recommended ways to control your emotions is to trade within a well-constructed trading plan that helps in maintaining discipline.
Trading without a plan
Whether one trades forex or any other asset class, one of the very first steps is to create and follow a trading plan. The successful trader works within a documented plan that includes risk management rules and specifies the expected return on investment.
Following a strategic trading plan can help investors sidestep some of the most common trading pitfalls. And if you fail to have a trading plan, you’re quite selling yourself short in what you can accomplish in the forex market.
Failing to adapt
Before the market even opens, you should create a plan for every trade. Performing scenario analysis and planning to moves and corresponding countermoves for every likely market situation can substantially reduce the risk of huge, unforeseen losses.
As the market changes, it presents new opportunities as well as risks. To foolproof system can persistently work effectively over the longer term. The most successful traders plan for low-probability events and they are rarely taken off-guard when such events occur.
Setting unrealistic expectations
No matter what anybody claims, trading forex is not a get-rich-quick activity. Becoming proficient enough to accumulate profits is not even remotely a sprint; it’s more of a marathon. Success means you exert recurrent efforts to master the strategies involved.
Swinging for the fences or trying to force the market to provide abnormal returns usually results in traders risking more capital than warranted by potential profits. Foregoing trade discipline to gamble on unrealistic gains means ditching risk and money management rules designed to prevent market remorse.
Poor risk and money management
Paying much attention on risk management is just as important as developing a good trading plan. There are actually naïve traders who trade without protection, refusing to lose stop losses and other similar methods because they fear of being stopped out too early in the game.
At any given period, successful traders know exactly how much of their investment capital is at risk and are satisfied that it is appropriate in relation to the projected benefits.