Apparently, the forex market is the biggest and most accessible financial market in the world. There are quite a number of forex traders, but only a few are truly successful. Traders, like in other asset classes, fail for many obvious reasons. In addition, trading forex usually requires high leverage – usually to increase the potential return on investments, makes it a high risk investment.
Other factors specific to the trading currencies may also result to higher expectations for returns than the market can actually offer. At times, even, traders may be prompted to take more risks that they would not take when undertaking other investments. That said here are some of the top reasons why forex traders fail.
1. Lack of trading discipline
The biggest mistake a forex trader can make is to let his/her emotions get in their way. In this trade being successful means achieving some few big wins while still suffering many smaller losses. When experiencing consecutive losses, it`s important to keep your cool, trying to beat the market only leads to more losses which eventually drain you out.
2. Failure to plan
Planning is important in order to achieve success not only in forex trading but also in every other trade. That is why unsuccessful forex investor are oftenly those who fail to work within a documented plan. The plan should above all include some risk management guidelines as well as the specific return on investment expected. Failing to stick to the laid out plan leads to massive continuous losses.
Yes, I said it. Some investors feel that they have to squeeze every last pip out of a move. There are huge chucks of money in the forex markets every day. And trying to clutch every last pip before a currency pair turns usually sets many traders to lose the profitable trade that they are sitting on.
4. Failure to adapt to the market
Again this trickles down to planning. Creating a plan for every trade like carrying out scenario analysis or planning your moves and counter moves for all potential market situations is important. It is the only sure way to reduce the risks of large and unexpected losses. Knowing the market well also helps a trader to be in a better position to modify their strategies with market changes. It also helps to be more flexible in establishing new and creative ways to profit from the evolving market.
5. Having unrealistic expectations
Many people enter into forex trading thinking that it is a get-rich-quickly scheme. Quite far from the truth, accumulating profit comes not as a sprint but a marathon. A lot of effort and mastery of a number of strategies is required. Most of the traders who have failed are unable to manage their capital. Risking more than it is warranted and fore going trade discipline for gambling only leads to much more losses.
6. Not learning from past experiences
Unsuccessful traders almost all the time ignore the important cues presented by the market. Failure to learn from own past success and failures as well as those of other successful traders has put many of investments on the line.
Remember, there is no such thing as free lunch in the forex market. So work your way up slowly but sure of you steps. Build your own capacity to make more informed decisions and more importantly, work diligently to learn with every trade.