Avoiding Failure in the Forex Market
Forex trading can be an incredibly profitable way
to make a living. The combination of margin leverage
and a low minimum amount required for trading make
forex trading ideal for small investors.
However, despite the opportunities for profit, the
majority of forex traders lose all of their money
within a year.
Why? Well I have found six root causes that can explain
why so many new forex traders fail:
1. Unrealistic Expectations. Too many novice traders read
about how easy it is to make money trading forex and
they just jump in and lose everything before they even
know what hit them.
Forex trading is not a get rich quick scheme. It requires
hard work and research to be successful. And even then,
you cannot expect every trade to be a winner. Even the
best traders lose on trades. The key is knowing when to
cut your losses and focus on the winners.
2. Not doing enough research. Forex trading is easy to
learn, but difficult to master. Experienced traders make
it seem so easy, but predicting currency prices is a
complex endeavor. And as a small investor you are at a
disadvantage. Large financial institutions have resources
that you don't. They may have an entire staff analyzing
the most recent economic indicators while you just have
yourself. You must be prepared to spend some solid time
learning before you can expect to win big.
3. Gambling instead of investing. If you think you can beat
the market without doing research and just picking currency
trades based on a hunch, good luck. I've seen people do this
and they usually pick a few winners and make some short-term
profits, but in the end they just get slaughtered.
4. Lack of focus. Depending on which broker you use, there
are likely dozens of currencies you can trade. But when you
are just starting out, think small. Pick a few of the most
popular currencies, such as the US Dollar, the Japanese Yen,
and the Euro, and focus exclusively on them. The more
currencies you trade, the more data you will have to analyze
in order to spot trends. Better to know a few currencies really
well than to know just a little about each.
5. Not having a trading system. There are literally hundreds,
if not thousands, of different trading systems available. Some
you will have to pay for, but many are free. Choose a system
that is right for you based on your capital, your goals, and
your personality. Without a system, you might as well be throwing
darts.
6. Not sticking to your system. Having a trading system is not
enough, you have to follow it through good times and bad. This
is easier said than done. Its easy to get greedy and go for the
big score or get nervous and get out too soon. You must follow
your system to determine both entry and exit points. If you
ignore them you risk missing out on a big upswing or being stuck
in a trade as it goes sour.
The best forex traders know that knowing when to get out of a trade
is even more important than knowing when to get in.
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