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How to Stop Losing Money in Forex
Written by: PaxForex analytics dept - Wednesday, 05 July 2017 0 comments
Forex's popularity entices traders of all levels, from greenhorns just learning about the financial markets to well seasoned professionals. Because it is so easy to trade forex with round the clock sessions, access to significant leverage and relatively low costs it is also very easy to lose money trading forex. Just because forex is easy to get into doesn't mean that due diligence can be avoided. Learning about forex is integral to a trader's success in the forex markets. While the majority of learning comes from live trading and experience, a trader should learn everything possible about the forex markets, including the geopolitical and economic factors.
Most currency traders start out looking for a way to get out of debt or to make easy money. The market is not something you beat, but something you understand and join when a trend is defined. At the same time, the market is something that can shake you out if you are trying to get too much from it with too little capital. Beating the market mindset often causes traders to trade against trends and overlords their account which is a sure recipe for disaster.
It is common for forex marketing to encourage you to trade large lot sizes and trade highly leveraged to generate large returns on a small amount of initial capital. You must have some money to make some money. It is possible for you to generate outstanding returns on limited capital in the short term. However, with only a small amount of capital and out-sized risk, you will find
yourself being emotional with each swing of the market and jumping in and out and the worst times possible.
Forex trading like any new initiative has a learning curve. However, unlike learning a new skill such as learning to play guitar for instance, you are not risking your entire savings while discovering the difference between a major and minor chord. Learning about the currency markets and basic trading principles solely on a trial and error basis is not a recommended approach for gaining the skills necessary to be a successful forex trader. Most online forex brokers offer a practice version of their trading platform that offers the very same experience as a live trading application. Typically, once you create a practice account, you are free to trade and deal as you wish risking only the play money used to seed your account.
Risk management is key to survival. You can be a very skilled trader and still be wiped out by poor risk management. Your number one job is not to make a profit, but rather to protect what you have. As your capital gets depleted, your ability to make a profit is lost. Use stops and move them once you have a reasonable profit. Use lot sizes that are reasonable compared to your account capital. Most of all, if a trade no longer makes sense, get out of it. Some trades just don't work out. It is human nature to want to be right, but sometimes we just aren't. As a trader sometimes you have just to be wrong and move on, instead of clinging to the idea of being right and ending up with a blown account.