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Why many Forex traders fail?
Written by: PaxForex analytics dept - Friday, 27 June 2014 0 comments
The Forex market is the largest and most accessible financial market in the world. However, despite the huge number of Forex investors, only a few manage to become truly successful. Failures of traders and typical errors are similar to investors who invest in other asset classes.
Moreover, the availability of high leverage and relatively little exchange margin deprive the trader a chance to make small mistakes. Currency trading is characterized by a number of specific factors, due to which profit expectations are higher than the market can provide. This forces the trader to take on far more risk than in other asset markets.
So what dangers lie ahead when trading Forex?
There are a number of errors that will not allow the investor to succeed. Below are the most common "traps" for traders.
Failure to comply with discipline
The worst mistake that could allow a trader is to let your emotions influence a decision-making trade. The key to success lies in a few big successful deals and in a set of small failures. However, it is very difficult emotionally to deal with constant losses.
This is a real test for the patience and confidence of the trader. If the trader is trying to "beat" the market or amenable to fear or greed, the number of "winners" is sharply reduced and market participants get out of control. Rein in emotions can be if trades go in accordance with an elaborate plan that helps you comply trading discipline.
Lack of planning
Successful trader operates under a documented plan that includes risk management procedures and specifies the expected return on investment. Following the strategic plan help investors avoid the most common pitfalls of trading. No plan says that you simply underestimate your ability to trade in the Forex market.
Inability to adapt to market requirements
Already before the opening of trading, you must have a plan for each trade. Scenario analysis and planning of all possible moves and countermoves for each probable situation helps to reduce significantly the risk of large and unexpected losses. With the changing market conditions, appear new opportunities and risks. Therefore, there is simply no universal means or reliable system that would operate for a long time. Most successful traders adapt to market changes and modify existing strategies accordingly.
is not a quick way to get rich. In order to become skilled enough and make profit, you should run not just sprint but a marathon. Success requires continuous efforts to improve existing strategies. If a trader rushes to extremes or trying to get an unusually large income, it usually leads to the fact that the potential gain does not justify the risks.
Poor risk and money management
Traders should pay to risk management as much attention as to the development of a strategy. Some short-sighted individuals do not use defensive tactics, such as stop-loss, because of the fear of early closing of a trade. Successful trader in any time can say with certainty what proportion of investment capital is under attack. He also believes that the risk is equal to the expected income.
All of the above errors can relate to any trader and investor. However, several factors, which inherent only to Forex, can significantly increase trading risks. Forex traders can afford a big financial leverage, which involves additional risks, which also require control.
Leverage gives you the opportunity to increase profits. However, leverage and commensurate with it financial risk is a double-edged sword: losses increase during the same times as the growing potential profit. Sometimes it allows you to get beyond the clouds profits and sometimes leads to bankruptcy. Market gives you the opportunity to take a huge financial risk. Nevertheless, it’s in the interests of the trader to limit the size of leverage used.
Many mistakes of Forex traders are typical for investors who work with other types of assets. The easiest way to avoid some of the pitfalls is to establish relations with other successful Forex traders, who can share their trading experience, including risk and money management. Only in this case it is possible to obtain adequate planning and expected profits, not accompanied with unnecessary risk.
In the study of macroeconomic indicators for online Forex trading are equally important technical and fundamental analysis, as well as understanding of trading psychology. One of the key factors that separates success from defeat is the ability to manage your trading account. The key to competent management of an account lies in adequate capitalization, in an appropriate amount of trades and in limiting financial risks by qualitative selection of the amount of leverage.