This is a guest post by Ben
Most forex traders fail. While we don’t have completely accurate statistics to back up this statement, it is estimated that 90% – 95% of forex traders lose more money than they make.
The question that unprofitable traders continue to ask is, “Why can’t I make money in the foreign exchange?” Sometimes it even seems like the whole world is against you – your broker, your government, and, many times, even yourself.
But fear not. There are some common reasons why traders tend to lose money in the forex, and with a bit of knowledge, experience, and discipline, most of the reasons can be overcome. Let’s take a look at 4 common reasons for trading failure now.
1. Being Impatient / Expecting To Make Money Immediately
If you are the type of person that “always has to be doing something”, the forex is going to expose that personality trait immediately. Trading the forex is a waiting game – period.
Beginning traders have this glorious fantasy of making dozens of trades a day, always standing near the edge of disaster, but then finding that amazing deal that makes $10,000 at the end of the trading session. This idea is preposterous.
In real life, forex trading is about studying the markets, understanding technical and fundamental indicators, and researching what others have to say. All of this research should culminate into a few profitable trades each week or month depending on your trading timeframe.
Sure, there are traders that make dozens of trades a day and realize incredible profits doing so. But, let’s be truthful, those traders have a lot more experience than you do, and many more people lose money rather than make money trading that often.
Don’t expect to bring in hundreds of dollars a day to begin with. It will take months, and maybe even years, to realize such a consistent profit from the forex. In essence, learn to trade just like you learned anything else – slowly and consistently. There are no shortcuts.
2. Not Having a Systematic Trading Strategy
You cannot be a consistently profitable forex trader by sitting down in front of the computer, taking a look at the charts, and saying, “Hmmm….this looks like a good place to get it.”
It just doesn’t work that way.
Rather, you must have a definite trading system with defined rules that you follow every trade.
Your trading system doesn’t have to be set in stone like always using a 45 pip stop loss. The market doesn’t move in defined pip ranges, so you don’t have to trade using defined pip ranges. But your strategy should have pre-conditions for entering a trade, for determining your lot size, and for exiting your trade.
Where do you get such a system? I was listening to the radio this morning as they were interviewing a chef. They asked the chef if he would mind sharing his recipes. He said he didn’t mind because 10 people can cook from the same recipe, and the result will be 10 different tasting dishes.
The same goes for trading. The strategy that works for one person may not work for you.
You don’t “find” a profitable trading system as much as you “build” your own system. To start, find a strategy from someone you trust and trade it. As you trade using that system, you will begin to alter that trading strategy until it becomes your own.
3. Jumping From Trading System to Trading System
I’ll just make a real quick note here. Most unprofitable traders lose money over and over because they don’t stick with a trading strategy through the losses. Every single trading strategy in the world experiences losses – some for even months or years.
If, when you experience a string of losses, the first thought in your mind is to see what other trading strategies are out there, chances are you will always lose money in the foreign exchange.
4. Trading On Emotions
You should never, ever trade the markets to get even. Whether you are getting even with the market itself, your boss, or your girlfriend – emotions ruin traders.
I have heard profitable traders say that trading isn’t fun. They say that if you still get “excited” after good trades, then you are probably still losing money.
Because profitable traders trade with a trading strategy. If the market meets their conditions, they enter the market. They set stop loss and take profit levels based on their trading plan and market research, and then they let the market play out. In essence, they don’t trade on emotion.
Do they still watch the market? Probably. But they are watching the market to gather information for their next trade, not for information to influence their current trade.
To make money consistently in the forex, you have to be patient, calculating, and free from emotions that affect your ability to trade.
Guest post written by Ben from SimplyStockBroking – Online Stock Trading Made Simple.