Mon, 10 May 2021

4 Main Reasons Why Traders Fall And Lose Money

21 Apr 2021, 01:02 GMT+10

With a daily trade above $5 trillion, the foreign exchange or forex market is the largest market in the whole world. Millions of traders and investors trade in this market but in reality, only some of them are successful. The Forex market has got its requirements and you are sure to fail if you don't realize them. Here are the 4 mistakes you should avoid to succeed in forex trading.

  • Lack of a trading discipline or a trading plan
  • Trading without a plan is the biggest mistake a trader can make. observe the market closely to get an understanding of how it works before taking the jump. As you start to understand the market, you should carefully and honestly self asses about your needs, goals, and emotions. This assessment forms the basis of your trading psychology. This is important as your trading psychology will act as your guideline for trading and also form the foundation for your trading plan. Your trading plan is your strategy and route map to steer yourself through the myriad and dangerous world of forex trading and attain your goals.

    At the same time, traders also should focus on risk management. Successful traders know how much of their investment is at risk and will stop trading when the returns reach the projected levels then go on trading and risk it all. You should not give in to greed and know when to stop the trade. Incorporate detailed risk management in your trading plan.

    Forex trading requires a cool and calculative mind and a detailed trading plan can help you achieve that. You should also have the discipline to adhere to your plan.

  • Failing to adapt to changes
  • Foreign currency is a highly volatile market and susceptible to all political, social, and natural events which affect the economy. Now that we are all linked through globalization, any event in any corner of the globe can affect you. So, to survive and be successful in such a volatile market, you need to adapt to the market changes. It is foolish to think that your trading plan is foolproof and will withstand every situation. You should be able to modify your plan according to the market changes. You should be able to track down the new opportunities the market changes present, instead of being wary of the changes.

    Often you might go wrong with your trade or your trading plan might not work. You should have the flexibility to adapt and move on than cling to the idea of being right and lose money.

  • Having impractical expectations
  • If you are lured into forex trading by the advertisement to getting rich overnight, then think again. Success in forex trading comes after spending a considerable amount of time in the market - only after you have perfected your strategy and approach through observation and trial and error methods. If you precede your trading discipline and gamble to get unrealistic returns then you are risking more capital than necessary. You should also know that many times the only profit you will make is to cut your losses.

    You should also avoid the mindset to 'beat the market' as it might cause you to trade very aggressively or go against trends and that might lead to disaster.

  • Poor capital management
  • Money makes money and this is true for forex trading as in most other businesses. With a small capital, the gains will be very less to provide you with any encouragement. You might get too jumpy with the swings of the market. It is better that you trade with a sizable amount to get some real gains or even encouragement to go on.

    It is tricky to determine a minimum capital for starters in forex trading. Don't fall to the traders advertising to start with $100 and get to your dream earning. If you are interested in the forex market, then $1000 seems a reasonable amount to start with. Also, as a basic rule never risk more than 1% of your account in a trade.

    To sum up

    Understanding the economic, technical, and market analysis along with keeping abreast with the world events is essential to be successful. But along with these insights, you also need to develop your trading psychology. Good preparation and research always will pay off in the long run. It is important to learn to be patient as 'getting rich overnight' like 'free lunch' is a myth.

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