Forex trading is, without a doubt, a difficult endeavor. There are many factors to consider; Forex markets are constantly discounting current and future events and many pairs sometimes trade violently. In order for new Forex traders to stand a chance of success, they must first learn to stay in the game long enough.
Forex trading is difficult, here’s a few of the more common issues new Forex traders find incredibly hard:
- Don’t follow their trading plan
- Trade too often (Overtrading)
- Open positions too large
- Open positions too small
- Over complicate decision making
- Fiddle with trades
- Trade with a vengeance after a losing run
In this post we’ll cover why Forex trading is so dame difficult, we’ll also cover:
- Reasons Forex traders fail
- Should you trade Forex?
- What does a winning Forex Trader look like?
- What is Technical analysis?
- What is Fundamental analysis?
Common Reasons Forex Traders Fail
Lets take a deeper dive at why forex is so hard, you know…..why most of us fail at Forex.
Don’t follow their trading plan
A trading plan is a must otherwise we’ll be trading on our nerves and that never goes well. Problem is as you’ve likely guessed, many a trader ditches the plan when things are going better than expected and the opposite is true too.
A solid trading plan followed with military discipline will serve a trader well, especially a green trader. A trading plan details items such as:
- The risk and reward ratio
- How you go about finding trades
- The Forex pairs you trade
- The time frame you trade hour, days, weeks etc.
- Your entry
- Your exit
Really there is no wrong trading plan, it’s your plan and you can include what you like. It should obviously follow some basis of logic and must be implementable otherwise it’s useless.
Trade too often (Overtrading)
Yep, an overactive trigger finger usually serves your broker well, seldom the trader. Many a trading plan details how many times a trader can trade in a given period, this is a useful tip, it causes us to look for only the best entry setups.
Positions too large
Taking a size that’s just too ambitious for the size of your account. Sure we’ve got to be optimistic to want to trade Forex. It’s a wonderful quality but when trading Forex it’s better have a decent splash of pessimism in the mix. It’s better to expend our imagination on where the trade may turn to crap. That forces us to always think about managing our potential loss first.
Positions too small
This is the opposite problem, here the trader tends to read all trades as half empty and fails to commit. This means winning and losing trades aren’t meaningful enough in relation to your account size for this to be viable proposition.
Trading like this is however excellent when you have your trainer wheels on or you are just in it for the sport.
Over complicate decision making
Having a very complex entry or exit strategy causes us to freeze, right when we need to be all MacGyver – A complex trigger pulling strategy will serve to frustrate.
A simple entry and exit is best, if you can explain it to a 5 year old – you’re golden!
Fiddling with trades
I luv trading. Love finding that sweet spot……yoooou know what I mean! Trade begins to move against you…., you think…I’ll just move the stop a little, don’t want to get stopped out early.
Yea we all like to fiddle with our trades but it’s not a good idea. Even fiddling a little, leads to a lot of fiddling. Idle hands and all that.
Nope! We need to stick to the trading plan.
Trade with a vengeance after a losing run
I’ve done it! I’m sorry to say, but I have. It begins with one or two losing trades and turns into a snowball of losing trades. The string of losers causes us to believe the market is out to hurt us. Being human and willing to fight our corner we set out to teach the market to mess with us.
This mindset causes us to either over trade, oversize our positions or worse, we do both. This results in a thorough ass whipping but the medicine works.
Should You Trade Forex?
Trading Forex is a shit ton of fun! Lets face it, it just is. Losing of course isn’t, but all that excitement and don’t forget all that possibility keeps us coming back for more.
So should we trade Forex? The answer for most of us – HELL NO!
Forex trading is not investing; it is speculation. And the majority of speculators are more wrong than they are right, which is important to know.
There are many types of Forex traders, I’ll bet most of you guys are like me – known in the trade as retail traders. And brokers luv us, you know why right? Cos we lose money, guess who’s on the other side of our losing trade, emh’ im ……our broker.
Yep they love us because we can’t stick to the trading plan, we head off script first chance we get, and we trade like we’re in Las Vegas or Mecca for one night only.
I don’t blame the broker, they found a rich vein and they’re exploiting it, that’s how it should be. I’m a capitalist.
No the fault lies squarely with the trader, me and you. We need to educate ourselves in order to gain an advantage, being ignorant gives the advantage to the broker.
And so should we trade Forex? No, unless we’re prepared to learn all we can about Technical and fundamental analysis before ever even opening a broker account. Then no, we are just kidding ourselves or lets just call it what it is – Hello Las Vegas.
What does a winning Forex Trader look like?
A winning trader tends to approach trading with an academic mindset. They treat it like a proper career/business. They prepare for it, fill their knowledge gaps.
Many specialize in just one currency pair. They understand what moves their market. Getting a solid technical and fundamental handle on all currency pairs just isn’t possible.
They ain’t like plumbers, they don’t learn on the job.
The pros trade the same market we do, and same as us, they lose more times than they win. Difference is, they don’t think about the market like we do, and they know a few secrets.
When they win, they make dame sure they win by three or four times what they could have lost. You know, they build a solid risk reward ratio into their trading plan.
The second secret, they understand the law of large numbers – as the sample size of trades grow, the mean moves closer to the average trade outcome.
Meaning a trader expects to lose, in fact they expect a period where they’ll have a whole string of losing trades. Pro trader doesn’t get upset, they understand the law of large numbers and they continue to trade as per their trading plan.
They know the norm will be restored before long, and by the month, quarter, year end they’ll be net net in gravy.
They use the law of large numbers to their advantage, they focus on sticking to the plan but above all else they make sure they get to play again tomorrow – They manage their losses.
What is Technical Analysis?
Forex technical analysis is the reading of Forex charts in order to forecast future Forex price movements. It is one of the most popular Forex trading strategies and is based on the assumption that price patterns repeat themselves.
Commonly Forex technical analysis use candlesticks, moving averages, trendlines, and some type of lower indicator or collection of. Some of the most common ones include MACD, On Balance Volume, Stochastic Oscillator, A/D Line.
Candlesticks provide a clear visual representation of price movement, while moving averages smooth out the volatility and help to identify trends.
Trendlines are used to connect price highs and lows, while time frames help traders to determine the best timeframes for their Forex trading strategy.
But technical analysis goes a lot deeper than that, Fib levels, Elliot waves, Chart patterns such as Head and Shoulders are all well followed indicators of market direction. TA can be as simple or as complex as you want to make it.
By understanding and utilizing Forex technical analysis, traders can gain a better understanding of market dynamics and make informed trading decisions.
What is Fundamental Analysis?
Fundamental analysis, on the other hand, focuses on economic indicators such as inflation rates, interest rates, employment figures, GDP, and practitioners monitor carefully important geo political events for risks and or opportunities in their chosen currency pair.
By taking both technical and fundamental factors into account, Forex traders can gain an advantage over most retail traders who likely won’t put the work in. Your edge in the market comes from plain old hard work.
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