Five reasons why Forex Traders fail

Earning money by trading FOREX is a very lucrative option, especially when it comes to the amount of profit that can be generated.  But one of the most important things that most of the newbie FOREX traders fail to understand is that FOREX trading is quite risky.

The riskiness is so much that about 95% of FOREX traders’ end up losing all their money. Why is it so? Well, there are several diverse reasons for this kind of a situation. Five of these reasons have been discussed in the following few paragraphs.

High Expectations
There are times when I have heard traders wishing to generate $10,000 per month from an initial investment of just $1,000.  And on top of that they are just starting out with FOREX trading and have no experience whatsoever with regards to currency trading.

Setting a target that is so high and which cannot be achieved very easily by experienced FOREX traders is a mistake that almost all newbie traders make and this leads to their downfall in the long run. When you are expecting so much return, there is a pressure on you to perform and this often leads to you ending up going through risky investment alternatives. This can seriously affect your ability to earn profit and may be detrimental in the long run.

No Strategy
There are people who engage in FOREX trading without formulating a sound strategy. While this method may work in the short run it is bound to fail in the long run. Why? Simply because of the fact that even if you are able to earn profits on a few trades, in the long run the unprofitable trades would outnumber the profitable trades. Thus you would end up putting more money in the market than you are getting back.

Lack of Discipline
In order to become successful in the currency market you need to set goals, define objectives and get a workable plan in order. And even after you have done that you are not through. This is due to the fact that you require something more.

That something more is the ability to follow your plan without wavering from your path.
This means not taking unnecessary risk, following your strategy and not indulging in speculative trading without having a sound entry and exit plan.

Patience is a very important factor that comes into play when it comes to trading successfully in the currency market. This is due to the fact that contrary to popular belief, FOREX trading is in fact not a very exciting business. Forex trading is all about finding the right balance of risk, strategy, plan and goals.

Money Management Issues
One of the biggest reasons for the downfall of FOREX traders is not following a sound money management strategy. Money management is at the core of FOREX trading. It is said that if you do not know how to manage money in currency trading, you are as good as a dead lamb in the currency market. Not following a sound money management policy would only land you in trouble.

[posted by : OFP on Jun. 29, 2011]

TAGS: investment, forex, trader, fail, forex trader

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