In 2008 i decided to venture into the FOREX business as I was so determined to make riches and wealth within a short period of time. I enrolled into a FOREX coaching class and also spent several months in demo trading the markets. After this phase, I started trading live in 2009 believing I was fully loaded with skills, thinking i got all it takes to make it from the FOREX business. You know that feeling when you say to yourself ‘am ready to make cool money to buy a car of my choice and a beautiful house of my own’.
It was no sooner when I went into live trading I realized FOREX trading isn’t as easy as I thought it was on demo trading. I quickly realized it was an 80% emotional and 20% skilled required business within a few months of trading. You see trading live and demo account is a different ball game. Then I started doing a deep research and found out that 95% of people trading FOREX all over the world are losers while only the remaining 5% are only the successful ones. Being successful, I mean making consistent profits at every month ends for over 5years.
I have heard a lot about traders who make profits within one month or two and blow their accounts. This I don’t regard as success, I have seen traders that make profits for a few months and then are nowhere to be found. I’m talking about being sure of making profits every month in month out here, not a variable of loss and break-even months. So i discovered that what makes 95% of traders losers is that they all commit a common mistake which I will be listing out some of it and discussing them in the next paragraphs.
FOREX TRADING MISTAKE #1:
MOST TRADERS CONCEPTUALIZE FOREX TRADING AS A ‘GET RICH QUICK SCHEME’
A lot of people fail to understand the fact that FOREX trading is like a normal business that requires compounding and accumulation of wealth. Most traders are so eager to stumble into wealth from the market within a short period of time. This approach clouds up their mind and then they start to see the market as a Casino. Take it or leave it, FOREX trading is a form of financial investment and not gambling. You need a lot of patience to compound your profits and increase your stake or lots size over time to get to your desired level. You have to set realistic goals when it comes to trading, most people aim for unrealistic monthly return on investment which triggers greed and cause them to over trade the market. You will be surprised to find out that even the best of traders don’t aim more than 20%-30% profit of their portfolio. Any extra percentage they earn is like a bonus to them.
FOREX TRADING MISTAKE #2:
FAILING TO UNDERSTAND YOUR PERSONALITY AS A TRADER:
One common mistake traders make is that they fail to understand themselves as an individual. We all have different temperament wired into us which makes us a distinct human, we are not all programmed to react to things in the same way. If it were so, then the world would be so soporific and monopoly. You have to do what works for you emotionally as a trader to be successful in the FOREX business. I have seen 2 traders trading the same strategy but one was successful while the other was failing. The problem was the failing trader had no patience to wait for his positions to get into hit his take profit nor stop loss and so he kept closing them pre-maturely while the successful trader had all the time in the world for his trades to roll into profits or hit his stop loss. You see there are several ways to trade the markets and you have to find out the precise one that works for you and harness it. Don’t because your friend is trading a particular strategy and making profits with it is a guarantee you will trade the same strategy and be profitable with it. Find out which trading style works for you as there several styles of trading such as intra-day trading, swing trading, scalping, news trading, gap trading, position trading etc.
FOREX TRADING MISTAKE #3:
INADEQUATE KNOWLEDGE AND INFORMATION
Trading without adequate knowledge is surely a FOREX trading mistake to be avoided if you want to be among the 5% successful traders. FOREX trading can offer great profit for those who know what they are doing. You wouldn’t captain a ship without knowing how to sail the thing, so don’t try to captain your FOREX account without reading the instruction manual. You have to be honest to yourself and admit when you are not getting trading right so you can set out to educate yourself. Don’t risk your money into something you don’t understand. Information is power so try and source for it from a mentor who can personally put you through or you can probably enroll in a FOREX coaching class where you can be truly thought how to trade and be profitable in the FOREX market. If you don’t like the trading style you are working with then you’re not going to stick with the plan. For instance, if you are trading with a 1:3 risk to reward trading strategy with a 70% winning rate, wouldn’t you want to stick to the plan?
FOREX TRADING MISTAKE #4:
POOR MONEY MANAGEMENT:
An important factor which is not to be joked with in Forex trading is not using a proper money management in trading. Most traders get egoistic after acquiring the right and profitable knowledge in trading. Remaining humble with the market at all times is something that goes a long way with your success in this business. No matter how good you are in trading, always set and have a good risk management. It is so common all over the forums and broker websites to learn that Forex trading is a risky business and it’s not suitable for all investors. I have seen competent traders blow out their entire portfolio due to over confidence. As a trader I do believe the average risk one should be taking per trade shouldn’t be more than 3%-5% of one’s capital. This will enable you use a constant lot over and over even if you have a 3 losing streak without being emotional. There’s no successful trader that doesn’t have losing streaks in the business but what keeps them going is the ability to repeat the same lots size which caused the loss in other subsequent trades which recovers them from the loss and puts them in profit over all.
FOREX TRADING MISTAKE #5:
ADDING TO LOSING POSITIONS
Never try to add to a losing position by doubling or tripling your lots size with a fresh new position to hedge the losing position so that when the trade finally goes your way, the loss position is off set from the profit made with the higher lots size position. This trading system is called the ‘martingale strategy’. It’s a very high capital base strategy that keeps you making consistent profits from the market and then one sudden day, your account wipes off due to the accumulation of heavy lots used to offset each loss position. I have personally traded this type of strategy and I made some decent profits for a few months till I got wiped out. Each time you are hit with a loss, you double your bet so that next time you do win; you will win back the money you’ve lost plus more. By doing so, you stack up trades every time price goes against you with higher lots size, hoping the market will surely reverse soon. Don’t fall into the trap of believing that a losing trade is going to turn around. This is why we make use of stop losses in our trade; it’s there to render a trade invalid in case you got it wrong. Loss in life is inevitable, and you you’ve got to accept that fact. Losses in trading are just the same.
FOREX TRADING MISTAKE #6:
NOT USING A STOP LOSS
A very deadly mistake not to be committed in trading is not using a stop loss when placing your deal. In fact stop losses are considered to be far more important than take profits because as a trader what should come to your mind first is the protection of your capital and not how much you want to make from a deal. The point of a stop loss is just that: stopping you from losing all your capital on a trade gone sour. The temptation many traders fall into is to remain in a trade with false hope that the market is going to swing back around in their favor. Without the safety net of a stop loss, you are risking 100% of your capital until you intervene. You might believe you have all your ducks in a row and you have just entered the most fantastic trade of your life. The gods have surely smiled down on you today and then suddenly a high impact news is released and the market aggressively begin to move against your favor and in no time your account wipes out or you get a stop out call. Morale of the story: there’s no sure thing in the market so always use a stop loss to protect against unforeseen situations. The fact of the matter is that &*%#@ happens, but control your exposure to the market by using a stop loss.
FOREX TRADING MISTAKE #7:
NOT LEARNING FROM YOUR MISTAKES
The worst Forex trading mistake of all is not actually learning anything from your mistakes and repeatedly thinking “I know it will be different next time”. This would only lead to constant failure even when you are thinking of the proverb ‘winners never quit and quitters never win’. You’ll end up frustrated and at the end even lose yourself. A wise man once said, “Insanity is doing the same thing over and over again but expecting a different result”. If your strategy is getting you nowhere in Forex, isn’t it time to just let go and explore some new options? Whatever you do, embrace your mistakes and learn from them. Have you heard the phrase “What doesn’t kill you makes you stronger?” Use your mistakes as your foundation to build upon your strengths and reduce your weakness. No trader becomes a professional overnight. Everyone begins as newbies , you start from the bottom just like with anything in life.