Thursday, October 12, 2006

The Top reasons forex traders fail

Forex trading is a difficult proffession and few traders have consistently made money in this business.

The most common thing that happens is that a new trader comes into the market and doubles his/ her account in 1 month. The next month ,the same trader has no funds to trade the forex market and blames everything but themselves for such a turn around.

These are the common reasons why traders new or old fail to make a living off the market.

1. Believing the forex hype

One of the biggest reasons traders fail especially new forex traders believes the hype of traders making $1 million from an account that started with $500 in 3 months. I can assure you that that is as rare as two people having the same fingerprints.

You will find most forex blogs and sites speaking about how George Soros who broke the Bank of America and encourage a new trader to do the same.

Forex trading is a tough business and it is unlikely that one is going to do the same thing soon.

2. Demo trading in forex

Now that you have decided to start forex trading, the next thing one is encouraged to do is open a forex demo account. The brokers will offer you an account with anything from $5k to $100k to open a fake trading platform for you so that you can hone your trading skills.

The biggest reason this should be avoided is because trading is 80% your mental attitude.

A demo account will allow you to stay in trades and make a killing in the market. It is a well known fact that many traders start trading a demo account and make money that they can't believe. Immediately after doing these demo trades for 1 month. They open a real trading account. And all of a sudden, they are in a losing spree.

Real forex traders know that there is more to trading than just placing trades in a demo platform and the biggest reason for trader failure is the fear of loss. When a trader sees his real account losing 10 then 20 then 30 dollars they are likely to close otherwise good trades.

However because they were not using their funds demo trading, they kept their positions.

My solution is to open a real trading account with Oanda and trades of $1 account sizes until you are comfortable trading. It makes no difference if you are trading 100k or $10 accounts, the human emotions in losing money are the same.

3. Under funding your forex account

Now that you have demo traded, you decide to fund your account with $500 to trade a full lot account.

When deciding what to buy, when to buy and what quantity to buy of a product in your house, one always looks at how much money they have.So why is it that the forex trader wants to avoid doing that?

Very many traders have failed due to not properly funding their accounts. In our series about forex money management techniques, we discuss some of these forex money management techniques.

If you trade a full lot with an account size of $500 it means that you only need to lose 50 pips to lose your whole account. I can assure you that will be very likely.

Traders need to fund their trading accounts adequately.

4. Lack of proper forex training.

Forex trading is a profession, not a game.I don't know of anyone who can go see a doctor who has not completed school. So what makes the new trader believe that he can know everything there is to know about forex in 1 month?

Very few traders even know how moving average is derived or even it's pro's and con's. How do they expect to interpret a technical indicator is they can't understand the language? It's like Spanish translator in the UN who cannot understand French. How is he supposed to interpret?

Fundamental traders who just place stops and targets have never heard of price spikes that never get filled that have and will continue decimating trader accounts. It would not hurt a fundamental trader to know exactly what the employment report is saying, would it?

It takes time to learn any profession and with forex, it is very important to take your time learning exactly what you are doing.

5. Choosing your forex trading system

Take your time to choose your forex system and stick with it.

Your first problem is choosing the forex system that works for YOU not the whole world and you should be able to do that following point 4 above.

The next problem is a problem even for more experienced forex traders.

When a trader goes through a rough period of draw downs in their accounts.The natural thing to do is to look for "mistakes" in your system or method and even start looking for a greater, better, new perfect system. The only problem is that it doesn't exist.

Many have found themselves after months in the wilderness of looking for the Holy Grail forex trading system, always going back to the one they started with.

Original Story | digg story


esofthub said...

These a frank wrap-ups. Good job.

esofthub said...

I meant to say "These are..."

Rob StGeorge said...

I like your approach to making a living on the internet. I have placed a link to your blog on mine under "Like minded Blogs".

Good luck with your venture

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forex said...

Great article

I hope everybody read this article

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