As a professional currency trader I know how difficult it can be to make money on the forex market. It is a well known fact that most people who indulge in forex trading online lose – just ask any forex broker how many depleted, dormant, trading accounts they have on their books.
The internet is awash with advertised failure rates of between 80% – 95% concerning those who have tried and subsequently failed at the trading game. Although there is no official figure, one can nevertheless conclude that it is a very high percentage.
So why is this so? I believe it is to do with a number of key factors, which I will outline below.
A trader’s unrealistic expectations
I believe that many people stepping into the forex arena for the first time have a completely unrealistic view of what is involved in being a successful trader and have unrealistic expectations of how much time, money (capital) and effort is needed to achieve success. There are no doubt many reasons why people think that forex trading is an easy way to make money, but I believe the unrealistic expectations of many self-traders are mainly created by those ruthless web marketers of various forex trading systems, automated trading robots, and so-called forex tipster gurus. These callous promoters focus their marketing efforts at gullible new traders, whilst claiming that making serious money with their product or service requires little more than a few mouse clicks.
These products and services form what I call the Great Online Forex Swindle or GOFS. What is needed here is a little reality check! Quite simply, if all these products were that good, we could all give up our jobs and just let the money roll into our bank accounts just after making a few mouse clicks, whilst the major global banks could fire their million-dollar traders and replace them with $97 automated trading robots. The sad fact is that these things, over time, do not work!
Lack of forex education
Another fact is that many traders have simply not had appropriate forex education or training, and as a consequence, eventually fall on their sword having confronted the realities of this unforgiving market. Note that I am not talking about general education here, I am talking about forex education. Currency trading is like any other trade or profession – you simply cannot just start to trade forex successfully without any kind of appropriate education, practice or training, but people think they can, and soon learn otherwise. It is trench warfare out there and one simply needs to be prepared!
Another major reason for failure is that many people are too emotional when it comes to trading and let their hearts rather than their heads do the trading. Forex is a numbers game in many ways, and one needs to apply factors like facts, logic, commonsense and experience, rather than letting killer emotions of greed, fear, hope, anger and pride wreck their trading accounts. I would go as far to say that one has to have a particular type of character to succeed at forex – not all of us are cut out to be traders, particularly those who lack what I call emotional discipline. Let’s face it, we are dealing with money here and it takes a particular type of character to stay cool, calm and collected when things start to go wrong.
Inappropriate trading systems
The lack of a forex trading system (or “strategies”, as many people incorrectly call them), or using a poor or inappropriate one, are other contributing reasons why many forex traders fail. Trading systems exist, or are developed, to help the trader to trade more objectively and systematically through the use of statistical indicators to help the trader assess risk or probability. Like so many other things, some forex trading systems are better than others. But, another issue with them is that they must fit with a trader’s own personal style of trading to be of much good. What works for one trader, won’t necessarily work for another. If, for example a trader prefers intra-day trading, they should use an appropriate short term system. Likewise, a longer term trader should use, say, a daily trading system. Matching of trader and trading system is thus another key to trading success or failure.
So what’s the solution?
Although I have highlighted a number of factors which I believe contribute to the relatively quick demise of the of the newbie forex trader, the above factors cannot be taken in isolation. They are all contributing factors and it is a combination of the above that brings many forex traders to their knees.
So how we do we void these pitfalls? Well, there is no magic formula; at least I haven’t come across one yet. I have already mentioned that some traders have what it takes and some don’t. That’s just human nature and one has to accept that. However, if one firmly believes that they have it and want to stay in the game whatever it takes, my simple prescription is as follows:
- For a start, don’t be gullible and believe all those forex product adverts and web sites promising so much for so little.
- If you are serious about being a successful trader, get forex educated. There are loads of good free forex educational resources and web sites on the web, as well as formal paid-for courses. Once you have been educated, you get to understand why things do what they do, which helps to overcome some of the emotional issues mentioned above.
- Practice sound money management. Only trade what you can afford to lose, and get practised in trading with just 1-2% of your trading capital on each trade. You will be amazed what this can do for your general trading confidence. Money management guidance and techniques are covered in most forex courses that are worth their salt. Sound money management practices will also help with some of the emotional issues mentioned above.
- Don’t rely on hope through the use of automated trading software and so-called expert’s tips for your future trading success. Fact really is better than fiction when it comes to successful forex trading.
- Get yourself a good, tried and tested forex trading system that suits your style of trading. For those who like to trade forex on the daily charts, check out my FREE daily forex trading system at http://www.lindencourt.net/daily.htm
Get educated, get practised, and get trading.