This article looks at the reasons why traders fail on the foreign exchange market.
There are many reasons why there is such a high failure rate when you look at trading on the foreign exchange market. It is important that you know what these reasons are so that you can avoid them. When you are able to avoid the reasons why traders fail on the foreign exchange market you can increase your chances of succeeding.
The Capital That is Used
The first mistake that many traders make is not having the right capital. When you look at the right capital you need to consider the amount of capital that you will have and the nature of the capital. The nature of the capital is whether or not you can afford to lose the money. If you cannot afford to lose the money that you are using as capital then you are using bad capital. Not being able to lose the capital increases the emotions that you face when you trade.
There is a common misconception that you can succeed on the market with very small amounts of capital. The truth is that you will need money to make money on the foreign exchange market. Not having enough capital is one of the primary reasons why traders fail.
Not Having a Strategy for the Foreign Exchange Market
Before you trade on the foreign exchange market you need to have a strategy and a trading plan. If you don’t then you are not going to be able to trade correctly. Having a vague idea of the way that you are going to trade is not the best idea either. It is important that you have a concise and tested trading plan and strategy. If you do not then you will have no direction for your trading.
Not Testing Your Trading First
Another reason why many traders fail on the foreign exchange market is that they do not test what they are going to do. These traders will choose a trading strategy that they like and start trading live. This is a big mistake and will cost you a lot of money. When you do not test the strategy that you are trading with you have no idea about whether or not this is the right strategy for you.
Test not only helps you determine whether or not the strategy is right for you, but also lets you see how profitable it is. Finding a strategy to use does not mean that the strategy is going to work for you. There are many traders who use the same strategy only to find that one trader does well and the other does not. The best way to test the strategy before you trade live is to use a demo trading account.
Trading on Rumours
There are a lot of rumours that you will hear about what a currency pair is going to do in the future. You should never trade on the rumours without finding out whether or not they are true. If there is some truth to the rumours you will need to determine whether or not there is enough movement to actually trade on.
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