The majority of traders fail at forex. While many assume that this is because it is impossible to make money in forex trading, nothing could be further from the truth. There are several reasons why you are not making money in forex trading; these can be changed to put you in the minority of traders who win big. Here are six common pitfalls to avoid.
1. Not Enough Capital
Most people have heard the saying that you need to have money to make money. This is especially true in Forex trading. Many people start without enough money to act logically and take advantage of opportunities. Not only will you miss out on some great trading prospects, but having a low capital reserve often creates too much pressure. Traders make poor decisions because their last dollar is on the line. This ultimately leads to failure. Never get into Forex with less than $1000.
If you are trying to squeeze the last pip out of every move, you will miss out on new opportunities. Because Forex is a fast-moving market, this can cut back immensely on your ultimate profit. It’s fine to set profit margins and aim to reach them, but don’t miss out on new opportunities because you can’t leave the old ones behind.
3. Lack of Risk Management
A successful forex trader is not just thinking about gaining profit, but about preventing loss. Too many would-be traders cannot take their eyes off the prize long enough to do the arithmetic. The result is that they deplete their capital quickly and are forced out of the market. Use stops, choose lot sizes that are appropriate to your capital, and bail on trades that just aren’t exciting you anymore. Protect your capital so it can make you money on another day.
Indecision is one of the biggest reasons that people don’t make money in forex trading. You make a trade that looks promising, then close the trade or reverse it when it isn’t immediately profitable. It is easy to get spooked in forex trading, and this is an easy way to lose money. Follow your signals and systems, and don’t be distracted by every blip in the market.
5. Focusing on Tops and Bottoms
You might think you know when a currency pair is going to turn, but there’s a good chance you are wrong. Successful traders go with the trend in most trades and save tops and bottoms for times when they are really feeling it. This reduces your exposure (see the discussion of risk management above) and allows you to make steady profit rather than waiting for your big break.
Do you have a problem admitting when you are wrong? Forex may be the wrong market for you. We all want to be right but it’s important to cut your losses when you aren’t. The faster you admit you were wrong, the more capital you can salvage and faster you can move on to new and better opportunities.
There are probably several reasons why you are not making money in forex trading. Many of them are probably on this short list! Figure out what you are doing wrong and make the changes needed to become a profitable forex trader.