The Forex market can be quite lucrative. Over $5 trillion changes hands in it every day. As a result, there are plentiful opportunities to profit from the intermittent fluctuations in exchange rates. Unfortunately, numerous studies have revealed that, for most participants of the market, it is not that easy.
Yes, more traders of other financial instruments are increasingly becoming attracted to accurate Forex signals because of its abundant profit-making potentials. However, the statistics are still saddening. For example, at least, 90% of them often end up losing and quitting. So, why is that so?
In this article, we are going to identify the most important reasons many traders fail in the Forex market.
Maybe you are a newbie Forex trader. Or you have been trading for many years. Either way, you have taken the time to develop a strategy for yourself. The strategy could have evolved from personal studies and research or from the advice of gurus. You have been using the strategy sometimes and things are going well.
Then, one day comes and things start to change. The erstwhile profitable strategy does not seem to work again. Or maybe, you are noticing that its effectiveness has started to reduce. Now you are losing money and you are concerned. So, what do you do? This type of situation can put you in some worries, but it is not peculiar to you.
However, how you choose to manage it can determine the future of your trading career. Most of the traders who experience such tend to respond in the same way: they seek to either tweak or modify the strategy. Sometimes, this works. Other times, it does not. When it is the latter, a cycle of adjustment and modification becomes activated, eventually resulting in an entirely different strategy.
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Usually, the new strategy will be effective for sometimes until it stops working, too. That is, it can produce some wins until the losses start to outstrip the gains once more. Then the trader will adopt another strategy again and the cycle continues. And that is one of the reasons most of them fail.
What you should know: a perfect strategy does not exist. That is, there is no strategy that will give you profits consistently all the time. Every strategy will deliver sometimes and fail sometimes. Hence, a strategy with a success rate of at least 70% is enough. Jumping from strategy to strategy is arguably the most important reason Forex traders do not succeed.
Therefore, you should protect yourself from it. And you can do so by sticking to the following tips.
- Ensure your strategy is rooted in sound knowledge and skills
Of course, you cannot afford to be jumping from one strategy to another. However, you can only stay for long with a strategy when you believe in it. And for you to do so, it has to be rooted in a strong foundation of knowledge and skills. Hence, ask yourself: what are the foundations of my strategy? What are the tenets it is based upon?
A sound strategy should be based on the principles of fundamental and technical analyses. It should not be emotional. Rather, it should be rooted in logic. That is, it should have conditions that, it does not matter how you feel, direct your trading. Also, there must be clear money and risk management rules to strictly adhere to every time you place a trade.
- Backtest your strategy to ascertain its performance.
Once you have developed a strategy based on sound fundamental, technical, and psychological principles, the next step is to authenticate by testing it through historical data. The essence of this is to help you characterize it and assess its performance under different market conditions. The process of doing this is known as backtesting.
When you backtest your strategy, you want to have an idea of its winning rate. You want to get to know how it performs in winning (and otherwise) market conditions. When you backtest a strategy, you will be able to develop confidence in it. It becomes reliable for you to use. And as a result, even when it is losing, you will not jump to another one.
Another notable reason traders lose in the Forex market is the excessive expectations they have. Of course, the Forex market is lucrative. Trillions of dollars exchange hands every day in it. And there are potentially millions to make. Also, they have read in books and seen on Instagram the kind of lavish lifestyle many live with the proceeds from it.
The truth is: you will not become a profitable Forex trader overnight. Therefore, most of your expectations are not realistic at all. Thus, you should seek to make them so. A 25% return, for example, is healthy enough. In addition, to become a successful Forex trader, you must pay the price of patience and diligent practice. It takes time to succeed at anything and Forex trading is no exception.
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Also, due to excessive expectations, participants in the Forex market tend to over-leverage their trades. For the umpteenth time, it is necessary to state that leverage is a double-edged sword. While it can boost your profit-making chances, it can also send you down the path of losses. Hence, you should use it with caution. As a newbie, leverage of 1:10 is the most appropriate.
Finally, if you really want to secure your chances of making money in the Forex market, you might want to subscribe to 1000pipBuilder’s signal service and mentorship program. You can do so by registering here.