Forex trading is widely perceived to be a high-risk activity. A leading market analysis website looked at 43 million trades and concluded that more than 50% of trades closed on a profit. That’s very encouraging, but the truth is, most traders end up in the red at the end of the day. In other words, they make bigger losses on losing trades than what they win on successful trades. If this sounds like your experience of forex trading, read on to find out why you’re not making money – and how to fix it.
Not Learning How Forex Trading Works
If you had never been skiing before, would you strap on some skis and hit the nearest black slope? No, you wouldn’t. It would be dangerous, and you might even end up dead. So, why would you try forex trading without learning the basics by working with a reputable broker like CM Trading?
Demo accounts give you time and space to learn the ropes of forex trading without risking your trading capital. You don’t need to spend years practicing. For most people, a maximum of three months is all that’s needed to get the hang of forex trading.
Not Understanding that Losses Happen
Losses are all part of forex trading. Even the most profitable forex traders lose money; some more than others. To be a successful forex trader, aside from making sensible trading decisions and avoiding impulsivity, you need to accept that you will make losses. You cannot avoid them.
Chasing losses in the hope of turning it around is guaranteed to turn your small losses into major losses. Nick Leeson made that mistake and look where that got him. Your best policy is to have limits in place. Don’t trade too often, as this increases your exposure to risk, and only trade when it fits your trading plan.
Not Having a Trading Plan
Impulsive traders lose money time and again. They make spur of the moment trading decisions, which invariably end badly. You can prevent this from happening to you by having a trading plan.
Start each week with a plan in place. Examine your charts and decide in advance what currency pairs you are tracking, what your goals are, and whether they are any events in your economic calendar that you need to be aware of. Use this information to prepare a trading plan and stick to its parameters. The less impulsive you are, the easier it will be to make money.
Not Understanding the Markets
To be successful in forex, you need to understand how the markets work. Inexperienced forex traders are hazy on market dynamics. They are unfamiliar with how currencies rise and fall in response to market forces. Understating what causes a false break and why you shouldn’t trade when this happens is important.
Learn how to anticipate trades, signals, and events. Study the markets and cross check everything against your charts. Successful traders anticipate rather than react.
Finally, hone your skills by watching successful forex traders work. You can do this by using a social trading platform.
Disclaimer: This content does not necessarily represent the views of IWB.