Why Most Forex Traders Fail?

Letting Emotions Rule

One of the pitfalls of not having a trading strategy or ignoring a well-developed one is following your emotions when making trades. If you don't develop an objective trading strategy, you've certainly increased the possibility of your emotions ruling your decisions rather than an objective system.

Greed, for example, will cause a person to stay in a losing position beyond the time when an objective trading strategy would call for an exit. This obviously results in a larger loss which then ultimately exhausts your capital.

On the other hand, fear will cause a person to exit a profitable position earlier than would be necessary. This reduces potential gains and makes you unable to absorb inevitable losses longer. It is important to be able to absorb these losses long enough for your gains to outweigh them.

Letting the emotions of greed and fear dictate your trading activity is one of the major reasons why most forex traders fail.

Lack of Discipline

Once you've developed an objective trading strategy or system, you must follow it! In developing your system prior to your first trade, nothing is at risk. For this reason, you should be able to develop a trading strategy that is objective. Once you've started trading, risk and reward become reality and you can get carried away by your emotions. Adhering to your objective strategy through self discipline is the only way to avoid this problem.

In short, lack of discipline leads to emotional trading and is another of the major reasons why most forex traders fail.

Lack of Capital

One guaranteed experience in the forex market is loss. If you are trading, you are guaranteed to lose on some of your trades. You need to have the capital to sustain those losses that will, at times, outweigh your gains. This problem becomes even worse when traders make up for their lack of capital by using heavy leverage. Of course, all forex trading relies on leverage, but try to grow your capital so that decreasing leverage is required, or so that you can maintain backup liquidity.

Unrealistic Targets and Goals

Another reason why most forex traders fail is because they have established unrealistic targets and goals. These impractical goals will either cause a person to take more risk than they should on individual trades, or they will encourage more trades than would be necessary within the bounds of a balanced and objective trading strategy.

High-risk Aversion

While taking on too much risk can prove disastrous to the forex trader, a high-risk aversion will limit a persons ability to take the necessary risks to be profitable and successful in the forex market. Forex market trading is not for the faint of heart!

Poor Choice of Broker

If the broker that you chose does not have the skills, knowledge, and tools necessary to properly advise the new forex trader, the possibility of failure increases significantly.

Lack of Knowledge

Just as it is with any business, whether you are selling products or services, trading futures, or trading in the forex market, you need to know the business in order to be profitable. Find or buy a forex trading course from a trustworthy source, and work through it completely. This will give you the education you need to properly prepare your own trading strategy, evaluate potential brokers, and help you to avoid the common causes for failure mentioned above. After becoming familiar with the market, push yourself to improve and excel. Ultimately, failure happens because people never spend the time or effort to do well.