Many might think trading FX is an easy way to make money. You can just pass some orders, have your free time and the money will just roll in. But to most FX traders, that is furthest from the truth. Why do 90% of FX traders lose money eventually. Why? One main reason is that they tend to commit or are unable to shake off the seven common deadly sins which I will highlight below : They are actually quite obvious and commonsense to most people but in fact even the most knowledgeable and experience traders including myself commit those sins repeatedly.
1. Stubbornness - It is alright to have strong views but if you are long EUR/USD above 1.49 and still believing and hoping it will rise back to your level when it is 1.36 now - you are stubborn. Don't think you will ever be in that spot? I have know of many including CEOs, Central Bankers, Hedge Fund Managers and especially FX retail traders who are losing their pants being stuck in very bad short USD positions recently.
2. Greed - If you have a profit target but keep on adjusting them just before it was reached and eventually ended up losing - that is greed. Similarly if you keep taking big risk beyond your means with the hope of winning quick and big - that is also greed. The mentality to make more and more money is good but all traders must learn when it is time to lock in the profits and be contented instead of losing eventually because of greed.
3. Anger - Why did they stop me out at the lows? I should have hold on to that position. How can I lose money on that trade? Must make them back quickly. Sound familiar right? Most traders must have asked those questions before but these are dangerous emotions. If you keep on thinking to take revenge on the markets after losing or feeling that you must win and win everytime then you are more likely to end up the big loser.
4. Over confident - You are very sure that the USD will weaken sharply in the long term and short USD large without any thought of the consequences that you may be wrong. The unexpected happened and USD recover strongly, you freeze, don't know what to do and don't want to accept the truth. By the time you decide to cut your positions it is likely too late and too painful. Remember, super heroes won't last long in the FX markets, only humble survivors.
5. Fear - To make money in trading you must be willing to take some risk. The more you are scare of losing money the more likely you could lose. Bullish won't dare to buy, bearish won't dare to sell. Got profits quickly take and only 100% sure win then trade. A little bit of cautiousness is alright but trading is a game of risk and the more calculated risk you take the higher your chances of winning.
6. Impatience - You have a trading plan and strategies that tell you to enter a position only when certain conditions are met. But time and time again you jump in early before those conditions were met and end up losing because of impatience. There is a high chance of a retracement in a trend but you find yourself always buying at the high and selling at the low because you worry that you might miss the boat. Thats why being calm and patient could be the different between success and failure in trading.
7. Stress - You are on a losing streat and must be feeling very useless and bottom of the world. Trading used to be a joy but now become a pain. If you are in this situation, don't force yourself to trade. Your thoughts are likely to be irrational, not prudent and you are likely to lose even more. You need to get out of the markets completely for a few days and think of ways to get back your confidence before trading again