Why many people trading forex has a very high percentage to fail?
And why even a successful businessman or someone who has succeed to acquire a million / billion of money or never fail to earn a good life still experiencing a losing trading in forex?
If you know that the risk of losing money is very high, why people are so keen to open a live account with the forex broker?
Don't you people regret and hate forex trading because you can only see your account balance depleting very fast (A day, a week, for sure less than a month)? Regardless your starting capital is <$100 or $500 or $1,000 or $10,000 or even much more bigger than $100,000.
So, now tell me; Why can this happen?
Many factors can affect forex trading but I will just give a brief example to this issue.
In stock trading, you can make a big profit when prices are rising (Almost guarantee) as long as you have chosen the right shares to have. But the game is different with forex trading because when you make money somebody else out there are losing their money and vice versa.
So only less than 10% of forex traders are making their fortune at a cost of the other losing traders.
How about reading a forex books that authored by a legendary successful forex traders, will this help you to survive? The answer is YES and NO.
NO because by reading those books does not guarantee you can copy their success. Just like reading a Warren Buffet's story does not mean you can become rich as he is.
YES only in terms of knowledge and personal experiences to motivate you and giving you some basic pictures of what forex trading is.
To finish this introduction, my advice do not easily trapped by a broker's advertisement which often says: "We will show you how to make money in forex easy without stress" OR "Do you have 5 minutes to 1 hour free time each day? Earn a living from forex"
Are the above sounds familiar to you? I can be sure that you will shout YES, YES, YES I have seen those kind of advertising in facebook, google, etc.
However, making money for a living or even just for an additional second income in forex trading is not an easy job at all.
Now I will show you 4 simple mistakes that most people made during their trading time:
Mistake #1: No Trading plan.
If you are going to have a franchise business or opening a shop, will you just put the money for deposit, rent a place, pay for all warehousing, staffing, etc and start selling? Of course not; Why? Because you have to make sure that everything is going your way and not opposite. This is why trading plan is important.
It is not a big surprise that people are not making their fortune in forex trading. Simple yet powerful. In many cases, a vast number of traders execute their trades without a proper plan for entering the market, exiting the market, SL and TP, what if the trade is not going the right way (Emergency plan? Cutting losses?)
Many new comers want to make money straight away and as fast as possible to fill their rainbow jug and start their dream come true life NOW. But remember, even a successful traders still making their mistakes from time to time but they learn fast and adapt because they can look back to their trading plan and tuning it to a better one.
There is an old saying for forex trader like "Plan your trade and trade your plan". Have you?
Mistake #2: Lacks of understanding of Leverage.
Leverage is like a double edge sword which can make you rich faster or opposite. Just for your reference that many successful traders are actually trading using 1:1 or 1:30. Yes I know, you might said that you need a very large capital for that but remember if you know how to use the leverage than I suggest stick to 1:100 maximum.
Avoid high leverage brokers and do your homework (Research and learn).
Mistake #3: Risk Management.
If you are going for a skydiving, I am sure you will double check your parachute, belt, goggle, suit, etc before you actually jumping from the plane. Right? Why? I am sure you know the answer for that. The main key is never jump from a plane without a parachute. You will hit the ground and die instantly.
But why in forex trading, new comer traders often break the rules of risk management. Remember that only suicidal and hopeless traders are going for a live trading without a practice and sufficient knowledge of the market.
There is no easy money here as it was described in the advertising. Keep watching and guarding yourself so that the market cannot reach you and knock you out in the bear and bull market. Always calculate how much risk you can handle, what your maximum drawdown will be, etc.
Mistake #4: No Discipline.
Now let's say that you have done your homework for calculating the risk, applying an entry and an exit strategy, putting your SL and TP. And you say this is really a very high probability trade; I should trade it now (With a big hope...) then you put yout first trade and your first one is a losing trade. But you might say it is not a big deal at all as it is part of trading and everybody experience a losing one.
Ok now you make a second trade and you are still losing it. And you might say maybe I was doing something wrong and missed some checklist. Let me double check again.
Then comes to the third trade and you are be more careful now before putting the trade and execute it. The result is another losing trade.... Hate, anger, impatient, hot and fury are filling you at that moment.
You keep thinking and have no clue at all for why your system fail. So you plan to skip the next signal and a few hours later the market is breakout to the same signal that was generated. You might think to jump in the late train but could be too late and you decide to jump the next one and relax for now. Increasing in confident and feel like in control so you wait and wait and wait for the next coming signal but the price is keep steady into the same direction and no sign of reversal.
Well, good system but I missed plus increase confident and seems in control; you virtually start counting the profit that you should have made in your trade. In addition to that you whispering to yourself "Man, I should taken this trade earlier and I will earning $x,xxx or $xx,xxx extra money by now."
From now I am going to follow all the signal and join the big ride but everyday you see your account balance start to sink like a submarine. The period of losing trade is start again and even worse. You finally decide to quit the forex trading and never ever want to touch or hear or read anything about forex forever. As a result, you become a self appointed hero that sharing your story about forex and your experience but I will tell you guys to not trading forex bla bla bla...
Emotional problem is the issue here and many traders focus primarily only to money, profit and make a revenge to losing trades without utilising a trading plan. This is part of lack of discipline.
Discipline is the one which separate the one who making money and the one who always losing money in the game or you can call it a battle.
Lack of discipline is always a mistake and never be a reason for success.
Things to avoid is never increase the lot size (Risk), doubling the losing trades, and the famous one are FEAR - GREED - EMOTION.
Discipline for example involving you to make a decision either holding a losing trade or cut loss and accept the losses. Please make your mind and take an action immediately.
In closing, just do not focus on how to enter and exit the trade. Follow those 4 tips above and set your TP and SL which you can safely leave your computer and doing other things outside for work live balance. Just do not spend and stick to your computer for trading the whole day. Good luck.