Forex is a very popular market and millions of people are directly involved in it on daily basis. Everyday beginners and amateur investors try their luck and sadly a big proportion of these investors lose a considerable amount of their money in a small time span. In fact, it has been estimated that more than 90% people lose their money and give up on this market within few months. Such high rates of failure do not necessarily make it an extremely risky market. However, the fact of the matter is that people fail to appreciate the importance of guided learning and mentorship before practically trading with real money. Major mistakes in this regard can be categorized under few headings. Following is a brief explanation of most common reasons behind failure in the forex market. These aspects, if considered and managed adequately, can also ensure long term success in this market.
Forex is not a gambling market:
It is true that a lot depends on luck in forex as market can unexpectedly move in either direction at any time. However, it does not mean to rely merely on luck and consider it a place of gambling. Unfortunately, many beginners consider it like that. In reality, only those investors succeed in the long run who understand the necessity of technical analysis and make trades on the basis of logic and data.
It is not a place to over-try:
When new investors get beginners-luck, they start considering themselves as a master of forex and start inventing new strategies. Forex is an old market and every strategy or technique you might consider using has already been used by professionals. It is important to have a thorough research and understanding before trying anything new. Those investors are more likely to succeed who stick to basics but practice hard to master these basics and slowly advance towards complicated techniques and strategies.
Understand the market:
While there is a long list of things about the forex market which need to be understood, it is most important to understand that this market never provides 100% success rate. For most investors, they do not even need 50% success rate to make profits. Everybody is prone to lose some and win some trades. Most investors get disheartened when they lose some money in the start and give up on their dream of becoming a professional forex trader.
No real plan or strategy:
Even though forex is basically concerned with buying and selling currencies, it is not this much simple. You need to have a proper trading strategy (such as Price Action Trading strategy), understanding of important concepts (such as leverage) and skills about using different technical and analytical tools (such as charts) in order to truly succeed. Sadly, most investors do not perform well in all these avenues and still expect to achieve big success.
No risk management strategy:
Risk management should be an integral part of every forex trading strategy. In its absence, traders can lose considerable amount of money without even realizing it. Risk is involved in every trade you make; hence, there is always a need to manage your risk. Firstly, you must be aware about your risk appetite. Secondly, you must have some strategy at your disposal to manage your risk and cut your losses, for example, buying options or using limit orders. Your chances of success will quickly multiply if you have understood the importance of risk management and have equipped yourself with some adequate risk management tools.
It has also been observed that some investors consider themselves unsuccessful even though they are performing reasonably well. These investors are duly inspired by stories of miraculous success and want to multiply their wealth in a short period of time. In reality, such stories are very rare and you might have better odds of winning a lottery than making millions of dollars overnight in forex market. Unfortunately, when these investors cannot meet their expectations, they try to take rash decisions which often result in severe losses. A forex career, which otherwise could have been a brilliant career, is destroyed in such a sad manner. Hence, it is extremely important to have reasonable expectations when entering the forex market.