Over ninety percent and as high as ninety-five percent of currency traders will blow out their first account within months and often times weeks of beginning trading. This is not an exaggerated statement or a generalization. It is the hard and cold facts about Forex investing. I have both seen it and experienced it personally. More people lose money in this industry than in almost any other. Let’s explore the reasons why and how you can avoid it.
The Forex Market
In the past few years, the Forex market has been getting a lot of attention from both experienced investors and individuals. Folks from all walks of life are more and more looking for a way to make money and start their own business. Many would love nothing better than an online business that can be done at their convenience, in the comfort of their own home and during their free time. Enter the Forex market.
Currency trading provides exciting possibilities for people:
- Owning their own online business
- Being their own boss
- Unlimited income potential
- Flexibility to work on their business at any time of the day
- Little investment required
These are just a few of the many aspects of the Forex business that attract individuals.
The lure of potentially unlimited profits along with what seems to be an “easy ticket” have prompted many folks to try their hand at currency trading.
Folks are bombarded with advertisements from service providers every day that tell them how they can make six figure incomes on the Forex market. Furthermore, they are told that they can begin trading for as little as $50. The prospect of easy money is so compelling that new traders immediately jump aboard. They open up a brokerage account, deposit their money and begin trading. Weeks later, their account is depleted, usually after a margin call, and they are done with the Forex industry.
Why Do Traders Consistently Lose?
In reality, the Forex industry is really not unlike other business endeavors. In order to succeed in any business, there are always several key success factors that must be implemented. No one would open a restaurant, for instance, without first putting their minds to an appetizing menu, creating an attractive design, securing a good location, implementing a solid marketing plan, properly hiring and training staff, furnishing the business, and advertising to name just a few of the obvious first steps. Yet people think they can open a Forex account, fund it with a few hundred dollars and begin making millions.
Key Success Factors to Trading Currencies
Notwithstanding the poor success rate stated above, there are only a few key success factors to trading currencies. We have categorized them into 10 distinct factors. Once you put in place all of these, your success will come. There simply are no other variables.
These success factors are listed below. In the right hand column is our opinion on how the average trader scores on that particular factor with a 1 being the poorest and a 10 being the highest.
Factor
1. Knowledge of the Forex Market
You must have a basic understanding of how currency trading works. This covers everything from how currencies are traded to industry terminology. Most beginner traders have a basic understanding of the Forex market.
Rating: 8
2. Knowledge of both Technical Analysis and Fundamental Analysis
The most involved and time consuming component of trading Currencies is learning to trade. Obviously, if you do not develop a certain level of expertise in picking when to enter and when to exit a trade, you cannot possibly succeed at currency trading. Technical and Fundamental Analysis are the tools of the trade and it is essential that you have a solid understanding of these concepts. Unfortunately, most Forex traders are woefully ill-prepared to actually trade using sound trading techniques.
Rating: 5
3. Discipline & Patience
Trading currencies successfully takes great discipline and patience. Trading opportunities do not present themselves every minute of every trading day. There is no way to know when a good trade will present itself. One of the hardest things that new traders face is the prospect of waiting for a good trade to present itself. The most common mistake of losing traders is over-trading.
Rating: 4
4. Money Management and Proper Trading Psychology
Even if you are the most astute trader at identifying trading opportunities, you are bound to fail if you do not implement proper money management techniques. Winners take their profits. Your average Forex trader simply does not know how to take their profits when they are on the table. This is a tremendous shame as this single aspect of your trading practice will determine your own fate. In fact, it is very possible to have a losing record, and still make a lot of money if you implement proper money management.
Rating: 4
5. Mentoring
Learning to trade properly is a time-consuming and challenging process. Few traders have made it on their own. It is very important to be able to learn from an experienced trader. Unfortunately, few, if any traders will avail themselves of help from others.
Rating: 1
6. Sufficient Capital
While it is true that you can open a trading account with as little as $50, it will be extremely difficult to start a successful Forex business with such a modest amount. A trader needs to be able to absorb a losing streak as this happens frequently in this business.
Rating: 6
7. Brokerage Account
It is essential that a trader register with a broker to trade the Forex. Brokers come in all shapes and sizes. It is critical to find a broker that is reliable and honest and offers efficient execution and customer service. The commissions and spreads charged are also critical to your bottom line.
Rating: 7
8. Charting Service and Other Trading Tools
Charts are the weapon of the Forex trader. Your currency charts will give you most of the information that you need to make sound trading decisions. A trader must find a charting solution that allows them to utilize all of the indicators and tools that they need to analyze price. Charting services range from free basic services to extremely expensive monthly packages offering elaborate analysis tools and techniques. It is important that the currency trader learn to use his charting services thoroughly and efficiently. Additionally, a variety of other tools are available that can greatly shorten the learning curve to becoming a successful trader such as FX Simulators.
Rating: 7
9. Reliable News Service
News affects currency prices more than any other market. It is important that a trader identify a reliable and timely source of news.
Rating: 6
10. Time
Successfully trading currencies takes time. A trader needs to be able to perform in depth analysis of currency prices every day. Staying abreast of news, plotting and reading currency charts, monitoring trades, etc. all takes time. Some traders erroneously think they can make money at this game while they sleep.
Rating: 5
Average Trader Key Failures
Having identified the above 10 key components to successfully trading the Forex market, we will again revisit the question of why 95% of traders fail. As you can see from the scoring above, the most prominent reasons are, in order of importance,
- Lack of Knowledge of Technical Analysis and Fundamental Analysis
- Poor Discipline and Patience
- Poor Money Management and
- Inadequate Trading Psychology Lack of Mentoring
Until a trader is able to address all of the required components, he or she is bound to fail. Fortunately, there are a variety of different tools, resources and services that a committed Forex trader can use to build his skills. Services exist from free simple tools and resources to more complex expensive training programs and tools. Before one can truly begin to enjoy some success currency trading, it is imperative to perform a self- analysis to see where their trading strategy is lacking. The above list will serve as a checklist of items to address in your trading efforts.
Source by Pat Filice
