The forex market is the largest and most accessible financial market in the world.
Although there are many forex investors, few are truly successful ones. Many traders fail for the same reasons that investors fail in other asset classes.
In addition, the extreme amount of leverage - the use of borrowed capital to increase the potential return of investments - provided by the market, and the relatively small amounts of margin required when trading currencies, deny traders the opportunity to make numerous low-risk mistakes.
Factors specific to trading currencies can cause some traders to expect greater investment returns than the market can consistently offer, or to take more risk than they would when trading in other markets.
Forex Market Trading Hazards
Certain mistakes can keep traders from achieving their investment goals. Following are some of the common pitfalls that can plague forex traders:
1. No Discipline
The largest mistake any trader can make is to let emotions control trading decisions. Becoming a successful forex trader means achieving a few big wins while suffering many smaller losses.
2. No Plan
Whether one trades forex or any other asset class, the first step in achieving success is to create and follow a trading plan. "Failing to plan is planning to fail" is an adage that holds true for any type of trading.
3. Failing to Adapt
Before the market even opens, you should create a plan for every trade. Conducting scenario analysis and planning the moves and countermoves for every potential market situation can significantly reduce the risk of large, unexpected losses.
4. Trial and Error
Without a doubt, the most expensive way to learn to trade the currency markets is through trial and error. Discovering the appropriate trading strategies by learning from your mistakes is not an efficient way to trade any market.
5. Unrealistic Expectations
No matter what anyone says, trading forex is not a get-rich-quick scheme. Becoming proficient enough to accumulate profits is not a sprint - it's a marathon.
6. Poor Risk and Money Management
Traders should put as much focus on risk management as they do on developing strategy. Some naive individuals will trade without protection and abstain from using stop losses and similar tactics in fear of being stopped out too early.
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