The popularity of trading on forex is growing every day. An opportunity to profit quickly in several thousands of dollars attracts people from all over the world. However, forex trading is a very risky business. If you ignore the rules and recommendations of experienced players and rely only on your luck, it is easy to lose every penny. Many people get started with forex trading for the wrong reason. They believe that is a way for them to get rich quick. As with any legitimate trading avenue, however, this is not the case.
Many traders fail for the same reasons that investors fail in other asset classes. 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.
One of the defining characteristics of successful traders is their ability to take a small loss quickly if a trade is not working out and move on to the next trade idea. Unsuccessful traders, on the other hand, get paralyzed if a trade goes against them. Rather than taking quick action to cap a loss, they may hold on to a losing position in the hope that the trade will eventually work out. In addition to tying up trading capital for an inordinate period of time in a losing trade, such inaction may result in mounting losses and severe depletion of capital.
Most traders approach the markets with a mindset of winning, how much money they can make, and what is the best way to try and time getting into the market. A mindset of winning goes against the psychology that is required for successful trading and is the main reason why most traders fail. If you are focused on winning, and not on doing the right thing, in terms of executing your trading plan, you may struggle to take that next trade. If your money management strategies are intact, they will keep your losses smaller than your wins. Winning or losing on a particular trade has no bearing on your overall performance.
Discipline and conscious control over the emotional state are the two factors that determine forex winners from losers. Emotions help us in most other professions but when it comes to trading success they are our worst enemy, in other words, we are our own worst enemy while trying to succeed at forex trading. Trading a simple forex method such as price action analysis is the very first step that any aspiring trader should take if they truly want to excel in the ultra-competitive forex market.
