The Forex market regarded as ‘the beast’ on Wall Street is known to be a tough market to crack. It is said that the failure rate in the Forex industry is very high, with more than 95% of aspiring traders expected to drop out of the game within their first few years of trading. Many retail traders blame it on the fact they are swimming with huge sharks and whales and that there isn’t a mere chance for a tiny catfish to survive (i.e. the famous saying goes ‘not enough skin in the game’).
This could be very true, but we all know numbers don’t lie as a very wise person Bruce Lee famously quoted “Mistakes are forgivable if one dares to admit them”. Institutions and Investment banks have been in the markets since their birth. We have to analyze that just maybe there is several common fundamental mistakes that retail (i.e. the everyday person) forex traders make all the time. Let’s take a closer look at some of the reasons why most traders fail.
TRADING BECOMES A BURDEN
Expertise is a process, which is driven by the genuine desire to acquire, learn, hone and do better. Without interest, passion and enjoyment for the craft, traders would hardly be motivated to pursue deliberate practice and skill development. For the majority of aspiring traders learning the technical art of trading such as understanding and analysing time frames, Japanese candlesticks or even historical price action becomes unnecessary or burdensome.
We know consistency in trading is a common trait in successful traders. The lackadaisical approach to trading is a complete no-no. Successful traders are always prepared e.g. a swing trader would have done their analysis on a Sunday knowing how to execute and what the market brings for the week ahead. Famous trader Jack D. Schwager stated in his book The Little Book of Market Wizards: Lessons from the Greatest Traders, “But the fact is: The people who are successful in trading are tremendously hard workers.”
When traders don’t have a love for the game, conducting market analysis and putting in the necessary hours required in mastering the markets will seem like a chore. This explains why most aspiring traders simply decide to quit altogether and pursue something else entirely.
WHO NEEDS TO LISTEN TO THE MARKET
Despite improving their knowledge of technical and fundamental aspects, traders may still not see the desired profits if they cannot apply these concepts in an appropriate setting. Consistent chart monitoring over a long period is necessary for success as many experienced traders will attest to. Best practices indicate it's important to pay attention to what the market dictates; otherwise, there can be potentially devastating results due to disregarding price action. Whenever new information arises while trading currency pairs like GBP/USD that goes against initial positions, evaluating each situation objectively without emotion or ego should always take precedence so losses are minimized where possible.
Take some time to figure out if there is additional information that carries more weight in terms of determining current price action instead of being stubborn and even adding to your position. Believe me, stubbornness kills in this market.
OVERCONFIDENCE AND EXPECTATIONS TOO HIGH
It will take a lot of time and ego-crushing losses before one becomes a consistently profitable trader. Many things can be done to speed up the learning curve, but there is no way to eliminate it.
Some traders new to the market make the mistake of thinking, that to be successful, they should never incur losses. Consequently, they pressure themselves too much and take it hard every time a trade goes against them.
To avoid their fate, you must accept that you will face losses. You will experience losing streaks and undergo drawdowns, which will probably make you feel terrible. Whether you like it or not, you will be on the wrong side of a trade in some instances. But you know what? In all fairness it’s OK. Even the best Forex traders out there still experience these emotions.
BEING RIGHT THAN MAKING MONEY
It feels horrible to be wrong. As we mentioned earlier, this is why so many people have a hard time swallowing their pride, admitting their mistakes and moving on.
Often in Forex, traders develop a bias on a currency, not that there is anything wrong with it, but the downfall of this is that sometimes they get paralyzed when their trades don’t go as they planned. They stick to their trades, insisting on being right and refusing to exit their already losing positions (this is a common problem, ‘your capital is your life’).
I’m all for commitment when it comes to relationships and careers but when you trade, you should remember that you shouldn’t be emotionally invested in a trade. Successful traders know when they should exit a losing position and they can do so quickly.
To be consistently profitable, you should always try to make good trades and accept the fact that you cannot control the results.
Just remember that success in Forex trading comes down to listening to the market, loving what you do, setting realistic expectations, and being open to admitting when you're wrong and learning from