Although trading may appear easy, the whole concept of buying low and selling high might seem simple enough, trading is actually one of the most difficult challenges you will ever face in your life. A lot of traders jump in the markets with their hard earned money and drop off the radar pretty quickly.
The high failure rate of traders is mainly due to the fact that to be a successful trader, you need to forget everything you’ve learned in life and build a completely new mindset. One which is completely different to what our everyday life experiences have taught, and moulded us into. There are 4 very common ‘red flags’ that seems to be somewhat of a common denominator amongst the losing crowd ...
Trading with no rules
Probably for the first time in your life you have complete control of what you do. Forex trading was so appealing to you, because the freedom gave you the sense that you discovered some sort of ‘Utopia’. The thought of breaking free of all the rules from your daily life is everyone’s ‘holy grail’ lifestyle dream. As heart shattering as it might be, even with Forex rules still need to exist and define your trading!
Not only do you have to set your own rules, it’s up to you to remain disciplined enough to trade within the boundaries you’ve set yourself. If you can’t follow your own rules, not only will you be punished, but your family and loved ones may suffer as a result from your actions.
When you are absent of a trading plan you’re just ‘guessing’ when to jump in without understanding
the move. You need to find a trading system that suits you and your lifestyle, create yourself some guidelines and stick to the plan. This may require you discipline yourself to sickening levels but it’s either that or become another statistic.
You haven’t embraced risk
Most traders consider themselves ‘risk takers’ because every time they open a new trade there is a chance it won’t work out. Most of the time traders don’t really accept the risk they are taking on though. Whether you fully understand the risk associated with your trades or not will have a major impact on your trading performance.
If you can’t place a trade absent of fear, then you haven’t accepted your risk. Trading with fear is dangerous in the sense the fear will play against you the while the position is open. You probably won’t be able to sleep at night. There will be that urge to stare at your open trade and emotionally intervene.
To build a winning traders mindset, you must always think worst case scenario. You should know how much money you’re risking before you open a trade. It’s a good idea to consider the money already lost as soon as you open the trade. This way you won’t be so disappointed if the trade really doesn’t work out. If it does, then that’s just a bonus.
You’re focused too much on money
We see all these advertisements encouraging people to trade Forex, backed with pictures of expensive cars and nice houses. As you’ve most likely discovered these adverts are very misleading and Forex is not the ‘cash machine’ most internet marketers promote it to be.
People are desperate to turn their financial situation around, and they believe Forex trading is their ‘golden ticket’. Forex paints this picture of clearing all debt and extended holidays on a topical island somewhere sipping on cocktails with no worries left in the world. Unfortunately this is pretty much a fairy tale and most traders are frustrated with the unlimited money making potential of the market against their own trading performance.
It’s all about how you look at your position as a trader, because most are too focused on generating fast money. You’re job as a trader is to be an excellent risk manager not to make money. A trader should be thinking in probabilities, not cash. As a trader you should always be looking for situations where the probabilities are in your favor, and being able to identify these low risk/high reward opportunities is called having an ‘edge’ in the markets.
There are a finite amount of traders that participate in the market each day, and they are doing the same things over and over again to make money. This creates re-occurring patterns over and over again that you can use to identify when the probabilities are on your side.
By capitalizing on these trading opportunities you’re managing your risk well, and the money naturally flows in as a result.
You’re flogging your account
One of the biggest problems in this industry is overtrading. This is usually a result of a trader believe the more effort, or ‘work’, they put into the market, the more returns they will generate. In the workforce, the more hours you put into your job, the bigger the pay check will be.
Unfortunately the market doesn’t work like the everyday workforce, overtrading is very dangerous. Most new traders are lured in by high frequency trading systems like scalping and day trading. These systems demand a high level of interaction with the market, which eventually burns out the trader.
How many hours can you sit there staring a price ticking away waiting for a trading opportunity? Most traders will eventually get bored or frustrated with the extensive hours in front of the trading screen and start ‘forcing trades’.
By opening multiple positions across multiple pairs, you’re exposing yourself to more and more levels of risk. Remember how we said to think worst case scenario. What would happen if all these trades were stopped out? Opening multiple positions might also push through you’re risk tolerance level, and then you’re going to start getting emotional.
There is no need to sit there to the point of mental fatigue, there are end of day trading strategies that only require 15 minutes per day of your time and require very little interaction with the market.
You can ‘set and forget’ your trades so once you open a positions, it will either be stopped out or liquidated in profit. This hands free approach will allow you to trade in a full time professional manner and keep your day job at the same time.
It’s best to be less involved with the market as possible. Remember less yields more in trading, it’s a much more relaxing, stress free way to trade.
About the Author
The Forex Guy is an educational Forex blog run by Graham, focusing on Forex price action, positive geared money management and building a winning traders mind-set. Graham likes to keep trading as simple, logical and as stress free as possible using end of day trading strategies with price action.
Join in and write your own page! It's easy to do. How? Simply click here to return to Forex trading articles - general.