The forex market is the largest financial market in the world, with more than $5 trillion traded on average every day.1 But while 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.Certain mistakes can keep traders from achieving their investment goals. Following are some of the common pitfalls that can plague forex traders:
Not Maintaining Trading 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. Experiencing many consecutive losses is difficult to handle emotionally and can test a trader's patience and confidence. Trying to beat the market or giving in to fear and greed can lead to cutting winners short and letting losing trades run out of control. Conquering emotion is achieved by trading within a well-constructed trading plan that assists in maintaining trading discipline.
Trading Without a 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. The successful trader works within a documented plan that includes risk management rules and specifies the expected return on investment (ROI). Adhering to a strategic trading plan can help investors evade some of the most common trading pitfalls; if you don't have a plan, you're selling yourself short in what you can accomplish in the forex market.
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The forex market is the largest financial market in the world, with more than $5 trillion traded on average every day.1 But while 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.Certain mistakes can keep traders from achieving their investment goals. Following are some of the common pitfalls that can plague forex traders:
Not Maintaining Trading 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. Experiencing many consecutive losses is difficult to handle emotionally and can test a trader's patience and confidence. Trying to beat the market or giving in to fear and greed can lead to cutting winners short and letting losing trades run out of control. Conquering emotion is achieved by trading within a well-constructed trading plan that assists in maintaining trading discipline.
Trading Without a 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. The successful trader works within a documented plan that includes risk management rules and specifies the expected return on investment (ROI). Adhering to a strategic trading plan can help investors evade some of the most common trading pitfalls; if you don't have a plan, you're selling yourself short in what you can accomplish in the forex market.
