4 Common Mistakes that Forex Traders Make
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The drop off rate for forex traders is substantial. In fact, evidence suggests that as many as 95% of would-be traders last no more than a few years.
Yikes. Not a pleasant statistic.
But why does that happen?
Surprisingly, it can come down to four largely preventable mistakes.
Here at Trading Education, we outline the main reasons why traders fail. Clues can be found in a book by Mike Bellafiore called One Good Trade. Using his own experience as a trader, Bellafiore maps out the four areas of concern that could easily trip up a forex trader.
No practical affinity with market forces
No one sets up as a forex trader without first undergoing training and research. However, having gained the crucial start-up skills, complacency can set in.
This job involves a constant learning process.
You need to have the intuitive ability to “listen” to the forex market and gauge movement, to conduct technical analysis. This is the only way of consistently finding the best sources of profit.
It's particularly risky to stick to formulas and previously successful patterns after you have enjoyed a period of significant profit. The market moves and shifts constantly, which means your strategy needs to be doing the same thing.
It can come down to a constant process of researching and weighing up all the most crucial factors in “real time”.
According to Mike Bellafiore: “the market has rules. When one disobeys the rules, Mother Market reaches into your pocket and takes what is hers. And she doesn’t give it back.”
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Poor job satisfaction
Being a forex trader is not for everyone. In fact, some people who set out in this career have only a superficial understanding of the potential pressures and whether they are truly ready to cope with all aspects.
They are also likely to be the ones who make the slip-ups and who ultimately decide to pursue a different career path.
The ones who succeed are generally those with their eyes wide open in more ways than one. They know exactly what they are getting into and thrive on the challenges. They are ready and able to stay constantly alert to the market and move quickly.
They also know that “overnight success” can take years of hard work to develop market mastery and insight.
Passion and agility are likely to be what keeps them in the profession, consistently returning a profit.
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This potential cause of mistakes as a forex trader links to the above point. It is about going into this career with realistic expectations and feasible goals.
That includes not kidding yourself that you know enough to carve a perfect record. Even the most consummate forex trader has their losses and hits brick walls.
You have to be ready to climb over those and forge on to clock up more successful trades and create balance.
It is particularly problematic when people choose this career believing they are on the way to massive wins and the luxury life, with a few trades.
The reality can be a hard slog and many setbacks before you find yourself in a lucrative position.
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As mentioned above, previous success can mean you get stuck on one particular path. But there are other ways that traders can get lulled into a sense of loyalty to one particular currency.
Stubbornness, or determination to avoid conceding defeat, can end in disaster: if a currency is going badly, then sometimes the best option is to hold your hands up and admit that a change of direction is needed.
Sticking to your original forecasts and going on regardless, ignoring warning signs, is foolish.
This means leaving emotions aside during your working day. There is no room for loyalty to a currency, embarrassment or “gut feelings” in this profession.
Forex traders should be base their recommendations on sound judgement and that all-important intuitive relationship with market forces and factors.
Getting the sum total right
Success as a forex trader, then, comes down to a combination of all of the above: affinity with the market, a joy in what you do, a realistic attitude and an ability to avoid emotion-charged decisions.
Mistakes are highly likely if you are complacent or superficial in your approach to the forex market, have little or no passion for the profession, are in it for the money, or make decisions with your heart instead of your head.
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This article was originally published on www.babypips.com