Main Reasons for Failure Traders

The forex market is the largest financial market and can be accessed around the world, but even though there are many forex investors, only a few are really successful. Many traders fail for the same reason the failure in other asset classes. In addition, extreme leverage – the use of borrowed capital (collateral) to increase the potential return on investment – that is provided by the market, and a number of relatively small margin to trade currencies, denying traders the opportunity to make a lot of mistakes at low risk. Factors specific to currency trading can lead to some traders expect a return on investment greater than the market can offer, or to take more risks.

Certain errors may keep traders on their investment objectives. The following are some of the common pitfalls that can interfere with the forex trader:

1. Not Maintaining Discipline in conducting trade.
The biggest mistake that can be made by any trader is to let emotions control trading decisions. Being a successful forex trader means achieving a major victory after a while suffering from a lot of small losses. Experiencing many consecutive losses emotionally disturbing, and can test the patience and confidence of traders. Trying to beat the market or greedy can cause a short and a little victory, and let the losses in the trade goes out of control. Conquer emotions can be achieved with appropriate trade trading plan that can help in maintaining trading discipline.

2. Trading Without Plan.
Does anyone forex traders or other asset classes, the first step in achieving success is to create and follow a trading plan. “Failing to plan means planning to fail” is a saying that applies to every type of transaction. Successful trader working in a documented plan that includes risk management rules and determining the expected results of the investment (ROI). Following a strategic trading plan can help investors avoid some of the pitfalls of the most common trade.

3. Failed to Adapt to Market.
Before the market opens, you should make a plan for every trade that you will do. Perform scenario analysis and planning movements and movements opposed to any potential market situation, can significantly reduce major risk for loss of unexpected defeat. Due to changing market, it presents new opportunities and risks. The most successful traders adapt to market changes and modify their strategies to adjust to the market.

4. Learning from Trial Error.
Without a doubt, the most expensive way to learn in trading the currency market is through trial and error. Finding the appropriate trading strategy by learning from your mistakes is not an efficient way to trade the market. Because Forex is much different from the equity market, the possibility of new traders to make a loss is very high. The most efficient way to become a successful currency trader is to access the experience of traders who are already successful. This can be done through formal education and trade through mentoring relationship with someone who has a well-known track record. One of the best ways to enhance your skills is to emulate the successful trader, especially when you add your own practice hours.

5. Realistic hope.
No matter what people say, forex trading is not to be rich-quick scheme. Success requires repeated efforts to master the strategies used. Trying to force the market to give abnormal results usually makes the trader risking more than the recommended capital.

6. Low Risk and Money Management.
Traders have to involve a lot of focus on risk management as they do development strategy. Some naive people would do the trade without protection and abstain from the use of stop losses and similar tactics for fear exit the market too early. At any given time, successful traders know exactly how much of their investment capital is at risk and how are duly used, much to do with the results obtained. Because trading account becomes larger, capital preservation becomes more important. Diversification between trading strategies and can protect the currency pair trading account of losses is uncertain. Winning trader will divide their accounts separately. This type of asset allocation strategy will also ensure that the low probability trades damaged and can not destroy one’s trading account.

Leverage settings.

Leverage gives the opportunity for traders to be able to increase profits. But leverage is a double edged sword. The forex market allows traders to have a leverage of 400: 1, which can provide a massive trade advantage in some cases – but also can result in losses that are not too small. Most professional traders use a ratio of 2: 1 that the trade one standard lot ($ 100,000) for every $ 50,000 in their trading accounts. It is the same with one mini lot ($ 10,000) for each $ 5,000 and a micro lot ($ 1,000) for each $ 500 value of the account. The amount of leverage available is derived from the amount of margin required for each trading broker. Margin is required to protect the broker of the potential loss on the trade.

Many forex brokers require varying amounts of margin, which translates into the following leverage ratio.

Maximum Margin Leverage:
5% 20:1
2% 50:1
1% 100:1
0.5% 200:1
0.25% 400:1

The reason why many forex traders fail is that they are short of capital in relation to the size of the trades they make. It is either greed or the prospect of controlling the huge amount of money with only a small amount of capital which forces forex traders to take greater risks keuanganyang. For example, at 100: 1 leverage (leverage ratio rather common), requiring only a 1% change in price.

Not only leverage that magnifies losses, but also increases transaction costs as a percentage of the value of the account. For example, if a trader with a mini account for $ 500 to use the leverage of 1: 100 with the purchase of five mini lot ($ 10,000) of currency pairs with a spread of 5 pips, traders are also subject to $ 25 in transaction costs [(1 / x 5 pip pip spread) x 5 lots]. Even before trade begins, he has to catch up, because $ 25 in transaction fee is 5% of the account value. The higher the leverage, the higher the transaction costs as a percentage of the value of the account, and the cost increases with droplet value of the account.

While the forex market is estimated to be less stable in the long term from the capital market, it is clear that the inability to withstand periodic losses and negative effects of the periodic loss through high leverage levels are waiting for disaster. These issues are compounded by the fact that the forex market contains significant risk of macroeconomic and political level that can create a short-term price inefficiency and play havoc with the value of a particular currency pair.

Conclusion:
Many factors cause forex traders fail is the same as that which disrupt the investors in other asset classes. The simplest way to avoid some of these pitfalls is to build relationships with other successful forex traders who can teach discipline trades are required by asset class, including the risk and money management rules are needed to trade the forex market. Only in this way then you will be able to plan appropriately and trade in the hope of return that keep you from taking excessive risk to potential benefit.

While understanding the macro-economic analysis, technical and fundamentals needed for forex trading is as important as trading psychology is needed, one of the biggest factors that separates success from failure is the ability of traders to manage the trading account. The key to take into account management including capitalized should be sufficient to ensure, using the right size and restrict trading of financial risk by using leverage intelligent.