Those who get into forex trading as a beginner always fear unmanageable financial losses. This fear is totally valid as the volatile nature of the forex market makes trading risky for everyone, even if they have enough knowledge, skills and experience. Naturally, the risk will be higher for an inexperienced newbie trader who is still learning to navigate the fast-moving market. But you must eliminate this fear, as confidence is the key to success in the forex market. And that confidence comes from knowledge. Hence, today, we will help you to enhance your knowledge by giving some powerful tips that you can follow to avoid failure in forex trading.
Reasons Why Forex Traders Fail?
Before talking about the tips you can follow for success in the forex market, you need to understand why so many forex traders fail to find their footing in the dynamic currency market. First of all, failure is not the end for a trader, as you are bound to make mistakes and fail as a part of the learning process. Failure is only a stepping stone to success when you learn your lessons from it and apply them to get better at what you do, which is trading in this context.
Failure is not permanent unless and until you stop making attempts to win. Even the best player cannot win in every match; similarly, even the best trader won’t be making profits in every trade. You will always come across setbacks and losses, but that does not make you a failure as a trader. Quitting is the only way you can fail, and you must be cautious enough to avoid a situation where you are forced to quit trading as a whole.
Having said that, many articles suggest that only a small percentage of forex traders are able to attain long-lasting success in the forex market. This is due to the fact that making consistent profits as a forex trader takes a lot more than luck, as you are expected to put in your time and effort to improve your skills and perform better each passing day. That is the only way to survive and thrive in the forex market as a trader in the long run.
Now, we will give you the 7 powerful tips for avoiding failure in forex trading.
Set Realistic Goals and Expectations
One major reason for the failure of many forex traders is setting unrealistic goals and expectations. You cannot expect to achieve overnight success in the forex market, as trading is a skill that needs to be developed through systematic learning and practice. You should not treat trading as a game of luck, as doing so will only result in huge losses.
Being ambitious is a good thing, but you should only think in a practical way without losing touch with reality. Keep your profit targets real, and don’t fall for shortcuts and tricks that promise huge profits. Use trading tools such as pip or profit calculator to calculate the profits you intend to make in a single day and plan your trades accordingly. Be practical and logical in all situations, as that is the first quality required to become a professional-level trader.
Start Off Your Journey With a Solid Plan
Another mistake newbies make while entering the forex market is starting without a solid plan. You need to be clear about your goals, targets and the means for achieving the desired results. Trading will never be easy for a beginner, and you should plan every step with details to avoid confusion. Your trading plan should be as clear as possible in order to avoid any dilemma in the future.
The plan should define your trading style, strategy and everything you would need to navigate the forex space easily. Your risk profile and trading personality should be considered while devising the trading plan and strategy. You can try out the popular and simple trading strategies initially but try to tailor them to suit your needs and requirements.
Be Disciplined and Stick to Your Plan
Having a good plan on paper won’t help you attain your goals if you fail to follow it in live trading. So, you must work on building trading discipline and stick to your plan till the end. Sticking to your plan does not mean being rigid or adamant, as the market is constantly changing and demands adapting to changes. So, being disciplined and not deviating from your plan is all about being stable and firm.
Trading demands a lot of emotional stability as you need to have a calm mind to trade with at most attention and focus. Being overpowered by your emotions will always lead to bad trading decisions. Impulsive and emotional trading is the root cause of losses and failure for many traders in the forex market. Hence, you should learn to manage impulsiveness and stay disciplined while trading.
Be Open-minded and Willing to Change
This tip might sound a bit contradictory to the last one, but the proverb ‘innovate or perish’ also applies to forex trading. The forex market is growing and expanding at a rapid rate, which makes it dynamic. The market situations are constantly changing, and the volatility is at its peak for the forex asset class. Hence, you can’t expect one strategy to work forever, so always remember to improvise and revise your strategies to suit the changing market situations.
Trading with an outdated strategy or using outdated trading software and trading tools will deteriorate your performance. You must be willing to adapt to the changes and try out new techniques, tools and strategies as and when needed. You must be flexible and experimental, as you never know if a new technique or tool may become a turning point in your trading career.
Make Calculated Moves and Focus on Risk Management
The next tip is pretty basic, i.e., making well-calculated moves while trading with a focus on risk management. You cannot expect to make profits unless you learn to limit the potential losses in the first place. So, risk management should be at the core of your trading plan. And trade related calculations are an essential aspect of following your risk management plan without fail.
This includes calculating various metrics like pip value, profit/loss, position size, margin levels and more. You must calculate all of these to plan and execute a trade in the best possible manner.
Learn Through Demo Trading
Demo trading is the best way to learn and gather experience without exposing yourself to real risks. Trading on a Forex demo account can prepare you for live trading, as you will interact with the same technology, tools and real-time market conditions. You will be able to see the real-time market situation and test your strategies with it. This allows you to detect and work on your weaknesses before going live.
Basically, demo trading is very much like a warm-up round for traders, as you can freely make mistakes and learn from them. But at the same time, being good at demo trading does not guarantee success in live trading. Still, it is a good way to enhance your skills and start live trading with confidence. Opening a demo account is very easy, and traders can open it on MT4 as well as MT5, depending upon which platform they are more comfortable trading on. Traders who spend enough time on demo trading are less likely to get confused while trading on a real account as they are already familiar with the tools and features.
Make the Best Use of Leverage
The last tip we’d like to give you is to make the best use of leverage. Because many traders suffer from huge financial losses as they use excess leverage in the expectation of huge profits. But they forget that leverage also increases the risk of loss, leading to a huge account drawdown in case your trading plan fails.
So, you must take some time to understand the true potential of leverage to maximise your profitability, but use it in a way that does not push you to the verge of blowing up your account. The ideal leverage for a trader depends on their risk tolerance and style. Still, most traders find leverage of 2:1 ideal as it does not add much to the risk.
So, with that, we have stated all the powerful tips that can save you from failing at your forex trading endeavour as a first-time trader. These tips are being followed by all the successful and experienced forex traders who trade with a professional approach. Having a professional approach towards trading surely increases your chances of success in the long run.