Foreign exchange trading can be a very lucrative source of income. Knowledgeable investors with small amounts at their disposal are excellent candidates for Forex trading given the low entry level requirements as well as the leverage available with margin trading. However, those who are not adept at Forex trading stand to experience forex loss on a grand scale.
While the profit potential is quite substantial, the fact remains that a large proportion of foreign exchange traders accumulate forex losses and are bankrupt in a years time.
What is the reason for this? Here are 6 things that cause the large number of failures among novice traders:
1. Expectations beyond reality. There is a misconception going around that Forex trading is an effortless way to make money so people put all that they have on the line and they are left with nothing. Getting rich in an instant is not what foreign exchange trading it about. Arduous effort and study are prerequisites to making money here. Winning all the time is not realistic. The most seasoned veterans still take a hit every now and then. The important thing is to know when to call it a day, absorb your forex losses and concentrate on finding winners in your currency portfolio.
2. Not doing your homework. While trading Forex is not a complex task, mastering the art of trading is complicated. The prediction of currency price movement is intricate but veteran traders can make it look like a breeze. And you must not forget that you are but one in a sea of millions. The resources of the finance titans are far more vast than yours. There are whole departments making their analysis of the various currency pairs and economic conditions, a task that you must do on your own. So be ready to pay the price and put in a lot of your time and effort in studying the market in order to make a profit.
3. Las Vegas thinking. Believing that Forex trading is all about gambling is one belief that will require a whole lot of luck. Sure some individuals actually get lucky and win a few, make a few bucks, then eventually go bankrupt.
4. Jack of all currencies. There are so many choices of currency out there. Just pick out a few at the start. Get the Japanese Yen, the US greenback and Euro which are the better known and stick with them for now. You will of course have alot more data to process if you choose more currencies to work with. Master a few rather than have just a basic knowledge of the many.
5. Absence of a system of trading. There are multitudes of Forex trading systems out there. A large number are free while the others are for sale. Your choice of system should be determined by your personality, goals and amount of capital. This probably means then that at some point you may have to fork out some money to get hooked up with accomplished Forex traders in order to gain access to a sound forex trading system.
6. Not using your system. Developing a system is just half of the story because you must follow it through by employing it through thick and thin. This is of course harder than it sounds. Greed can take hold of you prompting a lunge for the big piece of the pie, or alternatively butterflies in your stomach can drive you to exit a market prematurely. The points you have determined for entering and exiting a market must be followed. Ignoring them can lead not only to a forex loss, but worse, you may be unable to grab on to a large price movement that has the potential to make up for past forex losses.
The one thing that the veteran traders know is that while getting in the market at the right time is essential, knowing when to get out and timing it properly is even more important when it comes to avoiding forex losses.
Here are a few good forex training resources in order of complexity and price:
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