When people enter the foreign exchange market, their goal is to be successful and make profit. Despite the recent popularity of Forex trading in Nigeria, a lot of Nigerians are still skeptical about trading the forex market. This is majorly due to the (over exaggerated) risks involved in trading Forex. A good percentage of traders still smile to the bank as they cash out severally from the Forex market.
Ever wondered why some are getting it right while some are getting it all wrong?
Here are some of the core reasons traders lose money in Forex.
1. LACK OF BASIC KNOWLEDGE ABOUT FOREX.
A lot of people come into to the Forex industry with the wrong expectations. People need to know that the Forex market is not a get-rich-quick scheme. Those cashing out heavily in Forex spent time educating themselves about the market because becoming a Forex trader, is not an overnight job.
It takes time and patience to learn how to trade the Forex market, as much as it takes time and patience to learn any other skill you may have. Time is spent on training plans, terminologies, chart readings and strategies. All these are very important basics of Forex trade education.
2. LACK OF TRADING GOALS/PLANS.
Just like every business needs a proper business plan to map out its operations and survival, every trader (experienced or not), needs a trading goal and plan.
Most Traders don’t have a proper trading plan and some of those who actually do have a plan don’t stick to it. Having a well-thought-out plan can easily make the difference between profit and losses. A trading plan helps the trader to achieve the established trading goals such as:
- Why you are trading.
- What are the reasons for taking a particular trade?
- When to enter a position and in what direction to trade.
Some traders decide to trade daily, some weekly, while some scalp. The decision boils down to whatever goals that have been set, and the plans mapped out to achieve them. Stick to the goals and plans set, even when losses are encountered.
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3. HAVING NO STRATEGY OR CONSTANTLY TWEAKING YOUR STRATEGY.
There are many ways of studying the market charts to determine what position to enter a particular currency pair at any given time. This technique is known as strategy in Forex. Most traders develop their own strategy and back test them, while several others adopt readymade strategies available on the internet. Deciding on a strategy that looks after all elements of money management is key.
Whatever strategy you use as a trader, it is important to understand and test your strategy properly before going on a live account with it. Every strategy has its winning and losing period, so try to avoid changing or tweaking your strategy. A trader needs to study and understand how strategies perform in its winning periods and in its losing periods.
Have confidence in whatever strategy you have chosen or developed, and always expect to have losing periods, then you won’t doubt and tweak your strategy. With time, it will bounce back and you can start making your profit again.
4. TRADING EMOTIONALLY.
This is the most common downfall of many Forex traders. Trading Forex is systemic and logical. It requires sticking to it as logically as possible. A lot are incapable of doing this because of emotions. Some traders lose it after two or three losses and start to try and beat the market, while some traders equally make a few profits and start taking unnecessary risks in a bid to make more.
Traders need to learn to accept and manage losses. The most important thing is how to climb the recovery ladder. Most traders emotionally and negatively respond to a loss and then take bigger trades and bigger risks in order to recover the loss. They forget their plans and strategies and try to control or beat the market by holding on to a position they believe represents a possible win and this keeps going on and on, eventually leading to multiple losses or possibly crashing the account.
5. LACK OF PROPER RISK MANAGEMENT.
Risk management is key to the survival of any trading account. Even professional traders often get trapped not properly managing their risk. Your risk/reward ratio should be central to managing your funds. What this means is that, it is not compulsory to make profit on every trade but the most important thing is to maintain the capital you have. Avoid taking trades that are not worth the risk. Having unrealistic goals also lead to taking unnecessary risks.
6. LOW START-UP CAPITAL.
Another misconception about Forex trade that results in losing money is people believing they can start up trading and make tons of money with low capitals. Small accounts take time and work to make a decent living out of it. Trading accounts with small capitals require proper trade sizing, but unfortunately most traders milk the market by using inappropriate lot sizes and overleveraging to generate large returns on a small amount of initial capital. This can be resolved by starting with a reasonable sum of about $1000, and trading with micro lots, otherwise, whatever goals that has been established may be difficult to achieve.
In conclusion, the easy accessibility of the Forex market does not mean caution shouldn’t be applied. Getting properly educated about Forex is very important to a trader’s failure or success. Ignoring the factors mentioned earlier will lead to a potential disaster for any Forex trader.
JOSEPH YETUNDE ANUOLUWAPO
Gemini Capital Markets LLC
Gemini Capital Markets is a bespoke Forex and CFD’s broker in Nigeria, with offices in over 10 countries including Australia, Hong Kong, and the Uk.
Get a trading account with us today: bit.ly/33OgMJk