Why does the average forex trader fail?
The increasing number of forex brokers, and the increasing number of advertisements for forex trading courses have made forex trading really popular in the recent years. Many novice forex traders have found it hard to preserve their capital much less talk about profits. But why do many forex trading strategies not work in the live market?
Along my years of forex coaching, which i have seen from total new traders to experienced traders. I’ve found that the most common reason why they have not seen profits from the market is due primarily to them not having the right forex trading system – in which part of it equates to poor money management.
Look, they have a solid forex trading strategy. It’s just that they do not have a trading system.
Now you may ask, what is the difference?
There’s a hell lot of difference.
When i first started, i tested all types of forex trading strategies. Most didn’t work.
And for those that work, after a while. I’m still not profitable in trading.
Geez.. What was the problem?
That’s right – I had a good forex trading strategy. But i don’t have a proper forex trading system!
What’s a forex trading system?
Good Money management is part of a forex trading system.
What is a good money management? It simply means letting your profits run and cutting your losses short. There are many forex trading books and articles that talks about this.
It’s as simple as having your profits bigger than your losses. That works very well in theory, but when in real live. It’s truly obvious that most traders have a hard time applying it.
Think about it, if your profits are bigger than your losses. At the end of the day, you should be a profitable forex trader.
So look at your forex trading now and ask yourself this:
Is my profits bigger than my losses? OR is my losses bigger than my profits?
This question alone will determine why you are not making money in trading and what you’ll need to do about it.
Trader A boasts about having a winning ratio of 80% – 90%.
He rarely loses.
And the reason behind his high winning ratio is he goes for quick & fast profits and he seldom puts a stop loss.
Because his forex trading strategy has a high winning probability (which is good). Most of the time, he will get his profits.
This clearly exposes a flaw in his system which is a result of poor money management – 1 loss of his, could wipe out all his previous 18 winning trades and even his entire trading account.
Trader B is an average trader who has a winning ratio of 40% – 60%.
So half of the time, he wins and half of the time he loses.
However, When he wins, his profits is bigger than his losses.
So all and all, trader B is still a profitable to Breakeven trader.
From the 2 examples above. Do you belong to any of it?
If your style is similar to Trader A, you got to really sit down and tweak your system before the big downfall comes.
If you are trader B, that’s good. You are at breakeven to making some money in forex.
That is, you are already on the right path to successful forex trading.
All you need is to fine tune your trading system further and have a better understanding of the market to increase your winning ratio.
Sit Back and “Relax”
So look at your forex trading system and think of the reasons of why you are probably not making the money you deserve then tweak it.
As in business, a successful business owner is the one who sits back and looks at the overall picture. Instead of dwelling in the day to day activities, he will sit back and see in the overall view. What is wrong and what needs to improve to make his business better.
The same goes for forex trading. The average trader dwells everyday finding trades to enter. Month after month, he sees little progress.
All you need to do is to sit back and to look at the overall picture. You will see the difference.