The 2 main reasons traders fail are psychological and not using a stop loss. Forex trading, just like any other form of trading and investments, is a lot about psychology. Many traders go around searching for the holy grail strategy in hope of searching for the 100% sure win strategy but it just does not exist.
Psychological
Some traders go through the process of formulating their own trading plan and rules and then end up breaking them. The 2 main reasons being lack of experience and lack of discipline. Many novice traders choose to break their trading rules when the market is in a volatile phase or after losing a couple of trades. Many experienced traders can blow their accounts when they choose to follow their emotions rather than the rules. "Rules are meant to be broken" clearly does not apply to trading and investments.
Emotion moves the market and the main ones are Fear, Greed and Hope.
Not Using A Stop Loss
This is an easily avoided mistake which traders tend to make. Not entering a stop loss order after entering into a trade. I have had experienced traders sharing their strategies with me and it is shocking that many of them do not use a stop loss! They show me how the price will always come back from a huge deficit or how the martingale system can be a used to trade profitably.
My reply is always the same. You can win 99 trades out of 100. All it takes it just 1 time the price doesn't come back and you will lose your whole account.
In future posts, I will talk more in depth about the psychology and also share some ideas on how to maintain a healthy trading account.
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- Daily Forex #1 - Will Forex Trading Be Banned
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- Daily Forex #6 - What Makes The Price Move
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