Top 4 Reasons Forex Traders Fail

Most forex traders fail. While we don’t have completely accurate statistics to back up this statement, it is estimated that 90% – 95% of forex traders lose more money than they make.
The question that unprofitable traders continue to ask is, “Why can’t I make money in the foreign exchange?” Sometimes it even seems like the whole world is against you – your broker, your government, and, many times, even yourself.
But fear not. There are some common reasons why traders tend to lose money in the forex, and with a bit of knowledge, experience, and discipline, most of the reasons can be overcome. Let’s take a look at 4 common reasons for trading failure now.

1. Being Impatient / Expecting To Make Money Immediately
If you are the type of person that “always has to be doing something”, the forex is going to expose that personality trait immediately. Trading the forex is a waiting game – period.
Beginning traders have this glorious fantasy of making dozens of trades a day, always standing near the edge of disaster, but then finding that amazing deal that makes $10,000 at the end of the trading session. This idea is preposterous.
In real life, forex trading is about studying the markets, understanding technical and fundamental indicators, and researching what others have to say. All of this research should culminate into a few profitable trades each week or month depending on your trading timeframe.
Sure, there are traders that make dozens of trades a day and realize incredible profits doing so. But, let’s be truthful, those traders have a lot more experience than you do, and many more people lose money rather than make money trading that often.
Don’t expect to bring in hundreds of dollars a day to begin with. It will take months, and maybe even years, to realize such a consistent profit from the forex. In essence, learn to trade just like you learned anything else – slowly and consistently. There are no shortcuts.
2. Not Having a Systematic Trading Strategy
You cannot be a consistently profitable forex trader by sitting down in front of the computer, taking a look at the charts, and saying, “Hmmm….this looks like a good place to get it.”
It just doesn’t work that way.
Rather, you must have a definite trading system with defined rules that you follow every trade.
Your trading system doesn’t have to be set in stone like always using a 45 pip stop loss. The market doesn’t move in defined pip ranges, so you don’t have to trade using defined pip ranges. But your strategy should have pre-conditions for entering a trade, for determining your lot size, and for exiting your trade.
Where do you get such a system? I was listening to the radio this morning as they were interviewing a chef. They asked the chef if he would mind sharing his recipes. He said he didn’t mind because 10 people can cook from the same recipe, and the result will be 10 different tasting dishes.
The same goes for trading. The strategy that works for one person may not work for you.
You don’t “find” a profitable trading system as much as you “build” your own system. To start, find a strategy from someone you trust and trade it. As you trade using that system, you will begin to alter that trading strategy until it becomes your own.
3. Jumping From Trading System to Trading System
I’ll just make a real quick note here. Most unprofitable traders lose money over and over because they don’t stick with a trading strategy through the losses. Every single trading strategy in the world experiences losses – some for even months or years.
If, when you experience a string of losses, the first thought in your mind is to see what other trading strategies are out there, chances are you will always lose money in the foreign exchange.
4. Trading On Emotions
You should never, ever trade the markets to get even. Whether you are getting even with the market itself, your boss, or your girlfriend – emotions ruin traders.
I have heard profitable traders say that trading isn’t fun. They say that if you still get “excited” after good trades, then you are probably still losing money.
Why?
Because profitable traders trade with a trading strategy. If the market meets their conditions, they enter the market. They set stop loss and take profit levels based on their trading plan and market research, and then they let the market play out. In essence, they don’t trade on emotion.
Do they still watch the market? Probably. But they are watching the market to gather information for their next trade, not for information to influence their current trade.
To make money consistently in the forex, you have to be patient, calculating, and free from emotions that affect your ability to trade.

Basic Forex Strategies

The multi-billion-dollar per day Foreign Exchange Currency Market (Forex) is appealing to the individual investor because it is one of the most liquid investments available. In a way, it is a very simple, straightforward type of investing. Prices can either go up, down or sideways.
That is not to say that you can simply open a Forex trading account with a broker and start placing trades, unless your goal as a Forex trader is to become what’s known as, in Forex jargon, a “donor.”

Assuming that you are going to engage in Forex trading with the goal of making a profit, it is helpful to develop some strategies that will enable you to trade logically, calmly and without freezing or acting irrationally in the heat of the moment.
Many successful strategies have already been developed, so you don’t have to start from square one, or reinvent the wheel. There are practically innumerable strategy developers that hope to sell you their strategy or strategies. Any reputable strategy developer will give you a free trial period. Testing strategies is a lot like trying on shoes. You may see some that look right, are priced right, and are available in your size, but if they don’t feel good, you’ll regret buying them and will never wear them. When sampling Forex strategies, the most important criteria is to make sure that you’re comfortable with it.
Some of the elements that make up a Forex strategy relate to which markets you want to trade, the amount of your available trading funds, the amount of time you have to devote to actively trading, and your trading goals.
As stated before, Forex prices can either go up or down, which is referred to as a trending market, or they can go sideways in a narrow channel, which is called a trading market.
Many experts have concluded from years of observation and research, that the Forex markets spend 80% of their time trading sideways and 20% of their time trending.
A strategy that performs well in a trending market is therefore going to be effective only around 20% of the time. For the other 80% of the time it is necessary to have a strategy that will perform well in a sideways market.
Further, it is a good idea to have variations on each of these two strategies so that you can best customize them to match your trading goals, abilities, and most importantly, your trading equity. The greatest trading strategy of all time will not work for you if it necessitates $100K of account equity and you plan to start trading with $10K. That’s because a trader with $100,000 can afford to stay in a trade much longer and not panic when the market forms its inevitable peaks and valleys that might cause a trader with a $10,000 account to abandon a trade, sustaining a loss, often just right before the market changes direction and turns a loser into a winner.

Why the Amount of Pips Made in a Day May Not Matter At All

This post is a guest post
The internet is saturated with cheap marketing and advertising ploys aimed at reeling in new forex traders. Most of them promise huge returns with the promise of thousands of pips per month. Many of the marketing schemes on the net boast things like, “Learn how to make 100 pips a day!” or “Our trading strategy yielded 2,000 pips last month!”
First of all, there are all sorts of ways these numbers are fabricated, but the reality is that pips don’t really matter. In this article, we are going to discuss why, and then we are going to discuss what really matters.

How To Make Pips And Lose Money Every Day
Let’s break down a typical trading day for Joe Forex Trader. Joe opens his charts in the morning, conducts technical analysis for a few minutes, sees the market beginning to move, and jumps in with a new market order. When Joe gets into the market, he’s not exactly sure where he will get out with profit or where he will place a protective stop. Therefore, Joe’s position size is not based on anything but how he feels or what size position he typically takes.
Let’s assume that Joe buys $100,000 EUR CHF and, for argument’s sake, let us assume that each 1 pip movement is $10. Shortly after Joe enters the market, price begins moving against him aggressively, and suddenly Joe is down 30 pips. Thus, Joe decides to cut his loss, so he closes out the position for a loss of $300 ($10/pip X 30 pips).
Joe is now a bit perturbed that the first trade of the day was a loss, so he looks at the market and sees a potential scalp setup. Joe decides to run a super tight stop of just 10 pips, so he increases his position size to $400,000. He thinks that with just a quick 10 pip scalp he can earn back the money he just lost and get back into positive territory on the day. Joe buys $400,000 of EUR USD, and all of a sudden price spikes hard against him. Joe is down 10 pips in a matter of seconds. He finally closes out the trade at a loss of 12 pips. Joe lost $480 ($40/pip X 12 pips) on the trade. Now, Joe has lost $780 on the day, and he has lost a total of 42 pips (30 + 12).
Joe decides to take a break for a few minutes. He grabs a drink, gets some fresh air, comes back in and begins to analyze the market again. This time, Joe sees a great setup that could yield around 50 pips, but Joe’s psychology is under stress and he is a bit fearful. He doesn’t want to go into any deeper of a drawdown on the day, so Joe opens a position of just $100,000. If price moves against him 20 pips, Joe will get out. Therefore, he buys EUR USD again with $100,000. This time price begins to move in Joe’s favor. In just a matter of about 30 minutes, Joe closes out his trade with a nice 50 pip profit and makes $500 on the trade ($10/pip X 50 pips).
Now, Joe has made 50 pips on the day and he has lost 42 pips, which means he is net positive 8 pips on the day. But what about the money? Joe is actually down $280 ($780-$500)! This is why pips don’t really matter at all. All that matters at the end of the day is if a trader has made or lost money. If a trader loses pips, but makes money, that’s great. However, if he makes 100+ pips on the day, but loses money, then those pips don’t really matter anything do they?
The moral of the story is that position sizing is a huge key to long-term trading success. Consider risking the same percent on every trade instead of executing subjective position sizes based on emotion. Forex trading does contain a significant risk of loss and education, professional advice and choosing the right broker are things all traders must consider.

Is Forex Trading for You?

Forex or foreign exchange is a way you can invest your money. It works by taking advantage of the daily fluctuations between different currencies. When the forex market changes, the movement in points translates to dollars that you either make or lose, depending on your position.
You may be interested in investing in the forex market. However, it is not for everyone. It may look simple enough, but there are actually a number of social, political and economic factors at play that affect the value of a currency in a given day.

For example, during 9-11, the US dollar dropped to an all time low, although it later rebounded, only to drop again during the recession. As for the Japanese yen, it dropped several points immediately after the recent 8.9 earthquake and succeeding tsunami hit, only to rebound the following day.
Forex trading is more volatile compared to other investment options such as a mutual fund or investing in bonds. There is movement on a daily basis, so it needs to be constantly tracked or monitored. Also, because the economic markets are so closely interrelated, simple events have repercussions on a country’s currency, which has a domino effect on other currencies.
The forex market may be a good idea for you if you are willing to stay on top of your investment. If you’re the type of investor that prefers to sleep at night and simply look at your statements on a quarterly basis, this investment option may not be the best choice for you.
Assess you risk tolerance. If you are a conservative investor, this may not be the best investment option for you. After all, the currency markets can move dramatically in a space of a few hours. If you are willing to endure a bit of risk, you can easily make hundreds or even thousands of dollars a day in Forex trading, if you know what you are doing.
Also, you must have other investments other than forex trading. If this is your only investment vehicle, it may be a better idea to spread you risk and have other investments. Forex trading may be a part of your portfolio, but it shouldn’t be the only one in it.
Also, you must have enough money invested to be able to ride out drops in currencies, so you have enough time to recover your loss. While most responsible forex traders will set a stop gap loss, it’s better to have some cash at hand to be able to infuse your account as needed. If you have a limited amount of available cash, you may want to forgo investing in the forex market.
You need to educate yourself on the different terminologies on the trade, such as points, lots and so forth, to be able to manage and monitor your investment. Also, you need to stay on top of current events of various countries, since political and economic moves directly affect different currencies.
For example, if a specific currency is quickly devaluating due to economic or political events, then the central monetary board of the country may decide to intervene and infuse money into the system to stop a downward spiral. To be aware, watch the news and read the paper, not just for activities domestically, but stay on top of worldwide current events.
If you don’t know what you are doing, place your money elsewhere and find an investment scheme that is safer and more stable, such as a no-load mutual fund or buy stock in a blue chip company.
If you decide that you want to consider this as part of your investment portfolio, talk to a trader or a broker who can help set up an account for you. Research the company carefully, as there are many scam account managers out there. Be careful of off shore based forex fund managers or companies. Place your money only with established and reputable forex trading companies.

5 Characteristics Of Successful Traders

Based on my experience, trading the financial markets, I have identified five characteristics that differentiate professional traders from new traders. Generally speaking, professional traders typically do the following:

1. Keep a record of all trades ­ Successful traders are continuously looking to enhance their market edge. A trading journal allows a trader to analyse all winning and losing trades away from the heat of the moment and evaluate the trade setup with a clear mind. This ongoing self improvement process helps successful traders eliminate anything that is not adding money to their trading account.
2. Never chase a trade – Professional traders know exactly what it takes for them to enter a trade and only pull the trigger when this happens. Chasing a trade on the basis that the market is moving quickly in a certain direction is highly unlikely to provide a statistical edge over time. Whenever we enter a trade we are competing with highly motivated individuals and institutions who are in the business to take our money ­ this is the reality of trading. Bearing this in mind and in order to mitigate against unnecessary losing trades – we need to find a system with a statistical edge and stick to our plan.
3. Only trade the markets when you are in the right frame of mind for the job at hand – The market will always be there to tomorrow so if you are feeling anything less than 100 percent are you acting in your best interest by risking your capital? Illness and personal problems should be dealt with away from the markets when ever possible.
4. Testing new trading strategies – Trading of the financial markets allows an opportunity not present in many other business ventures. We can test our trading strategies before committing real money. Other businesses do not always have this luxury and often need to commit to inventory in order to gauge the profit potential. I always test new trading strategies on a demo account in parallel with my live trading activities. Once a system has proved its worth a percentage of the trading account can be assigned as appropriate.
5. Keep in touch with the markets – Any break form the trading should be followed by a period of time to get back into the “dance of the markets”. The market is a fickle place that is driven by sentiment and it is essential that we as traders are in tune with what is actually moving the market. Even purely technical traders need to have an understanding of what news the market is sensitive to at any given time in order to mange risk appropriately around economic data releases.

Why an Economic Downturn is the Best Time to Trade Currencies

This is a guest post by Ally T
It’s true that the stock market on average tends to return meagre profits during economic slow times, but for the clever investor, an economic downturn can sometimes signal a good opportunity to trade in foreign currencies, on what is commonly know as the Forex market.

A quick overview of how Forex trading works
The Forex market, which stands for “Foreign Exchange” is a marketplace where investors can conveniently and quickly buy and sell currencies from around the world. The purpose of buying or selling one country’s money in favour of another is essentially to take advantage of their relative rise and fall in value. On any given day a US dollar might be worth anywhere up to several cents more or less than it was worth on the previous day, and by using this system of buying and selling, successful Forex traders are often able to greatly multiply the amounts of money they are trading with.
It’s a little like playing the stock market
In some ways Forex trading is like playing the stock market – experts are often able to predict when a country’s economy will boom (typically making its currency rise in value), or fall into recession, resulting in a weaker currency. And just like playing the stock market, it can be extremely confusing working out who to listen to and trust for advice.
Banks discourage you from trading currencies through their system
Really, trading on the foreign exchange market is just like going to your local bank and asking them to exchange your cash into another country’s money. Except you’re doing it without the bank. Now, if you were using the bank, then you could hold onto that foreign cash and wait until it becomes worth more, and then take it back to the bank and change it back making a profit (although in practice banks discourage this by applying hefty fees to cash money exchange). The difference when trading on the Forex market is simply that all trades occur electronically, on a centralised system which is very fast and accurate.
Medium and long-term trades are best for the layperson
Some people like to trade currency with a high turnover rate, preferring to conduct trades every day or even several times a day. Others prefer a buy-and-hold strategy. Both methods have advantages, but generally, only professional traders make significant gains out of constant small trades. Medium and long term trades, where a currency is held for anything ranging from a few weeks to a few months, is the best way to begin trading on the Forex market.
How can you use economic downturns to your advantage?
So how exactly can you use an economic downturn to your advantage when trading in money? As already mentioned, it all revolves around the relative values of different currencies, and the key to making money in this business is to buy currency when it is weak, and sell (or just cash it) when it is strong. To understand why times of slow economic growth can work out as an advantage, let’s have a look at what makes a currency weaker or stronger.
What makes for an economy that is weak, or strong?
A country’s currency is a reflection of its economy. A strong economy is one which can maintain a strong cash flow – generally from taxes based on being able to produce and export goods or services to other countries. With strong cash flow a country can invest in its infrastructure, education, and healthcare, and continue to grow and care for its population. As the country becomes more productive, it becomes more valuable as a whole, and as a result its money becomes worth more in a global sense. On the other hand, a country which has excessive debt to foreign banks, or has a high unemployment rate, or has no valuable goods or services to offer, will NOT generate a strong cash flow. Being unable to repay international debts and with no money to invest in employment opportunities for the future, this country becomes “worth”less – and as a result its currency becomes less attractive.
In the event of a widespread recession, where there is reduced economic activity, a strong economy should be able to preserve the value of its currency, since it has not only reserve cash, but an infrastructure that allows it to continue supplying to its own population and other countries with products they want or need. Unfortunately, an economy that is already weak can often suffer doubly under a recession – with even less money flowing, taking on more debt and hoping to ride out the downturn is often the only solution.
Traditionally strong economies have included the Japanese Yen and the German Mark (which has obviously now been replaced by the European Union’s Euro). So during an economic downturn, if you happen to own a lot of strong currency (which isn’t likely to take a downturn) then you are able to buy plenty in the weaker economies. (As we said, during tough times a weaker economy’s money essentially becomes worth even less.)
So what’s the point of buying stacks of money that isn’t worth much?
Economies typically behave in a cycle – what goes up must come down, and what goes down eventually comes back up again. The idea of a long-term (anything more than a few months) currency trade is that when the financial climate improves again, the money that you bought a lot of (that wasn’t worth much at the time) will again become quite valuable.
An example of how an economic downturn can be a good time to trade currencies
Here is a good example of a medium-long term trade that would have paid of handsomely:
Let’s go back to 2008, into the heat of the Global Financial Crisis (GFC) and let’s say you held American US dollars. Maybe 10,000 USD for a nice round figure. During 2008 Australia was being hit hard by the GFC, with their traditionally-strong mining industry and primary industries unable to preserve the value of the dollar. The USD on the other hand was holding its value quite well. Towards the end of 2008 you could have afforded to buy at least 1.30AUD with every 1.00USD, so your 10,000USD would have bought 13,000AUD. Half way into 2009, the AUD recovered significantly, climbing back to being worth over 94 US cents. Your money is now worth 12,220USD. This is a gain of $2,220 over about half a year, or a growth of over 22% – not bad at all!

5 Negative Habits That Could Be Affecting Your Trading

Successful traders constantly strive to improve themselves and will do whatever is required to extract more money from the markets.
Controlling our mindset is crucial if we are to grow as effective traders. This article looks at 5 negative habits that could be affecting your bottom line and gives suggestions on how to counteract them.

1. No pre-defined rules.
Trading can be very stressful and successful traders try to minimise the "live trade" decision making process in order to militate against bad judgement caused by the "heat of the moment". A common, and wise, saying is "plan the trade and trade the plan". It is a good idea to commit to a trading strategy and not deviate from this plan wherever possible.
Modify the plan only during times when you’re not trading live. Without pre-defined rules we are susceptible to making bad judgment calls which could ultimately have a negative effect on our account balance. Any rules are probably better than none as they can be fine tuned over time.
2. Revenge trading.
The trading plan discussed above can help on this front. Many traders have a rule to stop trading for the day after “X” losses in a row. The tendency is for us to want to win back any losses and this can cause us to enter sub optimal trades. A good trader enters trades when a series of events gives an edge, not when losses need to be gained back. Each trader should monitor their trade results and pay particular attention to how losses affect their subsequent trades. Only then can they optimise the approach to stopping for a fixed length of time after a string of losses
3. Not having a flexible approach.
Having a bias with regards to future market direction is not always the best approach. If the bias has been gained from detailed analysis by the trader and is accepted as valid until this analysis is proved wrong then there is a certain amount of merit in this approach. However, many traders will have a bias on trade direction after reading other peoples analysis and stick by this even in the face of a strong trend to the opposite direction.
A trader should find a system which suits their personality and trade it without being too concerned with analyst "chitter chatter". Some of the strongest moves come about when everybody is positioned in one direction and there is nobody left to buy/sell at the level.
4. Adding to losing trades.
The temptation is to add to a trade which has moved against us if we believe that the current price is still offering value. When adding to a trade it should be part of the overriding strategy as risk can then be defined accordingly. Novice traders will enter a full risk position and add additional size as price retraces. If a trader finds they are often correct in terms of market direction, but lousy when it comes to timing, a scaling in approach can be adopted. Scaling in as a strategy is not the same as randomly adding to losing trades.
5. Chasing the market.
Allow me to set the scene. A novice trader has just lost the previous two trades and is no longer confident in the strategy they are deploying. A sell trigger is seen on the chart and ignored. The market hits what would have been a 3:1 take profit and the trader is angry! The trader proceeds to enter short "chasing the market" just as the trend direction changes. This is probably more common than you would imagine and goes to show why chasing the market is an approach that novice traders in particular should avoid.
If you find yourself doing any of the above it may be worth taking some time away from the market and fine tuning your approach. The markets will always be there and preservation of capital while learning how to trade is of paramount importance.