Why Most Forex Traders Fail?

Forex trading is not something to take lightly. If you truly want to be successful at forex trading, you must be prepared to invest the time and hard work to acquire the three factors for success – knowledge, experience, and emotional control.

Some of the crucial psychology reason are as follows -

Fear

Fear is very important factor in trading physiology

Several types of fear arise often in the course of trading whether consciously or unconsciously, these emotional responses include:

• The fear of failure
• The fear of missing out on potential profits
• The fear of losing everything.

Fear will often save you if you act quickly when you see that you are wrong.

Having a great trading system and all of the technical and analytical tools for success in trading is not enough to be successful. a trader has to have the right mindset. This can only be accomplished by learning to control emotional responses when trading and in all trading situations.

An emotional response which can adversely affect a forex trader involves fear impeding the trader from taking action. This can be especially damaging if the trader has a losing position and finds themselves paralyzed while the market continues moving against them.

Another example of fear which arises during forex trading tends to happen after the trader has made a losing trade. Because of a lack of confidence caused by the previous losing trade, the forex trader might be too afraid to jump back in regardless of an opportunity to make back the money lost on the losing trade.Fear will also cause a person to exit a profitable position earlier than would be necessary. This reduces potential gains.The fear of loss makes up a imp component of the forex market’s mass psychology, and it can lead to major market panics as traders try to to get out of positions at almost any price.

Basically, if you can be disciplined and able to trade with a sound trading and money management system, fear and other emotions can easily be controlled. As long as you plan your trade and trade your plan, fear can usually be kept at a minimum in your forex trading.

Hope

Hope can be one of the most damaging market emotions to a forex trader’s success because hope can keep a forex trader into holding onto a losing position in the hopes that the market will come back.

The market has already proven the trader wrong, but hope makes them stick with the losing trade, often leading to damaging results for their trading portfolio.

In fact, the hopeful trader would be far more reasonable in fearing losing more money on a losing trade.

Nevertheless, hope can be used constructively by traders when they hope to make more money on a winning trade and therefore let their profits run on.

Greed

Like fear and hope, the emotion of greed is common throughout the forex market, and it basically is the excessive desire for more than you need.

Greed prompts you to act irrationally. For traders, this usually comes in the form of overleveraging, overtrading, chasing the markets, or holding on to forex trades you know you should’ve exited long ago.In many cases, greed can manifest in the common trading errors of overtrading and running winning trades into losers. When you think about it, greed is not that different from alcohol; it can make you act foolishly when you have too much in your system.

Greed can also cause a person to stay in a losing position beyond the time when an objective trading strategy would call for an exit. This obviously results in a larger loss which then ultimately exhausts your capital.

Most people do not have any idea of how greedy they really are until after they start trading. Having a clear profit taking component of your trading plan can help overcome this emotional obstacle to success

Overconfident /Excitement

The emotion of excitement can often arise after a trader has made a winning trade.

At this point, the trader needs to remember in the heat of that excited moment, that their success in trading over the long run will be determined by how disciplined they are in following their trading plan. The boost to their confidence may lead them to think they can do no wrong, and that can be when the problems start.

Not only does the  trader need to take their profits out of the market by liquidating the trade and realizing their profit, but they also need to stick to their trade plan in doing so.

Nevertheless, the elated trader may throw caution to the wind and disregard the profit taking portion of their trading plan. This can even have the unfortunate result of them frittering away the handsome profit they had originally seen on the trade.

Remember, you cannot take unrealized profits to the bank. Realizing profits in a disciplined way is an essential part of trading successfully.

Lack of Discipline

Lack of discipline leads to emotional trading and is another of the major reasons why most forex traders fail. Unfortunately, more often than not, a trader that loses discipline will eventually lose money as well.

Trading without discipline is like gambling. Such a gambler might get favoured with a long string of winners, only to gamble away all of their winnings and more before leaving the table. Of course, they had lots of opportunity to walk away with a profit, but they did not have the discipline to do so.In essence, any forex trader that wants to be in the business over the long term needs to think of their trading activities more as a business, than as a gambling game.(I have also wrote article in past about “treating trading as a  business”)

Unrealistic Targets and Goals

Another reason why most forex traders fail is because they have established unrealistic targets and goals. Always remember that the trading goals and target should be realistic as per your trading plan and investments.

Having a solid trading plan and the discipline to follow it can minimize losers while maximizing winners. Once you’ve developed an objective trading strategy or system, you must follow it! In developing your system prior to your first trade, nothing is at risk. For this reason, you should be able to develop a trading strategy that is objective. Once you’ve started trading, risk and reward become reality and you can get carried away by your emotions.

Lack of Knowledge

Last not least the other factor for losing money in forex business is lack of knowledge Just as it is with any business, whether you are selling products or services, trading futures, or trading in the forex market, you need to know the business in order to be profitable. Never stop learning in this business.

The emotions of greed, fear, overconfidence and hope are some of the major reasons why most forex traders fail, with practise of discipline and dedication one can ache huge success in trading. Wish you all a very good future in trading and investing !

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Are You keeping Your Trading Simple?

‘Sometimes the questions are complicated and the answers are simple.’  This is one of my favorite quotes. You may think this pithy saying comes from some literary giant like Shakespeare, Dickens or perhaps Mark Twain; but, in fact it was Theodor Geisel, otherwise known as Dr. Seuss, who is no slouch when it comes to writing. I love what this saying conveys as it relates to both life and trading.

The fact is that many of the most daunting challenges we face in life quite often can be resolved with simple answers. This can only happen when we step outside ourselves and look at the challenges objectively, not letting our judgement become clouded with our own personal beliefs and biases. What I still find fascinating is that the biggest obstacle to succeeding is not finding the simple answers, but the inability of human beings to follow through with positive thoughts and actions in the pursuit of clearly defined goals.

In the financial arena people tend to do the same. First, they tend to over-complicate trading. They analyze all sorts of sophisticated data; from technical indicators and news related events to complex trading models and, more often than not, end up with mediocre results.

If you have ever had the opportunity to talk with a trader that has had any degree of success and ask them what they do, most of them will tell you that they implement a simple, clear, proven strategy. They focus on being consistent and executing day in and day out. Additionally, the strategy they implement is very  detailed, leaving little room for subjectivity. Another aspect to their success is that once they find their strategy produced consistent results they would never even think about deviating from their methodology. This is unlike the vast majority of unsuccessful traders who are constantly trying the latest fad in technique or following the hottest guru of the day. In essence, also searching for the silver bullet to riches.

I’m sure some of you are thinking that a strategy has to change because the markets are constantly changing. That’s just what most of you have been lead to believe.  Yes, to some degree the markets do change. Levels of volatility increase and decrease; some markets go through extended periods of trending and so forth. What never changes in the market, however, is the fact that the lowest risk entry points in any market is where prices have turned in the past.

The simple fact is that trading is about putting money at risk and expecting that a proportional reward should be realized if done correctly.  The fallacy that most people have been led to believe is that in order to obtain a big reward they must take on a big risk. That couldn’t be further from the truth. in my humble opinion.  Any trading strategy worth its salt must be devised around three simple tenets: low risk, high probability and high reward. This is the simple answer. Implementation, however, is extremely complicated.

When students ask me what indicators I use or what I look for to give me confirmation, I tell them that I just trade off the highest quality supply and demand levels I can find.  By doing this I know that I will lose on some trades and win on others. As long as I have the discipline to take the trades, keep my losses small and the winners at least five times the risk, in the end I will come out ahead.  That is the simple answer to what can be a complicated question.

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The Most Used Candlestick Patterns

When trading Forex, it is vital to engage with the most productive and professional technical tools possible. This will ultimately enhance your prospects and chances of success. Candlestick charting is one such technical tool. Candlestick charts originated in Japan more than a century ago, and have since become one of the most efficient ways to pack information into a single price bar.

Virtually all top Forex brokers, like TradeFW.com, display candlestick charts and these are utilized by the majority of traders in the Forex markets. A candlestick will display the daily open and close within the wide bodies section, and chart the daily high and low price, through the “shadow” or thin line extending from the top and bottom of the wide-bodied section. Varied colors are introduced to denote rising and falling markets, often red/green or black/white combinations. This is a very concise manner in which to display extensive Forex trading data, and it is the collection of these candlesticks which will establish majorly identifiable patterns through which the market direction can be estimated.

Top Candlestick Patterns in Forex Trading

From their inception in 18th Century Japan to being introduced in the western world by Steve Nison in 1991, so many patterns have been identified. Of these patterns, there are several which you will see when trading Forex which are important to identify and distinguish.

Engulfing Candlestick Pattern

The engulfing candlestick pattern can form in both a bearish and bullish pattern. As displayed, for this to occur, the body of the days candle needs to fully engulf the opposing candle of the previous day. This can be either in a bullish or bearish pattern.

This pattern in trading has strong reversal properties. That means, if the next candle (engulfing candle) is bullish, there is a strong chance for a bullish pattern to develop. Also, if the engulfing candle is bearish, this could signal a reversal in the opposite direction.

A bullish engulfing pattern would indicate to an experienced forex trader, that the current market may have reached its bottom, or alternatively, a bearish engulfing pattern would indicate the peak has been reached.

Hammer Candlestick Pattern

The hammer is a one candlestick pattern which usually indicates a bullish reversal, coming at the end of a downtrend. Although this is identifiable from just one candlestick, there are a number of key characteristics which should be noted.

The hammer should be occurring at the bottom of a downtrend. The lower shadow of the candlestick should be at least double the length of the body, and the upper shadow should ideally be non-existent.

In terms of the candle body, it should indicate that the closing and high positions are similar, or that the open and high positions are similar. Either case shows that the bullish traders were able to combat the negative bear pressure within the market.

Harami Candlestick Pattern

A Harami candlestick pattern can be noted in either bullish or bearish circumstances. Either way, it is a two-candlestick pattern which can be very important to Forex trading strategy.

Bearish

A bearish Harami occurs following a large bullish candle before it. On the second candle, the opening price should be lower than the closing price of the previous day, and it does not have the ability to recover back to the previous day’s closing position.

Bullish

Similarly, a bullish Harami pattern will follow a large bearish candle from the previous day. In this case, the second candle will show an opening price higher than the closing price of the previous day. These gaps are essential in Harami formation. This price is then held up, without falling back to the close of the previous day, indicating a bullish pattern.

Piercing Candlestick Pattern

The Piercing candlestick is commonly regarded within Forex trading as a bullish reversal pattern. This pattern requires the previous days candle to be largely bearish. The opening price of the candle will also have dropped below the closing price of the previous day to create a gap.

In the Piercing candlestick pattern, this gap will then be filled, with bullish behavior continuing to push the position upwards until the price closes more than half way up the bearish candle of the previous day. This represents a strong recovery of the previous day’s losses and a bullish trend.

Doji Candlestick Pattern

A Doji candlestick pattern is formed when the opening and closing prices of a candle are equal. This demonstrates a level of indecision within the market, since the positions have moved both upward and downward throughout the day, only to settle back at the same position.

The Doji can sometimes be seen at the end of trends and is considered by some Forex trader’s and representative of a possible reversal, although this can just as easily be seen as a resting position for a market before it continues its current trend.

Shooting Star Candlestick Pattern

The Shooting Star is a bearish candlestick pattern which can signal the end of an uptrend. This is where they typically occur.

In a Shooting Star pattern, the open, low, and closing price are generally similar. This is combined with a long upper shadow, commonly more than double the length of the candle body. This would indicate that the market tried to push higher throughout the day, but ultimately fell back to near the opening level.

The pattern is considered to be more bearish if the closing position and daily low are the same.

Conclusion

Trading in the Forex market especially, can be highly enticing due in part, to the lucrative returns which can potentially be made. Regardless of whether you are a new or experienced trader though, continued education is of vital importance. Learning about charting and the various candlestick charting patterns is a large part of this education.

As regards places to continue your learning and practice of candlestick charting, Tradefw.com provides the ideal learning infrastructure to allow you to practice more and grow you knowledge within one of the best Forex brokers, who are completely regulated and highly regarded within the Forex trading industry. 

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