Trading Forex can be challenging enough without making needless mistakes. Here’s a list of the 7 deadly sins that impede the progress of many beginning Forex traders.
1 – Pride – This is one of the first deadly sins that tripped me up when I started trading. Before I began trading I was running a very successful tech-based business. I incorrectly believed that my success in my current business would naturally translate into success in trading.
As a result of my pride I basically did everything wrong. My pride clouded my judgment and I wrongfully believed that I was right and it was the markets job to comply with my will. What I received for being stubborn and headstrong was a string of losses as well as a lesson in humility.
Don’t let your pride get in the way of taking the necessary actions to trade Forex successfully.
2 – Lack of Adequate Working Capital – This is one of the biggest sins of all. It is a gigantic trap that many beginning or would-be Forex traders easily fall into. You see, when you are just starting out in Forex trading you’ll see a lot of information that may lead you to believe the Forex trading is for anyone. While it is true that anyone can enter into the Forex arena and trade, it isn’t true that anyone can enter into the Forex arena and trade successfully. As an example, those who are undercapitalized, untrained, and undisciplined are unlikely to succeed.
You have to have adequate working capital and that level of working capital as dictated by your Forex strategy which is part of your Forex trading plan. Being inadequately capitalized is basically the same as planning 1,000 mile road trip in a gas guzzling Hummer, but only having 1 gallon of gas in the tank. Needless to say, you’re not going to reach your destination. Not only are you not going to reach your destination, you’re not going to enjoy the journey because you will be nervous about not having enough gas.
In the same way as we discussed not having enough gas on your journey, not having a working capital will make you a nervous trader. When you’re not trading with adequate capital you are trading with, “scared money”. You may have heard the expression, “scared money never wins”. This expression rings true because if you’re trading with money that you cannot afford to lose, you will always be nervous about losing it. That nervousness will eventually translate into lack of discipline which will eventually translate into losses.
3 – Lack of Preparation – I know I’m going to sound like a broken record here. This particular sin is one that affects many beginning traders. It has been said that many beginning traders give more thought to what they will have for lunch and dinner than they do in preparing for successfully trading Forex. While that is a bold statement, I have unfortunately seen this time and time again.
There are times when trading Forex is challenging enough for us who are prepared to trade successfully. One can only imagine how much of a challenge it must be for those who are unprepared.
If we stop and think about it for a moment, risking your hard-earned money by not knowing what you’re doing simply doesn’t make sense. Can you imagine a friend or family member coming up to you and asking you for $10,000 to trade Forex, but openly admitting that they had no idea what they were doing? How likely would it be that you would give them $10,000 to trade for you? Quite logically, it isn’t very likely that you will give that friend or family member the money to trade for you. With that said, we should not allow anyone that doesn’t know what they’re doing to trade our money for us, including ourselves.
There’s a solution available to avoid this particular deadly sin and that is to know what you’re doing before you do it. Simply put, prepare yourself for successful trading before you begin to trade.
4 – Lack of Personal Accountability – Do you happen to know anyone who can never be wrong? You know what I mean, the kind of person that insists that they are right even in the face of overwhelming evidence to the contrary? Such a person is someone who is not in touch with their personal accountability (or reality).
A person who lacks accountability can never be a person who trades Forex successfully. For a person with this type of personality, everything is always someone or something else’s fault. Successful Forex traders, on the other hand, take responsibility for their actions. They don’t look at losing trades and say to themselves, “Obviously the market was wrong on this day”. Successful traders already realize that losing trades are a natural part of Forex trading and they do not allow losing trades to throw them off their game. Win or lose, successful traders realize and understand that they are responsible for their success or failure as a Forex trader.
In order to be successful in Forex trading, we must follow the saying, “to thine own self be true”. We must face the reality and assess our strengths and weaknesses realistically. This will allow us to develop and strengthen the qualities and attributes we need to trade profitably.
5 – Lack of Discipline – This is really a tough one. This particular Forex trading deadly sin has been the downfall of many a trader. You see, it takes discipline to not take shortcuts and prepare yourself for trading successfully. It also takes discipline to do such things as stick with a good trading strategy, even when that strategy is going through a rough patch.
If we stop and think about it, most of the accomplishments that we are the proudest of in our lives required that we exercised discipline. Discipline is necessary to achieve your goal in any endeavor you choose to pursue. Naturally, Forex trading is no exception.
Discipline is required in all areas of Forex trading. To be successful, we must all have the discipline to:
Develop a Forex trading plan – This plan includes a well-thought-out, well-researched Forex trading strategy.
Do what our trading strategy tells us to do – If we have properly done our homework we have developed a truly viable, robust trading strategy. We must have the discipline to do what that strategy tells us to do, in the manner it dictates, when it tells us to do it.
Developing and maintaining your trading discipline can be a challenge for any of us. We must keep in mind, however, that good discipline is exercised by successful traders the world over. Doesn’t it make sense to develop the same qualities as those who are already successful.
6 – Unrealistic Expectations – I’m never surprised when I hear a beginning trader’s simplistic view of how they will amass a vast fortune in Forex trading. Almost weekly, there is someone touting the enormous benefits of using the brand spanking new XYZ Forex Trading System.
From time to time I will take a look at the marketing materials from some of these commercially available Forex trading systems. The message always appears to be the same. That message is typically along the lines of, “Sit at Home and Your Pajamas and Let Our New Forex Robot Fill Your Trading Account with Mountains of Cash!”.
Based upon the tone of the above over-the-top claim, beginning traders are led to believe that they don’t have to do anything except buy a product to make money trading. It is not just the ease of making money that is misleading in these types of marketing materials, it is frequently the outlandish returns that are advertised as well. Believe it or not, I have actually seen ads that boasted a trading system that never loses. That’s right, a trading system with 100% winning trades! IF you had a trading system that produced 100% winning trades would you sell it for the low, low price of only $99?
As a result of buying into all of this hype, some beginning traders actually believe that they can trade and never lose. It is unrealistic for any beginning trader to believe that they can be successful in Forex trading with no preparation, no discipline, and no plans on acquiring either.
The real danger of unrealistic expectations is that those expectations may cause beginning traders to not do the things that are necessary for them to trade profitably. Ridiculous, astronomical returns can also cause some beginning traders to perpetually search for the “perfect” trading system. In addition to that, unrealistic expectations have caused some traders to abandon perfectly sound trading strategies because though strategies work delivering 90 to 100% winning trades.
7 – Poor Risk Control – This is one of the leading reasons that beginning traders fail. Poor risk control is more often than not the result of a beginning traders poor preparation. Those who are not prepared simply do not understand the risk involved in trading and the impact that it can have on the capital in your account.
One of the truest statements in the world of trading is, “There is risk in all trading”. Risk is an unavoidable reality of trading. While avoiding risk completely simply is not possible, it is possible to control your risk. Risk control should be an integral part of every successful trader’s Forex trading strategy.
Beginning Forex traders are especially vulnerable to the effects of a lack of risk control. One of the reasons has to do with the high levels of leverage available in Forex trading. We have to remember that leverage is a two-edged sword. Beginning traders frequently focus on one edge of the sword and that is the huge profit potential that leverage affords us. If we focus on only the profit potential edge of the sword and not the risk control as of the sword we will have difficulty trading successfully.
By controlling our risk we give ourselves the opportunity to not only preserve our working capital, but to minimize the probability of a catastrophic loss which may wipe out our entire account.
The sins we discussed above are some of that I wish I had understood when I first started trading. If you’re just starting out, then you can avoid some of the foolish mistakes that I made by not committing these Forex trading sins. It should go without saying that avoiding the 7 deadly sins of Forex trading can save you a lot of time, money, and grief.
Leave a Reply