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6 Warning Signs of a Forex Trader Destined to Fail

Jun 7, 2008
You can make an incredibly profitable living via Forex trading. A combination of low minimum entry requirements and margin leverage mean that small investors can do extremely well in these markets. However, despite the best opportunities, plenty of people still lose out trading on the foreign exchance markets.

There are a number of reasons this might happen. Here are six common ones that explain why many people who are new to Forex trading do poorly.

Unrealistic expectations - Many beginning traders read about the easy of entry and profit trading Forex and jump in before they're ready. This is a fast way to lose everything. Forex trading, like any legitimate business opportunity, won't make you rich fast. You'll still have to do a lot of research and put in the work required for success. Even if you do everything right, you can't expect everything you do to work out perfectly. It's important to know when to cut your losses and pay attention to what works.

Insufficient research - While it's easy to get into Forex trading, that doesn't mean you can master it overnight. While experienced traders can make everything seem simple, the prediction of currency prices can be fairly complex. Small investors are at a disadvantage, too. That's because large financial institutions have many resources that aren't available to the individual, including a staff that can analyze recent economic indicators. Be prepared to spend a lot of time learning before you make a profit.

Viewing Forex as gambling, not investment - Don't think you can beat the system without doing some research. There's nothing to be gained by choosing currency trades on a hunch and relying on your luck. People who do this will pick a few winners, make profits in the short term, then lose everything when their luck runs out.

Failure to focus - Depending on the broker you choose, you might be able to pick from several dozen currencies. However, when you're getting starting, stay small. Pick just a few of the most popular currencies to trade, like the Euro, US Dollar, or Yen. Focus on them exclusively, until you know what you're doing. Remember that the more currencies you trade, the more work you'll have to do to find trends. It's a lot better to know just a few currencies well than to have a lot of currencies you're not educated about.

Failure to have a system - There are plenty of trading systems available, many free. Choose one that's right for you, based on the money you have available, your trading goals, and the way you work. Working without a system is no more effective than throwing darts at a chart on the wall.

Failure to stay with the system - It's not enough just to have a trading system. You have to stick with it, too - even when things aren't going the way you'd like. While this is easier said than done, remember not to get greedy or chicken out. Follow your system and find the best exit and entry points. Ignoring them means you risk missing a big upswing, or getting stuck in a trade that's going south.

The best traders know that it's more important to know when to get out of a trade than to know when to get in.
About the Author
Ian Armstrong is an avid Forex enthusiast.

Some of the most popular trading systems have been objectively reviewed - based on actual performance - at Forex Trading Systems
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