The forex market is the world’s largest financial market, with more than $5 trillion traded every day on average.

The market’s extreme leverage (the use of money borrowed to raise the potential return on investment) and the relatively small amounts of margin required when trading exchange rates provide traders the ability to make innumerable low-risk mistakes.

While there are many forex investors, only a few are truly successful. Many traders lose a lot of money for the same factors that shareholders lose money in other types of investments.

The following are some of the most common pitfalls that can befall forex traders.

#1 Failure to Maintain Trading Discipline

The most common mistake that traders make is allowing emotions to control trading decisions.

To become a successful forex trader, you must have a few big wins while suffering many smaller losses.

Many consecutive losses are emotionally taxing and can put a trader’s patience and confidence to the test. Trying to outperform the market or succumbing to fear and greed can result in cutting winners short and allowing losing trades to spiral out of control.

Trading within a well-constructed trading plan that aids in maintaining trading discipline allows you to conquer emotion.

#2 Inability to Manage Risk

Risk management is important for long-term success as a trader and in life. If you are an extremely skilled trader, poor risk management can wipe you out.

Your primary responsibility is to protect what you have rather than to make a profit.

As your capital depletes, so does your ability to profit.

Place stop-loss orders and move them once you have a reasonable profit to counteract this threat and implement good risk management. Use reasonable lot sizes in relation to your account capital.

Most importantly, if a trade no longer makes sense, exit it.

#3 Failure to Adapt to the Market

Before the market opens, make a plan for each trade.

Conducting scenario analysis and planning moves and countermoves for every potential market situation can significantly reduce the risk of large, unexpected losses.

New opportunities and risks emerge as the market evolves.

There is no such thing as a long-term panacea or foolproof “system.” The most successful traders adapt to market changes and modify their strategies accordingly.

Successful traders plan for low-probability events and are rarely surprised when they occur. They stay competitive by trying to educate and respond to changing market conditions.

#4 Unrealistic Expectations

Forex trading, contrary to popular belief, is not a get-rich-quick system.

Becoming proficient, enough to generate profits is a marathon, not a sprint. Success necessitates ongoing efforts to master the strategies involved.

Swinging for the fences or attempting to force the market to provide abnormal returns usually results in traders risking more capital than the potential profits warrant.

Giving up trade discipline to gamble on unrealistic gains means giving up risk and money.

#5 Uncertain Trading

Sometimes you may experience trading remorse, which occurs when a trade you open is not immediately profitable and you start telling yourself that you chose the wrong direction. Then you close your trade and reverse it, only to see the market return to its original direction.

In that case, you must choose a path and stick to it.

All of that switching back and forth will result in you losing small amounts of your account at a time until your investment capital is depleted.

Conclusion

Several of the factors that risk causing forex traders to fail are common to investors in other investment vehicles. The easiest way to prevent some of these drawbacks is to network with other effective forex traders who can tell you the trading subjects needed by the asset, such as risk and managing money rules. Perhaps you will be able to schedule adequately and trade with expectations that prevent you from taking on too much risk for too little reward.

Have fun trading!

Click here to start your trading journey with us!