Why Is It So Difficult To Trade Forex?
What Makes Trading Difficult?
According to the 2019 Triennial Central Bank Survey of FX and OTC derivatives markets, the foreign currency or forex market is the largest financial market in the world, larger than the stock market, with a daily volume of $6.6 trillion. The forex market, a virtual location where one currency is traded for another, has several distinctive features that may surprise novice traders. Forex trading is, in fact, difficult. Most traders have unrealistic expectations when they first start, and those who succeed the most in their profession face the greatest challenges.
The Forex market is difficult because it is fast-moving, unpredictable, stressful, requires a lot of mental strength, and cannot be considered an easy-to-get rich method. The FX market is impacted by many factors, including governments, politics, the environment, public health, corporate success or failure, and food prices.
Some of the market's biggest participants are so massive that they can cause significant fluctuations on their own. How does that make you feel? Well, let's use this series of events as an illustration. Consider that you started a Forex trade that, after several hours of diligent work, is moving in the way you had expected. You take a break, perhaps even telling your partner about your most recent achievement.
You leave your trading station for around ten minutes, come back, and find that a big reversal has just happened, wiping out your position and any future profit. This kind of incident usually occurs without any prior notice.
What makes trading difficult?
Lack of Experience
In the world of Forex, knowledge is gained via experience. The keys to steady profitability are not contained in any books or lessons.
Of course, books can teach you things. Additionally, you can research and learn about different candlestick and chart patterns. Experience, however, cannot be replaced. While that holds true for any career in trading, the market serves as your teacher.
A smart strategy to educate oneself about the Forex market is to keep a trading journal. Use the journal to record your daily observations. Did the market follow through with a support or resistance level marked by you? If so, did a buy or sell indication result from it? If not, should your level be shifted or even taken out all together?
You subconsciously train your mind by recording your observations each day. You will be able to identify trends after a few months of doing this with little effort. Your subconscious will consult its database of chart patterns when you open a chart and identify the patterns for you. I can tell you that it works, even though it may seem too good to be true.
People Dislike Randomness
You have no influence over the market in any way. You have no control over how much the EUR/USD will fall or whether the AUD/USD will move higher or lower from its current price. The ability to accept randomness is among the most crucial lessons. Whether it is liked or not, there will always be some element of randomness in the markets.
Traders anticipate that they will always be correct. They anticipate that every trade will be profitable and that none will be a loss. Always correct in the market. You may also trade on the profitable side of the market at times. The market's direction is never within your direct control as a trader. This is a difficult subject for many traders to learn and comprehend.
Trading professionals accustomed to having control, such as CEOs, attorneys, and accountants, are frequently very bad traders because they cannot predict what the market will do. These traders are constantly looking for a strategy to dominate the market and ensure that they are always correct. This exercise is pointless.
Planning for all possible outcomes is crucial because of the randomness of the market. Even the best trade setups will eventually lose money. It would be best if you prepared your mind for it.
We'll talk about unrealistic expectations next. After a few weeks of trading in the Forex market, traders anticipate significant gains. Trading too much per trade in search of significant gains typically has the opposite effect. Per trade, traders should aim to risk no more than 1% to 2% of their account balance.
If you're gaining 1% to 2% on your account balance each month, you'll be among the top 10% of traders. Yes, some traders make greater monthly gains, but they begin by making smaller monthly gains before improving and turning into very reliable traders. Learn to walk before you run.
Do you need approval before increasing your leverage or adding money to your balance? The answer is no unless you work for a trading company. As a result, you have a ton of freedom. You can trade whatever currency pairs you like, make the largest possible deposit, and use the highest possible leverage. For each particular deal, you are free to take any amount of risk you like. The situation is quite the opposite of working for someone.
But here's the catch, following no guidelines could mean taking higher risks and facing larger losses. Creating a set of guidelines to follow will always keep you on track. The Forex market's complete lack of rules compels you to make bad choices.
The bottom line is that a lot of people need rules and a process to follow to succeed. That's true whether you're trading Forex, writing a book, or training for a triathlon.
Lack Of Consistency
The absence of a consistent strategy is undoubtedly the main factor contributing to traders' failure. Traders switch between several strategies without demonstrating that the tactic can generate profits across 20, 40, or 60 trades. In the notion that there is a strategy out there that only has wins and never loses, they change to a new plan as soon as they suffer a few defeats. As a result of their constant switching in search of the mythical "Holy Grail" of trading methods, which doesn't exist, they never manage to settle on a reliable strategy.
To comprehend how many wins, losses, and break-even trades your approach generates across a series of trades, you need to forward-test your strategy. When you experience losses, you'll realize they are simply a necessary cost of using a good trading technique.
Patience Is A Virtue
It happens to be a very strong and profitable trait for a trader. The problem lies in the impatience of the majority. People don't even like waiting in line at the checkout counter or for a shipment to come.
Ironically, waiting is the cornerstone of successful trading.
The clearest connection you'll find in this industry is between the reality that most people lack patience and that most traders lose money. Naturally, when trading, exercise extra patience. But you have to admit, that's easier said than done. There would be many more successful retail traders if everyone could "have more patience."
Steps to help make forex trading easier
A Reliable Methodology
As a trader, you should know your decision-making process before entering any market. You must know the data required to decide whether to enter or leave a transaction. Some traders keep an eye on the fundamentals and charts that underlie the economy to decide when to place the trade. Some people exclusively employ technical analysis.
Decide on goals and trading tactics.
It is vital to have an idea of your destination and path before starting any journey. Therefore, it is imperative to establish clear goals and ensure that your trading strategy will enable you to attain them. Every trading approach has a different risk profile. Thus, adopting a specific attitude and trading approach is necessary for success.
The Broker and Trading Platform
Finding a reliable broker is essential, and understanding how different brokers operate will be very helpful. You need to be familiar with the protocols and trading policies of each broker. Trading in exchange-driven markets differs from trading in the open market or over-the-counter market. Partnering up with a reputable broker like Roboforex is important for many aspects including support to help make trading forex less difficult
Determine the exit and entry points
Many novice traders become confused when looking at charts from different periods because of the contradictory information they see. What appears to be a buying opportunity on a weekly chart can be a sell signal on an intraday chart.
Determine What You Hope For
The expectation is the calculation you use to evaluate the dependability of your system. To determine how profitable your winning trades were in comparison to how much money you lost on your losing transactions, take into account all of your prior trades, both winners and losers, and compare them.
Ratio Risk: Reward
Before trading, it's critical to assess the level of risk you feel comfortable taking on each trade and the potential earnings. A risk-reward ratio aids traders in determining their chances of making money over the long run.
Stop-loss orders help to exit a position at a predetermined exchange rate. It can be used to reduce risk. Because they can assist traders in limiting their risk per trade and averting substantial losses, stop-loss orders are a crucial component of effective forex risk management.
Focus and Minor Setbacks
After funding your account, the most crucial thing to keep in mind is that your money is at risk. As a result, you shouldn't use your money for everyday needs. Consider your trading funds as vacation funds. Your money is already spent once the vacation is over. Adopt the same trading philosophy. This will prepare you to take slight losses, which is essential for risk management. You will be more effective if you concentrate on your trades and accept minor losses instead of continuously counting your equity.
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