As with most forms of financial investing – stocks, futures, etc., there are risks. There are no crystal balls to show you what is going to happen next, so your exposure to these risks is largely controlled by your money management practices.
To become a forex trader, first you have to learn it. It is not very hard to learn forex. There are enough free information over the internet. You just need to spend a few months to learn everything. But the more important part is the experience. You have to learn how to use your knowledge to trade and make money.
Are you’re one of these? Then Forex Trading is not for you
As exciting and profitable as Forex trading can be it is not for everyone. Even though there are numerous products that tout that anyone can make their living trading Forex, that simply is not true. Below are a few types of people who should not venture into Forex trading…at least until further planning and preparation is made.
- Lazy People — Contrary to what you may have heard, not all successful Forex traders are reclining in lounge chairs sipping on exotic drinks. Successful Forex trading takes hard work and while successful Forex traders could actually afford to retire to a tropical island many choose to continue to build their fortunes using the same work ethic that got them their fortunes in the first place.
- Undisciplined People — Undisciplined people do not have a chance of ever being successful in Forex trading. It doesn’t really matter how much money you start with, undisciplined trading can make all of it magically disappear. The truly disciplined trader can start with a smaller amount of money and outperform and undisciplined affluent trader every single time.
- People without Risk Capital — If you don’t have available risk capital than you can’t trade Forex. That is because Forex trading is speculation and all speculation is risky. Risk capital is that money that you have set aside for speculation. A simple definition of risk capital is that money that if completely lost will not affect your lifestyle in any way, shape, or form.
- People Looking for a Get-Rich-Quick Scheme — Successful traders realize that trading is not a get-rich-quick scheme and that successful trading should be viewed more as a marathon rather than a sprint. Many beginning traders get into trouble by trying to compress the time frame needed to grow their capital. That is why it is especially important for beginning traders to be patient. When you’re patient you will wait for only those trades with the highest probability of success thereby increasing your chances for profitability.
- People Who Will Not or Do Not Follow Instructions — An important part of trading discipline is following the instructions of your trading system. If a Forex system is working then let it continue to work. Too many beginning traders seek to reinvent the wheel rather than trade profitably.
Knowledge, Experience, Emotion
Forex is like driving. You can sit at home and read a lot of books about driving and know about it more than a driver who has a 30 years experience. But as long as you don’t practice and don’t drive, you will not become a driver. To be a good driver you also need to have a healthy body and mind otherwise you will make problems for yourself and the others. This is true about forex too. Not everybody who knows the techniques theoretically can be a good forex trader.
You have to have three things to become a good and successful forex trader:
- Suitable mental and psychological condition
If you lose more than what you make in forex, you don’t have at least one of the above essentials.
As explained above, the knowledge can be gained easily and for free through the internet.
The experience can be gained through practicing with the demo account. Any of the forex broker companies offer free demo accounts that enable you to practice and learn to use your knowledge practically.
But what about the last factor? Suitable mental and psychological condition!
You can lose money in forex even when you have enough knowledge and experience. Why?
What kind of people, with what kind of personality, lose more in forex even when they have enough knowledge and experience?
1. Impatient people
- If you don’t have enough patience when you work or when you wait, you will have problems in forex. Forex needs a lot of patience. Sometimes you have to sit at the computer and watch the charts for several hours. Those who don’t have enough patience, get tired very soon and start entering to the trades while there is no clear and suitable signal and it is not the time to get in a trade. Then they will have to close a wrong position while they have already lost a lot of money.
2. Greedy people
- Those who are greedy are big forex losers. Greed cause you rush to enter to a trade when it is not the time because you think that the others are making money and you have to do it too. So you don’t wait for a clear signal and you just dive to a trade with this hope that you will make money whereas in most cases you will choose the wrong direction.
- On the other hand, greedy people stay in trade for a long time and don’t end it when it is time to end. They keep the position to make more money but the market will change the direction suddenly and all the profit they had in their hand will be lost.
3. Fearful people
- Fear is the biggest problems in forex trading and generally fear is the biggest problem and obstacle in all the businesses. Fear keeps people from taking risks and those who have a lot of fear can not use the opportunities because they are always afraid of losing. They wait and wait and wait and lose the opportunities one by one and then get tired and try to overcome their fear and so they enter to the wrong direction before proper market analyzing and finding good signals. What will happen then? They lose money.
4. Emotional people:
- If you are a person who makes his decisions emotionally and not wisely, logically, analytically, then forex is not for you because you will lose a lot. Forex is a technical and scientific business. It works according to the scientific rules and analysis. Forex traders use special indicators and signals to decide to buy or sell. They act only when they see proper signals and not when they feel that the price will go up or down.
- Something you feel can be wrong and so if you trade according to what you feel, you lose.
- Emotions are good but not in business, forex or stock trading. If you are an emotional person, you should not try forex trading unless you learn to control your emotions and use your knowledge.
To control your greed, you have to make a strict discipline for yourself and try to be stuck to it. For example do not make more than a limited number of pips everyday or in each single trade. Tell yourself that you are not allowed to make more than – for example – 20 pips everyday or 5 pips in each trade and as soon as you reach the limit, turn off your computer or close your trade even if the market is still hot and you can make more or your trade is doing well and going to your favorite direction.
To control your fear, you have to spend enough time on learning and practicing with the demo account. You have fear because you don’t have enough confidence about your trading skills. You have to make hundreds of trades on the demo account to make sure that you have learned the methods completely. Then you need to start with the real account and trading with your money but with a very small amount.
You have to keep on trading with a very small amount of money for several months and when you see that you can make profit and the number of your successful trades is more than your bad trades, you can increase the amount of the money little by little.
Keep in your mind that Forex and stock trading are all the matter of taking risk. The only thing that you have control on is the amount of the money you put in every trade and also the amount of the money that you let be lost. The rest is not in your hand.
sources: Vahid of www.forexoma.com, Richard M. Davieess of ezinearticles.com, photo from forex-time-machine.org