Forex trading is often considered to be one of the simplest ways to trade the financial markets. Easy as it may sound, it is a well known fact that many retail traders end up losing money. This happens for a number of reasons.
Traders for example are too eager to make money that they do not spend enough time to learn how to really trade. On the other hand, traders who have some experience allow their greed or fear to overtake them.
When emotions take over your trading, it is difficult to remain biased.
And as you guessed it right, the biggest problem with forex trading is having to deal with your emotions. Emotions come in the picture because for the most part traders get too involved with trading.
Since most forex traders are speculators or day traders, they trade quite a few times during the day. On average, the retail trader volumes are really high.
While having a trading strategy is a good way, despite this it is easy to get your emotions involved. When the emotions kick in, the objectivity goes out of the window.
This would lead to trading based on your gut feeling or your emotions and could potentially lead to you making more trades and bigger losses.
What are the two main emotions?
Greed and fear are the two biggest emotions that one has to deal with when it comes to trading. With greed, the trader ends up leaving out the objectivity and trades in order to make some more profits and even more.
By doing so, the trader risks losing the money that was already on the table.
Likewise, fear sets in when you think that the trade would not work in your favor. This leads to you closing out your trade prematurely.
Some traders also use tight stop losses. This leads to the stop loss being hit. Traders mostly blame the forex brokers in such situations calling it stop hunting. But this is not the case.
When you trade objectively, your stop loss levels are set a place where you know that the trade is moving against your favor. This also means that the trader does not give enough breathing room for such trades.
As a result, what could have been a profitable trade if the stop loss was set a bit wider turns out into a losing trade.
It is not just setting the stops and target levels but also other factors. Traders need to constantly manage their trades in order to keep removing risk off the table.
It is often said that good traders manage risk, while bad traders chase profits. This couldn't be further from the truth.
To overcome this you can make use of the resources available to you. For starters, having a demo account with a good forex broker such as JustForex broker will help you to switch to the practice account to hone your skills.
