Introduction
Online Investments and Forex trading is not a “get rich overnight” avenue.
Despite being aware of the harsh realities of the forex market, investors often plunge into these risky ventures without hesitation, ultimately risking their hard-earned capital. One might wonder, what drives this high failure rate even amidst its remarkable liquidity?
In last blog, we listed key factors contributing to this alarming trend and some of them are:
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- Emotional Trading
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- Risk Management
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- Education and Knowledge
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- Trading Discipline
The basic issue underlined in all the above factors is that a trader’s capitalization is insufficient compared to the magnitude of their trading activities or in layman terms we can say-“over leveraging”. Above listed factors can cause some traders to expect greater returns on the investments than the market can consistently offer and they end up trading with higher contract values surpassing their actual capital.
Let’s look at these factors briefly to understand what they are and we will have separate articles to look at them in detail:
Emotional Trading and Discipline
Emotional Trading and discipline in trading are intricately overlinked. I read somewhere that “ anxiety plays the biggest guilty part that puts you down in trading” and it hit me hard because it’s actually very true. While trading, you have to be disciplined and control your emotions at the same time.
That emotional roller coaster experienced by the traders to make quick money leads you to over leverage, you rush to open the positions without proper analysis and end up losing your money. This anxiety and impatience often dictates the trading decisions leading to impulsive and irrational actions that can result in substantial losses.
Failure to adhere to the trading plans, risk management protocols, and disciplined execution , even the most promising strategies are susceptible to failure.
Risk Management
Many times it happens that you open the right position however you dont know when to get out of it. It can happen due to lack of market understanding or lack of risk management policies. The profits that you once were making in the open positions often turn into losses and you are left wondering “ what if i would have closed it at that price or why i did not close it when it was in my favour”.
Without a solid risk management strategy in place ( specially running the open trades without stop loss and a take profit), traders expose themselves to excessive risk, potentially wiping out their accounts during adverse market conditions. With effective risk management in place, you get to know how much of your investment capital is at risk and what is your satisfaction level with the profits. A robust risk management strategy involves setting clear goals, calculating position sizes relative to account size, and diligently monitoring trades to limit potential downside.
Education and Knowledge
A comprehensive understanding of the forex market, including its dynamics, technical and fundamental factors, equips traders with the tools needed to make informed decisions. Without adequate knowledge, investors are at a disadvantage and may fall prey to market volatility. Research and analytical skills to monitor the broader economic factors plus the day-to-day chart patterns that impact the financial markets is very important as it helps in creating the proper trading strategies and projected profits.
And it’s not just the knowledge of the market that one should have, familiarity with the different types of forex brokers is also vital at the same time. If you choose a wrong forex broker to open a trading account, it would make all the difference in the world. You will find different types of brokers in the market highly categorized in Regulated, Unregulated , ECN/STP and market maker. An extensive research while choosing a broker is mandatory in order to make sure what suits you the best for ensuring a secure and transparent trading environment.
In our next blog about FOREX BROKERS, we’ll delve into the types of forex brokers to aid in informed decision-making.
In summary, success in the forex market necessitates a multifaceted approach encompassing discipline, effective risk management, continual learning, and judicious broker selection. Only through a holistic understanding of these facets can traders mitigate risks and strive for sustainable success amidst the complexities of the forex landscape.
By empowering investors with comprehensive knowledge and practical insights, we aim to enhance their ability to navigate the forex market with confidence and prudence.
