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In Forex trading, it’s a common scenario to lose a great deal of money in just a short time. In fact, it is estimated that about 96% of traders lose money and end up quitting. Now, to help you be in that elusive 4% of traders who make profits consistently, it’s important to know the common reasons why Australian Forex traders end up failing.
1. Being Greedy
Greed is perhaps the number one emotion that ruins the trading plan of most traders. When the market seems to be going upwards, a trader tends to become greedy and continue making trades mindlessly. Some traders feel that they need to squeeze every last pip out of a move. Trying to take hold of every last pip before a currency pair turns can set you up to lose the profitable trade that you are looking at.
Solution: Obviously, don’t be greedy. While it is alright to go for a reasonable profit, remember that currencies move every day and there is no need to get that last pip.
2. Lacking of Risk Management Plan
In order to survive in the world of Forex trading, it’s crucial that you manage risks appropriately. You can be a proficient Forex trader and still get your account wiped out without the right risk management plan. Keep in mind that apart from making a profit, your number one job is also to protect what you have.
Solution: Use stop loss and take profits orders. Luckily, most Forex trading platforms today include these limit orders which will close the trade if the stop loss or take profit level is reached.
3. Trading with a Low Start-up Capital
While most Australian Forex brokers today allow traders to start with a little amount like $100, $50 and even $25, this doesn’t mean that you should. If you are looking to get out of debt right away or to make easy money, then currency trading would only disappoint you. Remember that you must have some money in order to make some money. Using a small amount of capital maximizes the risks and you will likely be emotional with each swing of the market.
Solution: If you are a beginner, at least $1000 is a reasonable amount to start off with – that is if you trade very small. Use accounts with micro lots or smaller when trading. Otherwise, you are just setting yourself up for a great disaster.
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