Making consistent profits is, having more consecutive wins than losses and a positive curve on your trading account. Out of 100 only 5% of the traders have managed to make consistent profits and the 95% have failed. Out of 95%, 99% are the new traders.
Well, the truth is even the 5% of the successful traders were once new traders. They also passed through the same experience. The difference here is that they were able to overcome this kind of dilemma. They understood what they needed to do to become successful and consistent traders. To be honest I have also gone through the same things. I have made all sorts of these mistakes not more than once or twice but on several occasions. Like they always say, experience is the best teacher, you have to wake up and learn from your mistakes. There you will be able to pick up the right way to get there.
Every trader has his or her own weaknesses when it comes to trading. Let’s look at some of the common mistakes and the reasons that have hold traders from growth and making consistent profits.
So why do most new traders fail to trade with consistency? What is the cause of their failures?
Very high expectations.
Yes! Most traders approach the markets with extremely very big hopes thinking all is put on the silver plate. They think as long as you know when to enter a trade, you have made money already.
They come with a mindset of winning, how much money they can make, and how long it will take them to see their lives transform for better. What do I mean?
As a new trader, all you care about is a blue color on your statement and you don’t care how you will maintain that. When the market goes against you and turns to red, you immediately close the trade because you are scared to lose.
When trading with no stop loss and the loss is already big, you would rather wait till the market moves back to your direction. You don’t want to lose a single cent/dollar from your account. Trust me, with this kind of behavior, there is no way you will see consistent profits on your account.
This happens because you started trading expecting to make lots of money from the market. You didn’t consider the other side of losing and this goes against the psychology that is required for successful trading. This is the main reason why your account always suffers big draw downs.
In trading, there will always be two sides. It is either a win or a fail. You may have a system or methodology that has a 70% success rate and 30% accepted loss rate, well tested on several times and approved but if you’re focused on winning only, and not on doing the right thing, in terms of executing your trading plan, you may struggle to take that even in next trade.
Wanting to win so badly is always accompanied by psychological emotions such as fear , greed and regret. This is likely to cause a direct conflict with your trading process. Before you think about trading, there are some things you need to know. Remember this always every time you attempt to enter a trade in the forex market.
- When you take a position in the market, always bear this in mind; anything can happen. You always expect a win or a loss.
- However much your strategy may perform, it can never be 100% perfect.
- Risk only the money you can afford to lose and keep risk management strategies in intact to keep your losses smaller and protect your account.
They don’t want to learn first.
Like we said before, most new traders are driven by a money motive to the market. Telling such a trader to spend more time learning and practicing is wastage of time. They take forex trading to be simple as long as he or she has a trading strategy and knows when to buy and sell.
Forex trading is not as simple as it sounds; buy when the market is going up and sell when the market is going down. That is not it all. Like any other profession, you need to learn first, train and practice consistently to be able to have consistent profits to your account.
Why you need consistent learning and practice?
Consistently learning and educating yourself helps you to develop trading skills and unveils most of your common mistakes. Read and understand the basics of forex and practice more on a demo account. This will turn you into a more knowledgeable person, with enough experience than the persons who choose not to consistently educate themselves.
The forex information is available everywhere online, all you need is internet and you acquire every detail of information that will help you to study the market behavior. More to that, you can get yourself a mentor to always guide you, read more books, browse through forums and sign up for trading courses to acquire more knowledge. In addition to that, do more practice on a demo account. Do not get tired of practicing till you learn the right way to hold the hook.
Always excited to trade news events.
At the release of most fundamental data, we always see very strong and large price movements in the market. Economic fundamental news highly affects the currency prices in the market especially when in extremity of more than expected or less than expected. This simply means if you trade right with the actual news release, you are likely to make big sums of money just in a few minutes. If this is possible, then there is also a possibility that you can blow your account the same way and you knocked out of the game.
Most new traders are so eager to trade news without preparing enough because they are too greedy to catch the large price movements in the market. Trading news with no preparation can actually stab your back. More to that, some traders care less on protecting their accounts with risk management strategies like setting a stop loss. And in the end they drown in the hands of the professionals losing all their hard worked money.
If you are to trade and achieve consistent profits, have a plan and trade only your plan. This means even when you are to trade news; you will follow the same risk management strategy and protect your account from large losses. It is important to know that when it comes to trading news, you are either right or wrong. This is the most delicate and challenging moment to all traders. So it is important to keep your stop losses intact or avoid trading news completely.
They don’t have a specific strategy to trade.
Forex trading information is available and easy to access online, courtesy of free learning websites, trading signals and robots. All these offer different trading strategies to trade and trust me they are all awesome. Most new traders are always excited by these fascinating trading strategies every time they read about them, thinking there is a holy grail out there. It is exciting every time you try out one and you take a profit on your first trial.
I fell for it too. Very lost and confused as I tried to learn different trading strategies, thinking it will make me a better trader and make for me more profits. I would try out a new trading strategy and make some money at the start but when the loss would appear twice; I would drop and pick up the next one or trade all at the same time. At the end of the day, I am closing with a very big draw down and I am thinking of looking for a better one. This is so frustrating and does not do you good as a trader.
All you are doing is experimenting or gambling not trading. It is not hard to find a trading strategy. But finding a trading strategy that has an edge in the markets and suits your personality, is a different thing altogether. Trading different strategies at the same time where you have no control over them, won’t do you good other than suck up all your money from your account.
Here is the good news, all this can be unlearned and your account is saved as you continuously improve your trading skills.
If you plan to see consistent profits from trading, find a trading strategy that has an edge in the markets, and suits your personality. Study and practice only that and trade only that.
Poor risk management
You can have the best trading strategy in the world, but poor risk management can still cause large draw downs to your account.
There are so many times we take positions in the market only thinking on how far the trade may go, and how much money we are likely to make after taking profit. This is another reason why most traders fail to trade with consistency and have consistent profits. The greater the potential reward, the greater the amount of risk the trader must take on. Of course you will be forced to use a large size because you expect to get much reward from your set up. After all you are well convinced that the trade will take your favored direction. This is a very common practice to the new traders.
Common challenge faced by most new traders.
You put on a short term trade and watch price moving in your favor almost immediately, as you get excited and confident and feel like you are in control of the market. A few pips to targeted profit you notice your trade starting to go against you, and you have given back all your profits. You are now in the red. You believe it is a matter of time before it turns in your favor once more. So you hold on to that believe, but it continues to move further against you.
So now you no longer think about your target profits. You silently pray for a break even to close out your trade. Unfortunately price just takes off as if it was a payback time and the loss is unbearable. What next? Regrets.
Regardless of the setup or trade signal you are trading, all trade opportunities are equal and the outcome is random. So in order to avoid regrets due to large losses, we must follow our risk management rules. Always consider how much you are willing to lose on each trade, your risk to reward ratio and use a stop loss that matches your size at all times.
They don’t have a trading plan.
A trading plan contains guidelines and procedures for you to trade in the right direction. It explains your trading strategy, entry, exit, risk management, markets traded, time frame and position sizing. Attempting to trade the forex market without a trading plan is one of reasons why traders fail trade with consistent profits, yet it’s one of the most common mistakes forex beginners make.
It leads to trading basing on psychological feelings and emotions or gambling. When you have no trading plan, you will be trading aimlessly and have no idea which area of your trading needs to be improved on.
Your trading plan should articulate your risk management strategies, why you would enter a trade, how you will manage that trade, and why you would exit that trade. Your plan should also include detailed and accurate record keeping in your trading journal . This will help you keep track of your system’s trade expectancy, common mistakes made while trading, emotions, decisions taken before, during and after taking a trade, what you have done well and where you can improve.
Why trade with a trading plan?
Trading without a trading plan, you may not be able to control your emotions and sometimes trade while chasing after the market. This kind of behavior may not be able to allow you hold on to your account even for a single day.
Trading can be an emotional business, but these emotions can be controlled. Learn of your trading personality, match it with your personal circumstances, your objectives, and build a trading plan around it that suit you. Then as you plan to trade, trade only your trading plan. Keep a watch on it, evaluate yourself and its performance, and continuously improve upon it. That’s how you will successfully trade consistently and stay long in the game of forex trading.
Finally, i conclude by saying, depending on only your trading strategy is not enough to make you the kind of a trader you want to be. if you want to have consistent profits from trading forex, you have to unlearn the habits we have discussed above and start training yourself in the right direction.
The most interesting thing when it comes to forex trading, is that you can learn and profit from the experience of others.
If you can manage to reduce the number of trading mistakes, then you will be a step closer to consistent profitability.