All forex traders want to make money, but this is easier said than done. There are a lot of problems you could run into that can cause your profits to stall, so much so that it might be hard to figure out exactly what’s going wrong. If you’ve been finding yourself barely breaking even or even losing money, try asking yourself these questions to identify the problem.
Question #1: Are You Making Classic Trading Mistakes?
There are several common trading mistakes that can keep you from making money. Have you committed any of these trading sins?
- Opening a trading account without a proper education: If you make this mistake, you might be feeling confused and don’t have a good understanding of how the market works and what or when to trade.
- Trading without a plan: If you don’t have a solid plan to follow, then your trades aren’t likely to be successful.
- Risking too Much: We’ll get into this more later, but you should be very thoughtful about how much you risk on each trade. Risking too much is a quick way to wipe out your account balance.
- Being too Confident: You can’t start out with the idea that trading is a quick easy way to make money. If you aren’t prepared to put in the effort, then there’s no point trading at all.
- Using too much leverage: One of forex trading’s biggest perks is the ability to use leverage to increase your buying power. However, you should use it with caution. You don’t want to use your broker’s highest leverage option just because you can.
The good news is that there are simple fixes for the above problems that can get you back on track. For example, you could spend more time educating yourself, work on developing a good trading plan, and lower the leverage that you’re using. Or perhaps you should put more thought into your risk management strategy or set more realistic trading goals.
Question #2: How Much Are You Willing to Risk?
Suppose you have a $100 balance in your trading account. Thinking in dollar amounts, how much of that money are you willing to risk on a single trade? The safest answer would be around $1-2. If you’re risking amounts around $10, $20, or more, then this is likely causing you to take some big losses when the market moves against you. If you’re risking a lot, you should spend some time thinking about how much you’re actually willing to lose on a trade.
Question #3: What’s your Trading Journal Telling you?
If you’re first thought is “what trading journal?” – this is likely a big part of your problem. How can you figure out exactly why you’re losing money if you aren’t logging your trades? A trading journal is the best tool for figuring out where things are going wrong because traders use it to log each trade in detail. Sometimes, the issues you’re suffering from might not pop right out at you but seeing consistent results in your journal can make it clear. Maybe you make bad decisions in the morning but improve in the afternoon. You might not be a morning person. Or you might realize that you simply forgot you opened a few trades each money and that if you hadn’t forgotten, you actually would have come out with a profit. A trading journal is ideal for pinpointing these problems and keeping up with how much money you’re winning or losing.
Question #4: Is Forex Trading Really for You?
Many beginners start out with unrealistic expectations about forex trading. They might think that they can make a lot of money with little effort thanks to flashy ads that make it seem that way. Once you get started, however, you learn that there is a lot that goes into it and that it takes hard work to profit. If you’re willing to work hard and put in the effort, then you can really go far in the field, while those that just don’t want to spend time learning, working on their plan, and watching for important events might be better off without trading.