By Thomas Wener

When it comes to Forex trading, we have a whole plethora of mistakes that we can make. This is because there is a low barrier to trading, and of course there has been a lot of marketing that has people looking at Forex market as a way of participating in larger markets that quite frankly were not available for retail traders until recently.
 

Image Source: Walker Capital

Paying attention to potential profits and ignoring potential losses

This is an absolute killer. Unfortunately, far too many traders are willing to look at the potential profits but do not pay attention to the potential losses that could come in trading. For example, they may see a set up that looks “perfect” and focus fully on the idea of how much money they are going to make. However, nothing is 100% certain, and unfortunately far too many retail traders find this out the hard way. When they do, it is quite often devastating to their accounts as they will have not bothered with stop losses, swung a huge position because “this trade cannot lose”, or something along those lines.

The reality is that trading is a long-term endeavor, and not something that you simply do a couple of times to become ultra-wealthy. The act of forex trading has a certain amount of randomness built into it, and that something that should be respected at all times. There is no such thing as a “no-brainer trade.”

Not paying attention to leverage

Without a doubt, the biggest killer of Forex traders is going to be the fact that far too much leverage is quite often offered. At one point in time, it was not that uncommon to see 400 times leverage offered. There is a reason for that, and it is that it will make you blow up quicker. It does not mean that you need to use all of that leverage, but human psychology dictates that most traders will. In other words, you may make a couple of large gains, but one bad loss can wipe out half of your account. There is an old adage that says “90% of traders lose 90% of their account within the first 90 days.” Statistically speaking, this has been proven. Why? Leverage.

Make sure that you are using reasonable leverage with the position. Most governments around the world have dial back the leverage available, but quite frankly there are a whole host of reasons to dial it back even further, because one or two really bad losses can cause chaos to your bottom line.

Thinking trading is “easy”

Unfortunately, the marketing materials that a lot of new traders run into suggests that they will be on a Gulfstream V rather quickly. In fact, some of the adverts actually show a couple of models at a private airport, espousing the idea of riches waiting to happen. Anybody was traded for more than about a month can tell you that is going to happen overnight. 

Unfortunately, this leads to people looking for shortcuts when it comes to making profits, completely ignoring fundamental analysis and only focusing on technical analysis, or vice versa. You need to do your homework and understand not only that there are trends, but there are reasons for those trends.

Patience, or the lack of

Patience is a virtue, at least that is what they say. In the Forex markets it can have a massive effect on whether or not you are profitable. By “forcing a trade”, you are taking a less than ideal set up. Furthermore, if you do not have the patience for a trade to work out as well as it possibly could, you are cutting profits far too short. You need to understand that the Forex markets will move on their own merit and in their own time. Because of this, you should be looking at price levels, and not time. You cannot make the Australian dollar move 50 pips in your favor, despite the fact that it “is not convenient to wait this long.”

Furthermore, patience will be important if you plan on actually being successful. You need to learn how to trade, not simply press buttons randomly like far too many people do. With that being the case, this is a journey and not something you do on a whim and become one of the best in the world.

In conclusion

If you truly desire to be a profitable trader, it all comes from within. Notice how nothing in this article said anything about a technical set up. Technical set ups are quite easy to teach, and that is why so many people do exactly that. Technical analysis has its merits obviously, but it is not what truly makes the difference. In the end, it comes down to whether or not you have realistic expectations, are willing to put in the work, and recognize that this is a marathon and not a sprint. In the end, it all comes down to you as to whether or not you are profitable.

While there are multitudes of losing traders out there, most of them will blame the markets. The reality is that if you do a little bit of investigating, you 

quite often see that the trader was not going to make money anyway. This is because they came with the wrong mindset. Perhaps that is the most important lesson.
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About the author

Thomas Werner is a professional forex analyst. He lives with his wife on the sunny shores of Australia, but dearly misses his home in the cold German north.