Forex Trading - High hopes followed by deep feelings of failure...
I have been in the Forex trading industry since 2012. I have met so many people enter the Forex trading industry with high expectations; financial freedom, working from home, doing something they love, etc. I would say that 99% of those I have met never fulfilled their Forex trading dreams and gave-up on their Forex trading ambitions.
Most retail Forex traders can relate to feelings of discouragement and disappointment and have blown at least one Forex trading account. Why does this happen and why is it so common for Forex traders to lose?
Why I believe so many Forex traders fail...
The most common characteristic that I have seen amongst unprofitable Forex traders is false expectation. Let me tell you some truths about Forex trading...
1. You will not be a profitable Forex trader within a few weeks or within a few months. I suggest you have a goal of becoming profitable set at a few years. Yes, a few years! Obviously the road to successful Forex trading can be shortened if you learn from someone who is already a successful Forex trader but successful Forex trading takes time - just like most things in life.
2. You will unlikely to make triple-digit returns and grow a small trading account to a professional trading portfolio in a short space of time. For example, it is very unlikely that you will turn a $500 Forex trading account to $50,000 within a few months or within a year. I recently opened a new trading account with the goal to make at least 10% per month (you can follow this account at Forex Factory and myfxbook). I have been trading Forex for several years though - newer Forex traders should expect a smaller return.
3. Once you are a profitable Forex trader, trading no longer provides an adrenaline rush that requires your absolute time and attention. Trading becomes more of a relaxed office job. Of course there is still excitement when you have a fantastic trade but this may not be a daily, or even weekly, occurrence.
I don't mean to come across negatively. The purpose of my words is to help you lower your expectations in order to have a much more realistic view of what profitable Forex trading is and what becoming a Forex trader can provide. I love trading Forex and would do nothing else. I have the ability to work from home and earn a fantastic income but it was not an easy journey. I don't own a Lamborghini and I don't spend most of my time on holiday - I have to trade to pay the bills!
Why does expectation determine Forex trading success?
So, how does unrealistic expectation lead to Forex trading failure? A Forex trader with unrealistic expectations is never satisfied with his or her Forex trading strategy, his or her Forex trading results, his or her Forex trading mentor and so on... I recently uploaded the following quote to my Instagram, which suits this post nicely...
"I feel that too many rookie traders put too much pressure on themselves - if they don't win big today, this week or this month, they feel like they are failing. Trading successfully is not about winning big or doubling your account balance every few weeks. Successful trading is about doing something you love whilst making a consistent return.
Do you know what percentage return the most successful hedge fund gained last year? Most of you are trying to beat hedge fund performance 5 times over... Have a long-term perspective. Trading will only make you rich once you can make a consistent return, you have experience, and are confident in what you are doing. This cannot be achieved within a few months"
- Samuel Morton
When a Forex trader becomes unhappy with his or her Forex trading performance, they ditch their current trading style, trading strategy or trading mentor. They then find a new one. Guess what? The same thing happens again... and again... and again...Unrealistic expectation is at the heart of Forex trading failure and is the fuel of the never-ending cycle of Forex trading failure...
1. Create or learn a new trading strategy
2. Trade the strategy
3. Hit a draw-down
4. Give-up due to unrealistic expectation
5. Create or learn a new trading strategy, and so on...
How about Forex trading psychology?
Yes, the challenges of Forex trading psychology and a lack of emotional discipline are to blame for failure too but trading psychology routes from unrealistic expectations. Let me give you an example...
Jimmy has developed a Forex trading strategy that is going to make him rich
Jimmy has back-tested the strategy and even tried trading the strategy on a demo account
Jimmy has recorded that the trading strategy has a win-rate of around 70%
Jimmy places his first live trade. It's a small win. Great, roll in the money baby!
Jimmy places his second live trade. It's a loser. Now in a slight loss.
Jimmy places his third live trade. It's a loser. Starting to get frustrated.
Jimmy places his fourth live trade. It's another loser. There must be something wrong with the strategy?! Jimmy gets frustrated as once again he has hit another losing streak.
Jimmy gives-up and orders a large pizza, which he eats all to himself while crying to some uninspiring show on TV.
What has happened in this story? The obvious answer is that Jimmy has become victim of Forex trading psychology. Let's look a little deeper though. Let's consider a different question, why has Jimmy become a victim of Forex trading psychology? It is because of his unrealistic expectations. For some reason, Jimmy did not expect that he would have a losing streak, especially so quickly. Even with a 70% win rate a Forex trader is going to experience losing streaks, losing days, losing weeks and even losing months. Jimmy had not accepted this though and thought that his road to pip mountain would be plain-sailing with his super new Forex trading strategy.
Change your mindset
It is time for me to finish this post as other trading and non-trading demands are calling. I think the following quotes may help to conclude this post well...
"If you change the way you look at things, the things you look at change"
- Wayne Dyer
"There is nothing as powerful as a changed mind. You can change your hair, your clothing, your address, your spouse, your residence... But if you don't change your mind, the same experience will perpetuate itself over and over again, for everything outwardly changed but nothing inwardly changed"
- Thomas Jakes
Professional Forex Trader