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When it comes to trading in forex, for too many people, it may seem it’s just related to the sale and buy and nothing else. If you perceive it thus, you’ll likely succeed up to 50%. Such a wrong perception makes it hard to succeed. The market makes you believe it’s simple and easy to trade, contrary to the reality that it’s pretty hard. Why is forex trading so difficult?
You may have a question of why you need to read this. What if reading a difficult one makes it easy?
It becomes easier to grasp as you keep understanding complex phrases at a higher level. You will also be able to reach your goal fast.
In this article, we’ll explain why trading forex is so difficult. At the end of the article, you will clarify why you find it so hard and the solution.
Portfolio management is the art and science of making decisions.
Either trading stocks or forex – is difficult. Why? Because of risk and return. If you risk more than 1-2% of your portfolio, there is a strong probability that you will soon have a 2moments,30% or 50% down. DD, you need a 25% gain to r in moments over the loss; if you have 50%, you will need a 100% gain to recover the loss. This is why big corporate companies risk small amounts; when you lose 6%, you will need around 6% to recover the loss.
So imagine this – you have $500 and risk $5 per trade. —after 20 trades at the end of the month, you have a $10 profit. The whole month of work and $10 profit. The average trader starts to risk more, and trading becomes difficult. A huge loss, substantial riskisicomplicated
On the other hand, you will see that any probability of winning, if we risk 1% and try to get a reward of 1%, at the most, can have an excellent probability of around 60%. All this information can influence traders to be disappointed.
If we use trading theory, these are the other most common reasons why trading forex is so difficult :
Why is forex trading so difficult?
Forex trading is difficult for most retail traders because they lack enough fundamental and technical analysis knowledge, do not test their strategies, and do not follow risk management rules (they are undercapitalized about the size of the trades they make ). Therefore, substantial financial risk, greed, and overtrading imply bad results for forex traders and make trading difficult.
Forex trading, involving the exchange of one currency for another on the global currency markets, presents numerous challenges for traders. Below are the main reasons why forex trading is often considered difficult:
- Insufficient Education:
- Forex trading requires a comprehensive understanding of global economies, currency strengths, and technical analysis, among other factors. Lack of proper education and understanding leads to poor trading decisions.
- Many traders enter the market with minimal knowledge, underestimating the complexity of forex trading and the amount of learning required to be successful.
- Risk and Tricking:
- The forex market is volatile, making it inherently risky. Price fluctuations can be sudden and significant, leading to gains or losses.
- Traders often fall for scams or misleading strategies that promise high returns with low risk, which do not exist in the forex market.
- A Poor Inclination to Accept Randomness – No Testing Strategies:
- Forex markets can be highly unpredictable. Many traders struggle to accept that they cannot accurately control or predict market movements.
- Without testing strategies through backtesting or demo trading, traders are more likely to apply ineffective methods in live trading, not understanding the random nature of market movements.
- Traders Do Not Follow Rules:
- Discipline is critical in forex trading. Traders often fail because they do not stick to their trading plans or risk management rules, especially after facing losses or unexpected market movements.
- Emotional trading leads to poor decision-making, such as chasing losses or overtrading, further compounding their difficulties.
- Patience – A Great Attribute of Market Players:
- Forex trading requires patience, both in waiting for the right trading opportunities and in the long-term growth of capital.
- Impatience leads to overtrading, where traders make too many trades too quickly, often without proper analysis or in response to short-term market noise rather than long-term trends.
Insufficient education
Education is immaterial to becoming successful in business.
It is not relevant. If you have a Master’s, Bachelor or Doctorate, we’re sure it’s of little help to succeed in the forex trade.
In society’s eyes, you’re educated, whereas the market does not think similarly.
It’s a matter of great importance to have no college degree. I had been to school for a long, but I repeat. I failed to clear the majors. However, I was not successful.
Strictly speaking, I don’t waste time feeling sorry for my decision. Maybe some people don’t feel so. However, note that there are diverse education patterns, and school is one of the education patterns of forex trading; you get an education as you gain experience.
You can learn from books like the ones by Market Wizards and various strategies explained on these web pages.
I created an area for members in 2014 for forex traders willing to increase their trading level.
Today’s abundance of information on forex strategies is both a boon and a bane for traders. While having access to vast resources can be beneficial, the challenge lies in the quality and applicability of these strategies, leading to poor performance for many. Here’s why:
- Overload of Information:
- The internet is flooded with forex trading strategies, tips, and techniques. This overload can overwhelm traders, especially beginners, making it difficult to discern which strategies are practical and applicable to their trading style or the current market conditions.
- Quality vs. Quantity:
- Not all information available is created equal. Much of the internet content related to forex strategies is not backed by thorough research or real-world testing. Some might be outdated, oversimplified, or outright misleading, aiming to attract clicks or sell products rather than help traders succeed.
- One-Size-Fits-All Approach:
- Many online strategies are marketed as universally efficacious, ignoring that forex trading is highly individualistic. Strategies should vary based on the trader’s risk tolerance, capital, trading style (day trading, swing trading, position trading), and even the traded currency pairs. A strategy that works for one trader might not work for another.
- Lack of Adaptability:
- Forex markets are dynamic and influenced by many factors, including economic indicators, political events, and market sentiment. A strategy that performs well under certain conditions might fail under others if it’s not adaptable. Many traders fail to adjust their strategies according to market changes, leading to poor performance.
- Insufficient Testing:
- Before applying a strategy in a live trading environment, it should be rigorously tested through backtesting and demo trading. However, many traders eager to jump into trading skip this step. As a result, they do not clearly understand the strategy’s effectiveness or how to implement it properly under live market conditions.
- Misalignment with Personal Goals and Risk Management:
- A strategy is only as good as its fit with the trader’s objectives and risk tolerance. Many traders adopt aggressive strategies without proper risk management practices or pursue strategies that do not align with their financial goals or trading schedule, leading to stress and poor performance.
Note that nothing can substitute experience. Of course, it’s the same in the case of any discipline—the market becomes perfect for you in trading. Therefore, what is the most effective way to learn to trade?
Maintain a journal for trading and use it to monitor the observations each trading day. See whether the observation respects the resistance or support that you offer. If so, determine whether it forms a sell or buy signal.
You train yourself without your knowledge as you keep recording the market trends.
Over the next few months, you will learn to recognize the pattern. It may look simple, but patterns will work.
Risk and overtrading
One of the simple rules is to risk 1% per trading during forex trading. Research from significant forex brokers shows that most traders risk 10% and 50% per trade.
To understand that risk and overtrading can lead to losing all money, please see this table:
Every drawdown of more than 10% can lead to a situation in which traders can not recover losses. See Tabelin which.
A poor inclination to accept randomness
No individual in the world is interested in sacrificing control of a situation. In any case, you would like to have some control.
However, note that you can control nothing as for the market,
You’re unable to decide how low the EURUSD will fall, and you cannot say if the EURUSD will go up or come down compared to today’s price. Most people cannot determine it.
When I started trading ten years ago, I encountered a problem that was too harsh to ignore. I remember so much that it was too harsh to sleep beyond midnight, as I could not ignore my trade trends.
I became preoccupied with my trade, and of course, it was not that good.
I thought the trading would worsen if I stayed longer with charts.
A significant lesson that I realized all these years is how to be a condom. Therefore, visualizing everything is essential. Even the most predictable trade may essentially fail. You’re the sole authority to decide.
Look for the book by the late Mark Douglas, Trading in the Zone, to go ahead of all others. I don’t get any remuneration if I advise you in favor of it. I am happy to tell you about the book that was so helpful in the trade several years ago.
Patience
Patience is a potent and excellent quality for each trader. The problem is an excellent lack of patience. Be it standing in a queue, waiting at a logistics center of an airport, or the checkout counter, people don’t love to stay in line and wait. Strangely, the starting point of successful trading is waiting.
If you don’t spend the most time waiting, you’re not doing everything right. It’s most likely that money is being lost wastefully.
Let’s elaborate on clarity.
There is hardly a second opinion against the saying that people usually don’t have enough patience.
In most cases, traders lose money. Also, not all traders are losers. The truth is that people have no patience, and the loss of money by many traders has a direct correlation, as you will discover in business.
Then, the solution?
It would help if you had a lot of patience when trading. This is easier to say but hard to execute. If everyone had as much patience as required, there would have been scores of successful retail traders worldwide.
The good thing is that there are only a small number of simple rules to follow:
- Never risk more than 2% of your portfolio.
- Test every strategy that you create, either manually or automated.
- Build new setups each week.
- Create a limit for yourself for one or two trades each week. It depends on yourself as you’re your boss.
- Be positive and patient.
- Making more effort will speed up the process; working harder might be harmful. This is precisely how accounts get deleted.
- As you keep trying hard yet struggle and fail, it’s best to have you so hard.
- A wrap-up
The market is shaped to kill your emotions and has such fantastic ability. It’s emotions because you made it so hard. You are not building the whole and framing the trading rules because the market is unpalatable to you. You create rules to shield yourself from fluctuations thanks to emotions and impulses. Take care of this when you’re at the market. I assure you that you will enjoy the journey.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
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