The primary purpose of forex trading is straightforward: to trade for another day.
The first step is to open an account and deposit actual money into it. The goal is to stay afloat long enough to learn the skills required to become consistently profitable.
So, how can you tell if you’re on the right track?
Is a low balance inherently indicative of poor trading skills? How many deals do you believe are required before you MUST show profits? Should you be concerned if you’re on a losing streak?
Do not be alarmed by the questions above. Keep in mind that losing is just as much a part of forex trading as winning. A string of losses or a constant lack of earnings, on the other hand, may indicate that your trading strategy needs to be tweaked.
Here are five questions to help you identify your problem area(s). Of course, trading on demo prior to registering a live account would have already answered the majority of these questions:
1. Are you making common trading mistakes?
Humans have a tendency to believe that they will be the exception rather than the rule. People buy lottery tickets in the hope of winning the massive jackpot prize. Others buy homes near fault lines, thinking to themselves, “Eh. There won’t be any earthquakes while I’m here.”
Forex traders are no exception. Despite being informed that more than 95% do not survive their first months, some remain overconfident and believe they would be immune to traditional trading mistakes.
Don’t be afraid to investigate whether you’ve committed one of them. Whether it’s as simple as not setting stops or as complex as a lack of emotional control, it’s best to address your trading issues as soon as possible.
2. Have you got a trading strategy?
How do you decide which transactions to make for the day? Do you trade the first currency pair that grabs your attention? Do you choose the most colorful indicator and buy/sell based on its signals? Which time frames do you often consider?
Trading without a system is akin to randomly pressing buttons on a game controller in the hopes of hitting a winning combination. You might win, but you’ll have no idea how to do it again.
A trading method will assist you in becoming consistently lucrative. If you don’t know how to make one, start by determining your entrance and exit parameters.
3. Are you in control of your risk exposure?
Is your typical position size in line with your risk tolerance? Are you looking for opportunities with a high reward-to-risk ratio? Given your debt and margin levels, how much daily loss can you sustain? Are you keeping track of your trading expectancy if you are winning deals but not making money?
Remember, trading without risk management is gambling. In the end, forex trading is a numbers game, and those who understand how to take advantage of favorable odds will live the longest.
4. What is revealed in your trading journal?
You can’t enhance something you don’t measure. Trading journals not only show you where your vulnerabilities are, but they also keep you from falling back into old routines and repeating previous mistakes. It motivates you to measure, track, and improve your performance.
What you write in your journal depends on your personality, but you can start with basics like your motivations, market perspectives, trading mistakes, and general statistics. If you’re not sure which performance metrics are important, talk to other traders.
5. Is forex trading something you want to do?
Perhaps you’re not making money trading forex because currency trading isn’t for you.
It’s possible that forex trading is too risky for your risk tolerance. Or perhaps macroeconomic developments do not pique your interest. It’s also possible that you’re so used to trading other assets that you’re uninterested in currency.
In any case, there’s nothing wrong with abandoning forex trading if you don’t think it’s for you. In fact, we’d rather see an informed investor walk away from forex trading than a greedy one.
That concludes my list for today! I’m sure there is a slew of other reasons why you’re not making money despite your efforts, but I believe this list is a good place to start in identifying your flaws. I hope it was useful!