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Don’t let anyone tell you differently – making money from trading on Foreign Exchange is hard. Everywhere that you look on the Internet these days, strategies are being promoted that offer untold riches from just a few minutes spent speculating on these markets each day. However unfortunately the reality is much different. Instead of basking in the glory of profits made, only a handful of the people who take up the mantle of trading on these markets will ever make money, while most who take this route actually end up losing it. So why is this and is it actually possible to elevate your trading to the exclusive class of the profitable few?

Chicago Board of Trade
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There are several reasons why people fail when trading. The most common underlying cause of all poor trading performance is actually the trader themselves. This however is often hard for the individual to admit. Instead they prefer to place the blame on their systems. This is the reason why so many new strategies are constantly be launched on the market. Most people prefer to spend their time looking for the next big ‘thing’ without ever addressing the root of their poor performance.

So what steps can you take to overcome these failings? Well while the following advice can’t promise to make you a winner overnight, it will assist in getting you to think more critically about your personal involvement in the process. As a result you will be able to avoid many of the common pitfalls that may hold your performance back.

Think Like A Trader

Perhaps the greatest weakness that is brought to the table by the trader is their emotions. Fundamentally the human psyche is not geared towards trading. To be a successful trader you need to have the ability to make rational and calculated decisions when faced with the currency markets. This requires that you can put aside your emotions from the equation.

The emotions that are felt when undertaking any form of investment can manoeuvre the trader into making the wrong decisions. Seeing an open order suddenly move from profit to loss can trigger panic, while admitting that you have ‘got it wrong’ can be hard to take. Consequently the natural responses that are elicited in these scenarios tend to go against financial logic.

If you have greedily held on to you profit and it has gone, then it probably won’t come back. Similarly if your order turns negative then don’t compound your losses by continuing to hold on for a reversal in hope.

Structure Your Trading

Some of the best strategies for Forex are the simplest. However what marks them out is that they work according to a strict plan. This is the reason that they are successful, as they provide a framework for operation. This helps to prevent any ad hoc decision making in the process and ensures an adherence to a long term plan.

Just like a well constructed strategy, it is important for the trader to have a structure to their trading so they don’t get drawn into the moment. If they are then this can result in them making decisions without the backing of sound logic. This is where performance and ultimately profitability can break down.

Mechanize The Process

As we have already seen, many of the failings associated with poor trading performance tend to be the result of misplaced human interaction. Therefore by limiting the involvement of the trader in the decision making process, theoretically performance can be improved.

The Forex trader should not be completely removed from the equation. However if the mechanics of any strategy can be somewhat ‘automated’ and placed with a set of rules, then all that is required is for the individual to execute these rules within the guidelines that are set.

A good example of this is to make use of set profit targets and stop loss levels on any orders placed. These can be worked out prior to the order being placed. In this way they can be correctly calculated and compared against any analysis. Trading orders can then be set up to automatically execute at these levels, leaving the only human involvement being the execution of the deal on the account.

While settings out rules are good in practice, the reality is that in order to avoid the failure of so many Forex traders it is important that they are observed. It is in the end down to the individual to make sure they are observed. They will only work provided that the trader does not try to intervene and bring the element of emotion back into the process.

Vernon Lees is a full time trader with a number of years in the Foreign Exchange industry. Visit his website to find out more about his trading method.
 

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