One of the biggest reasons forex traders fail to become successful is their fear takes when they’re trading. This is especially common if you’re new to the industry and you’ve no idea what you need to do to stay focused and on top of your game. We’re going to go through some top reasons why most people fail in this industry out of fear so you can avoid making the same mistakes. Now if you belong to the traders who fear trading due to any of the issues we’re going to be talking about, we’re also going to be including how to overcome each of these fears so that you may give yourself a second chance at your trading journey. So let’s dive right into why fear dominates forex trading.
Trading Without A Strategy
Oftentimes traders get into this industry with no game plan. They just go with the flow and hope it makes them profitable. Forex trading is not a game. Real money is involved and it needs to be taken seriously. Having no strategy can significantly make you fearful and hesitant when placing trades. This is because you know that you’re just winging it and there’s no guarantee that you’re luck will be on your side. This is not an industry that works on luck. It requires having a focused game plan that works for you.
Having a trading strategy can improve your confidence levels as you know you’re doing everything by the books and therefore, you have a greater chance of turning a profit. It is a common misconception that a trading strategy requires a ton of learning and understanding the markets. Most strategies are pretty simple and even most beginners can get them figured out within a couple of tries.
Trading Without Discipline
Trading in the forex industry is a constant battle with your mind and emotions. When executing a trade, your mind tells you to do something and your emotions tell you to do something else. Oftentimes, we let our emotions get the best of us and it causes us to lose a lot of opportunities out of fear of incurring a loss. This industry requires completely switching off our emotions and only using our mind when trading. We shouldn’t doubt ourselves in our ability to make good trading decisions. This is the entire reason traders don’t become successful. Letting our fear get the best of us means letting our emotions do the trading. We need to understand that there is no way we’re going to be successful in this industry if we let our emotions control us. This will make us fear every move we make. We need to stay disciplined and only then we will be confident with the way we do our trading.
Having Unrealistic Expectations
It is a common misconception that forex trading is an easy route to becoming a millionaire. Now while this can happen, it doesn’t happen overnight. Oftentimes, trades hold very high expectations for the deals they place. They think every deal is going to make them a ton of profit and this is going to make them rich. This isn’t the case. Some deals can only do so much. And we even have to take into account other factors such as lot size. What usually happens is that a trader will hold their trade at a very high expectation. They believe that this trade will make them a ton of money. When the trade doesn’t meet their expectations, their emotions start entering the room and they start fearing that they made a wrong move. This fear usually makes them close a deal too early or too late and they end up not making as much as they probably could’ve. It is therefore important to only have realistic expectations when performing trades so that your emotions don’t enter the space.
Poor Money Management
One of the biggest mistakes traders make in this industry is that they don’t know how to manage the capital in their accounts. They often either have too much or too little capital hanging around and this can impact their margin levels and make it seem like their account isn’t doing too good. Some trades may not even know about the stop loss and take profit features which are key in keeping your mind stress free. A trader may let fear take over when they worry about missing the opportunity of getting a good profit.
They can therefore set the take profit feature so that the deal will automatically close once it reaches the required profit. A trader may also let fear take over if they worry about incurring too much loss on a trade. They can therefore set the stop loss feature so the trade will automatically close once it reaches the maximum loss that you’ve allowed. Having these features is key to managing your money and therefore keeping you stress-free so you don’t have to watch the markets at all times.
Fear of Missing Out
The fear of missing out comes in two places. It either comes when you’re contemplating on executing a trade, or it comes when you’re contemplating on closing a trade. When thinking about executing a trade, a trader often worries that they’re executing it too early and that the market may continue to drop or rise which will make them miss out on the opportunity of entering the trade at a better price. This fear of missing out often lets them wait too long and they end up missing out on the trade entirely. When thinking about closing a trade, a trader often worries that they’re closing too early and that if they wait a little longer, they could potentially earn more profits in this deal. This fear of missing out lets them wait too long and they end up losing more profits than if they had closed the deal earlier. It is therefore important to not let fear control you and to always go with your gut when making these decisions.
A trader may let fear dominate their trading if they’re unable to predict the market conditions. Sometimes the market becomes too volatile all of a sudden due to several reasons like instability in the geopolitical space surrounding certain countries. This instability causes unpredictable market conditions and the market would be reacting different than usual. A trader often fears to trade in these conditions as they’re unsure if their strategy will still work or if they’re going to incur losses due to the market not being cooperative.
Another reason why a trader may fear trading due to being unable to predict the market is when they’re trading a new financial asset that they’ve never tried before. This often has them on the edge as they’re unfamiliar with the way the market for this asset reacts so they don’t know what strategy to use to get it under control. When in these sorts of situations, it is often better to take a step back momentarily. If the market is unpredictable due to unstable economic conditions, it’s better to not place any new trades with that forex pair till conditions stabilize. If the market is unpredictable due to having no previous experience in that market, it is better to first trade that forex pair in a demo account for a while before trying it out in a real account.