In Forex trading, the initial goal is simple: trade for another day.
Opening an account and putting real money into it is the easy part. The challenge is staying afloat long enough to gain the skills needed to consistently make money.
So how do you know you’re on the right track?
Does a negative balance automatically mean you are a failed trader? How many trades do you think are necessary before you have to make a profit? Should you panic when you are on a losing streak?
If the above questions startle you, don’t worry. Remember that losing is as much a part of forex trading as winning. However, a losing streak or a persistent lack of profits could be a sign that your trading process needs to be adjusted.
Here are five questions you need to answer to help identify your problem areas:
1. Are you making classic trading mistakes?
Humans tend to believe they will be the exception to the rule. People buy lottery tickets thinking they will win a huge jackpot. Others buy homes near fault lines thinking they willOh, there won’t be any earthquakes while I’m here anyway.“
It is no different with Forex traders. Despite being warned that more than 95% of them do not succeed in their first months, some of them are still so confident that they believe they are immune to classic trading mistakes.
Don’t be afraid to check if you’ve made any of these mistakes. Whether they’re basic mistakes like not setting stops or psychological ones like lack of emotional control, it’s best to address your trading problems as soon as possible.
2. Do you have a trading system?
How do you choose your day trades? Do you trade the first currency pair that catches your eye? Do you choose the most versatile indicator and buy/sell based on its signals? What time frames do you usually look at?
Trading without a system is like pressing random buttons on a game controller, hoping for a winning combination. You may win, but you won’t know how to do it again.
A trading system will greatly help you to make a profit consistently. If you do not know how to build a trading system, you can start simply by defining entry and exit parameters.
3. Are you managing your risk exposure?
Is your average position size in line with your risk tolerance? Are you taking setups with a good reward-to-risk ratio? How much daily loss can you afford given your leverage and margin levels? For those who are winning trades but not yet making money, are you following your trading expectations?
Remember that trading without risk management is gambling. Ultimately, Forex trading is a numbers game, and those who know how to take advantage of favorable odds are the ones who survive longer.
4. What does your trading journal tell you?
You can’t improve what you don’t measure. Trading journals not only tell you where you’re going wrong, they also prevent you from falling back into old habits and repeating your past mistakes. They keep you measuring, tracking, and focused on improving your performance.
What you write in your journal depends on your personality, but you can start with basics like your motivations, your views on the market, trading mistakes, and general statistics. Consider asking other traders if you’re unsure of important performance metrics.
5. Is Forex Trading Right for You?
The reason you can’t make money trading Forex may be because currency trading isn’t right for you.
It could be that you find currency trading to be too risky for you. Or maybe macroeconomic events don’t really interest you. Or it could be that you’re so used to trading other assets that you don’t care much about currencies.
However, there is nothing wrong with giving up on Forex trading if you feel it is not for you. In fact, we would rather see an informed investor quit Forex trading than an enthusiastic investor who is in it just for the money.