If you ask any successful currency or Forex trader what their secret to success is you probably won’t get the answer you expect. Many amateurs to the trading game think that the really successful guys have some secret formula or other advantage that allows them to get out at all the right times or “buy” when most people are thinking “sell”. Is that the only differentiating factor? Why do most people fail miserably at Forex trading, whilst others seem to have great success? One of the key aspects is about your frame of mind and emotional stability. With so many currency trading indicators around it can get mind-boggling, moving from one forex system to the next.
A good trader has to separate and use the “trader mentality”. This means that they don’t think with emotion. While most traders constantly obsess and second guess their strategy or techniques, good traders have confidence in their abilities and don’t let anything other than careful market analysis effect their decisions.
Most new traders get into the game for one reason, to make money that they aren’t making now. They typically don’t have another investment income coming in and most likely they do it as a hobby at first with the hopes of making some extra cash. They also usually have very little money to invest. This type of investor is doomed from day one. The reason why is because he is far too emotionally attached and is being “results-oriented” When they lose money it hurts, both financially and emotionally. They think of every lost dime as a failure and because of that frame of mind, make very poor decisions that the analytical investor wouldn’t make.
A good investor has the proper bankroll for investing.
Trying to get into big money Forex or currency trading with less than $25,000.00 of completely disposable capital is financial suicide. If you look at the gains and losses of a successful day-to-day Forex trader you aren’t going to see a steady rise of profit. In fact some successful traders can go several months in the red even when making the very best decisions. This is called variance in the market. The biggest difference between a beginner and a veteran when it comes to variance is two-fold;
The veteran investor has months of capital to invest. This means that even when the market is hitting them in the wallet as hard as it can, they still have enough capital to invest to bring them out of the hole when the market stabilizes. The most common investor usually only has enough capital to make their first few big trades and maybe a little in reserve. This means that any minor fluctuation in the currency market will make a significant impact on their overall portfolio. Even if they are making the right trades, continued market volatility could bankrupt them before they have a chance to ride the upswing of the Forex rollercoaster.
The good investor has a plan and sticks to it.
The veteran investor uses a tested and simplistic trading system to make decisions for them. It doesn’t matter how long a person has been investing, no one can predict the market and no one will always make the right trades. The market is simply too volatile and is affected by twice as many factors than regular stock investments. There are literally hundreds of Forex and currency trading systems available ranging in aggressiveness, tolerance for loss and various forms exit and enter strategies. The biggest hurdle outside the emotional strain of currency trading is simply finding or developing a system that works with your available capital, risk-aversion, and goals.
Traders that don’t use a regimented system like these are left to make ill-informed or emotionally charged decisions, which usually cost them significantly. If you have a solid system that’s been proven effective, stick with it. Remember the currency and Forex market is extremely volatile and the variance is more than most people can afford or handle. Don’t let a few weeks or even months of bad results change the way you trade. Sit back, relax and stay clam. Use your information, make informed decisions and don’t let the variance take over your better judgment. Stick with it and you could be finally consistent in the currencies market.