The main reason why Forex trading is hard for most retail traders I included is largely due to our inability to control our emotions. There is a wealth of information on how to become a profitable Forex trader on the internet today, including forums where successful traders share tips on how to be like them. However, despite the abundance of this information, many retail traders are still unprofitable as evidenced by the data provided by Forex brokers. Most brokers report that over 70% of retail traders lose money over a 12-month period, which begs the question, why is Forex trading hard?
Traders are not the best at controlling their emotions
This is the single reason why Forex trading is hard for almost every human being, and there is a good reason for this. As humans, we are very emotional beings as most marketers will confess, which is why they make advertisements that appeal to our emotions. Psychologists also admit that as human beings we make all our decisions based on our emotions and then justify the decisions using logic. However, trading works in the opposite direction to human nature here you must first apply logic to your trading decisions and ignore your emotions. While most people trust their gut feelings on most of their decisions, this method does not work in trading, especially for the unsuccessful trader. Now let’s look at how our emotions make trading hard.
1. Chasing the market higher
Most Forex traders know that they should not pile into a trade at all-time highs as there is a huge possibility that the market has peaked and the currency pair is likely to start falling. Traders are also aware that even if the market has not peaked, there is a high likelihood that the momentum behind the move is dissipating making it a lower-probability trade. However, they still buy at or near all-time highs because they do not want to miss out on such a huge move as other traders make money. Therefore, traders enter into such trades and make quick losses as the market tops and starts falling exactly as most successful traders predict.
2. Revenge trading
Traders who have just made losses are likely to enter into new trades immediately following their losses as they try to recoup the lost funds. Many times, the revenge trades do not work out, and they end up losing even more money by taking low-probability trades. Revenge trading is something that can creep on even the successful traders who may encounter prolonged losing streaks at different points in their careers. Therefore, you always have to monitor your emotions when trading and avoid trading when you have extreme emotions such as anger, exhilaration, and sadness among others.
3. Not following your trading plan
Another major reason why Forex trading is hard is that most traders have a hard time sticking to their well thought-out trading plans as market conditions change. For example, most Forex trading systems are based around specific criteria such as taking long trades when the price is above the 20-day EMA among many others. However, many traders may ignore this simple rule and may take a long trade when the price is below the EMA in anticipation of the price breaking above the indicator. Well, it is no surprise that most times the price will hit the EMA line and keep falling instead of breaking above it; there is a different criterion for trading a breakout that does not involve the EMA but relies on support and resistance levels.
A huge reason why most Forex traders find trading hard is because they fall prey to the desire to get rich quickly from trading, also known as greed. Most traders know that greed is not a good emotion and that many successful traders have seen their downfall due to greed. Almost every trader has fallen victim to this emotion on many occasions where they incurred massive losses. Greed is the main driver behind actions such as placing a very tight stop-loss order because of trading larger lots than your account can support. Other instances of greed include letting a small loss turn into a large one as you do not want to book a small profit and exit the trade.
Fear and greed are closely related emotions, and they are the reason why bull markets are followed by bear markets as investors move from being greedy to being very fearful. Greed will drive you to let small losses turn into big losses, while fear will drive you to exit a profitable trade with lesser profits than if you held the trade for much longer and took maximum profits.
The bottom line
It is now very clear that the single reason why Forex trading is hard is that as humans we are not good at controlling our emotions and making decisions based solely on logic. The journey to becoming a successful trader is most a journey in self-mastery as you learn from your mistakes and from other traders who are profitable Forex traders.