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Top Reasons Forex Traders Fail

FiledUnder: Brokers, Currencies, Forex, International Markets, Money Market, Portfolio

Management, Young Investors
The forex market is the largest and most accessible financial market in the world, but
although there are many forex investors, there are few truly successful ones. Many traders
fail for the same reasons that investors fail in other asset classes. In addition, the extreme
amount of leverage provided by the market and the relatively small amounts of margin
required when trading currencies deny traders the opportunity to make numerous low-risk
mistakes. There are factors specific to trading currencies that can cause some traders to
expect greater investment returns than the market can consistently offer or to take more
risk than they would when trading in other markets. (For a complete step-by-step guide on
forex trading, check out our Forex Walkthrough.)
TUTORIAL: Introduction To Currency Trading
Forex Market Trading Hazards
There are certain mistakes that can keep traders from achieving their investment goals. The
following are some of the common pitfalls that can plague forex traders:
Not Maintaining Trading Discipline
The largest mistake any trader can make is to let emotions control trading decisions.
Becoming a successful forex trader means achieving a few big wins while suffering
many smaller losses. Experiencing many consecutive losses is difficult to handle
emotionally and can test a traders patience and confidence. Trying to beat the
market or giving in to fear and greed can lead to cutting winners short and letting
losing trades run out of control. Conquering emotion is achieved by trading within a
well-constructed trading plan that assists in maintaining trading discipline. (Find out
how your mindset can play a larger role in your success than market influences can,
read Trading Psychology And Discipline and Momentum Trading with Discipline.)

Trading Without a Plan

Whether one trades forex or any other asset class, the first step in achieving success
is to create and follow a trading plan. Failing to plan is planning to fail is an adage
that holds true for any type of trading. The successful trader works within a
documented plan that includes risk management rules and specifies the
expectedreturn on investment (ROI). Adhering to a strategic trading plan can
help investors evade some of the most common trading pitfalls; if you don't have a
plan, you're selling yourself short in terms of what you can accomplish in the forex
market. (Read10 Steps To Building A Winning Trading Plan.)

Failing to Adapt to the Market

Before the market even opens, you should create a plan for every trade.
Conductingscenario analysis and planning the moves and countermoves for every
potential market situation can help significantly reduce the risk of large, unexpected
losses. As the market changes, it presents new opportunities and risks. There is no
panacea or foolproof system that can persistently prevail over the long term. The
most successful traders adapt to market changes and modify their strategies to
conform to them. Successful traders plan for low probability events and are rarely

surprised if they occur. Through a process of education and adaptation, they stay
ahead of the pack and are continuously finding new and creative ways to profit from
the evolving market.

Learning Through Trial and Error

Without a doubt, the most expensive way to learn to trade the currency markets is
through trial and error. Discovering the appropriate trading strategies by learning
from your mistakes is not an efficient way to trade any market. Since forex is
considerably different from the equity market, the probability of new traders
sustaining account-crippling losses is high. The most efficient way to become a
successful currency trader is to access the experience of successful traders. This can
be done through a formal trading education or through a mentor relationship with
someone who has a notable track record. One of the best ways to perfect your skills
is to shadow a successful trader, especially when you add hours of practice on your
own. (By blending good analysis with effective implementation, you can dramatically
improve your profit in this market, check out Top 4 Things Successful Forex Traders

Having Unrealistic Expectations

No matter what anyone says, trading forex is not a get-rich-quick scheme. Becoming
proficient enough to accumulate profits is not a sprint - it's a marathon. Success
requires recurrent efforts to master the strategies involved. Swinging for the fences
or trying to force the market to provide abnormal returns usually results in traders
risking more capital than warranted by the potential profits. Foregoing trade
discipline to gamble on unrealistic gains means abandoning risk and money
management rules that are designed to prevent market remorse. (For more on
controlling your trading, see Understanding Forex Risk Management.)

Poor Risk and Money Management

Traders should put as much focus on risk management as they do on developing
strategy. Some naive individuals will trade without protection and abstain from
usingstop losses and similar tactics in fear of being stopped out too early. At any
given time, successful traders know exactly how much of their investment capital is
at risk and are satisfied that it is appropriate in relation to the projected benefits. As
the trading account becomes larger, capital preservation becomes more
important.Diversification among trading strategies and currency pairs, in concert with
the appropriate position sizing, can insulate a trading account from unfixable losses.
Superior traders will segment their accounts into separate risk/return tranches, where
only a small portion of their account is used for high-risk trades and the balance is
traded conservatively. This type of asset allocation strategy will also ensure that lowprobability events and broken trades cannot devastate ones trading account.
(Currency trading offers far more flexibility than other markets, but long-term success
requires discipline in money management, read Forex: Money Management Matters.)

Managing Leverage
Although these mistakes can afflict all types of traders and investors, there are issues
inherent in the forex market that can significantly increase trading risks. The significant

amount of financial leverage afforded forex traders presents additional risk that must be
Leverage provides traders with an opportunity to enhance returns. But leverage and the
commensurate financial risk is a double-edged sword that amplifies the downside as much
as it adds to potential gains. The forex market allows traders to leverage their accounts as
much as 400:1, which can lead to massive trading gains in some cases - and account for
crippling losses in others. The market allows traders to use vast amounts of financial risk,
but in many cases it is in a traders best interest to limit the amount of leverage used. (For
more insight, read Forex Leverage: A Double-Edged Sword.)
Most professional traders use about 2:1 leverage by trading one standard lot ($100,000) for
every $50,000 in their trading accounts. This coincides with one mini lot ($10,000) for every
$5,000 and one micro lot ($1,000) for every $500 of account value. The amount of leverage
available comes from the amount of margin that brokers require for each trade. Margin is
simply a good faith deposit that you make to insulate the broker from potential losses on a
trade. The bank pools the margin deposits into one tremendous margin deposit that it uses
to make trades with the interbank market. Anyone that has ever had a trade go horribly
wrong knows about the dreadful margin call, where brokers demand additional cash
deposits; if they don't get them, they will sell the position at a loss to mitigate further losses
or recoup their capital.
Many forex brokers require various amounts of margin, which translates into the following
popular leverage ratios:

Margin Maximu













The reason many forex traders fail is that they are undercapitalized in relation to the size of
the trades they make. It is either greed or the prospect of controlling vast amounts of money
with only a small amount of capital that coerces forex traders to take on such huge and
fragile financial risk. For example at a 100:1 leverage (a rather common leverage ratio), it
only takes a -1% change in price to result in a 100% loss. And every loss, even the small
ones taken by being stopped out of a trade early, only exacerbates the problem by reducing
the overall account balance and further increasing the leverage ratio.
Not only does leverage magnify losses, but it also increases transaction costs as a percent of
account value. For example, if a trader with a mini account of $500 uses 100:1 leverage by
buying five mini lots ($10,000) of a currency pair with a five-pip spread, the trader also
incurs $25 in transaction costs [(1/pip x 5 pip spread) x 5 lots]. Before the trade even begins,
he or she has to catch up, since the $25 in transaction costs represents 5% of the account
value. The higher the leverage, the higher the transaction costs as a percentage of account
value, and these costs increase as the account value drops. (For more, see How Does
Leverage Affect Pip Value?)
While the forex market is expected to be less volatile in the long term than the equity
market, it is obvious that the inability to withstand periodic losses and the negative effect of
those periodic losses through high levels of leverage are a disaster waiting to happen. These
issues are compounded by the fact that the forex market contains a significant level
ofmacroeconomic and political risks that can create short-term pricing inefficiencies and play
havoc with the value of certain currency pairs.
Many of the factors that cause forex traders to fail are similar to ones that plague investors
in other asset classes. The simplest way to avoid some of these pitfalls is to build a
relationship with other successful forex traders who can teach you the trading disciplines
required by the asset class, including the risk and money management rules required to
trade the forex market. Only then will you be able to plan appropriately and trade with the
return expectations that keep you from taking excessive risk for the potential benefits.
(Check out our Forex Walkthrough - Level 1: Forex Intro, Level 2: Markets.)
While understanding the macroeconomic, technical and fundamental analysis necessary for
trading forex is as important as the requisite trading psychology, one of the largest factors
that separates success from failure is a trader's ability to manage a trading account. The
keys to account management include making sure to be sufficiently capitalized, using
appropriate trade sizing and limiting financial risk by using smart levels of leverage.

by Robert Stammers,CFA (Contact Author | Biography)

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institutional fund managers. Mr. Stammers holds The CFA Institute's Chartered Financial
Analyst designation, a Bachelor of Arts in economics from Connecticut College, and a Master
of Business Administration with honors from Emory University. Visit to
learn more timely strategies and tactics for creating cash flow with stocks and options.
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10 Steps to Building a Winning Trading Plan

There is an old saying in business: "Fail to plan and you plan to fail." It may sound glib, but
those who are serious about being successful, including traders, should follow these eight
words as if they were written in stone. Ask any trader who makes money on a consistent
basis and they will tell you, "You have two choices: you can either methodically follow a
written plan, or fail.

If you have a written trading or investment plan, congratulations! You are in the minority.
While it is still no absolute guarantee of success, you have eliminated one major roadblock.
If your plan uses flawed techniques or lacks preparation, your success won't come
immediately, but at least you are in a position to chart and modify your course. By
documenting the process, you learn what works and how to avoid repeating costly
Whether or not you have a plan now, here are some ideas to help with the process.
Disaster Avoidance 101
Trading is a business, so you have to treat it as such if you want to succeed. Reading some
books, buying a charting program, opening a brokerage account and starting to trade is not
a business plan - it is a recipe for disaster. "If you don't follow a written trading plan, you
court disaster every time you enter the market," says John Novak, an experienced trader
and developer of the T-3 Fibs Protrader Program.
John and his wife Melinda, who is also his business partner in Nexgen Software Systems, run
a number of educational trading chat rooms to help traders learn how to use their software
and, more importantly, learn how to trade. In a nutshell, their software
identifiesFibonacci areas of support and resistance in multiple time frames and provides
traders with specific areas to enter and exit the market. Once a trader knows where the
market has the potential to pause or reverse, he or she must then determine which one it
will be and act accordingly.
"Even with the best program, market data and analysis, odds for consistent success range
from slim to none without a written plan," says Novak. The Nexgen website offers examples
of trading plans and useful market information for the benefit of both clients and non-clients

"Like the markets, a good trading plan evolves and changes, and should improve over time,"
says Melinda Novak.
A plan should be written in stone while you are trading, but subject to re-evaluation once the
market has closed. It changes with market conditions and adjusts as the trader's skill level
improves. Each trader should write his or her own plan, taking into account personal trading
styles and goals. Using someone else's plan does not reflect your trading characteristics.

Building the Perfect Master Plan

What are the components of a good trading plan? Here are 10 essentials that every plan
should include.
1. Skill assessment - Are you ready to trade? Have you tested your system by paper
trading it and do you have confidence that it works? Can you follow your signals
without hesitation? If not, it's a good idea to read Mark Douglas's book, "Trading in
the Zone", and do the trading exercises on pages 189201. This will teach you how to
think in terms of probabilities. Trading in the markets is a battle of give and take. The
real pros are prepared and they take their profits from the rest of the crowd who,
lacking a plan, give their money away through costly mistakes.
2. Mental preparation How do you feel? Did you get a good night's sleep? Do you feel
up to the challenge ahead? If you are not emotionally and psychologically ready to do
battle in the markets, it is better to take the day off - otherwise, you risk losing your
shirt. This is guaranteed to happen if you are angry, hungover, preoccupied or
otherwise distracted from the task at hand. Many traders have a market mantra they
repeat before the day begins to get them ready. Create one that puts you in the
trading zone.
3. Set risk level How much of your portfolio should you risk on any one trade? It can
range anywhere from around 1% to as much as 5% of your portfolio on a given
trading day. That means if you lose that amount at any point in the day, you get out
and stay out. This will depend on your trading style and risk tolerance. Better to keep
powder dry to fight another day if things aren't going your way.
4. Set goals Before you enter a trade, set realistic profit targets and risk/reward ratios.
What is the minimum risk/reward you will accept? Many traders use will not take a
trade unless the potential profit is at least three times greater than the risk. For
example, if your stop loss is a dollar loss per share, your goal should be a $3 profit.
Set weekly, monthly and annual profit goals in dollars or as a percentage of your
portfolio, and re-assess them regularly.
5. Do your homework Before the market opens, what is going on around the world?
Are overseas markets up or down? Are index futures such as the S&P 500 or Nasdaq
100exchange-traded funds up or down in pre-market? Index futures are a good way
of gauging market mood before the market opens. What economic or earnings data is
due out and when? Post a list on the wall in front of you and decide whether you want
to trade ahead of an important economic report. For most traders, it is better to wait

until the report is released than take unnecessary risk. Pros trade based on
probabilities. They don't gamble.
6. Trade preparation Before the trading day, reboot your computer(s) to clear the
resident memory (RAM). Whatever trading system and program you use, label major
and minor support and resistance levels, set alerts for entry and exit signals and
make sure all signals can be easily seen or detected with a clear visual or auditory
signal. Your trading area should not offer distractions. Remember, this is a business,
and distractions can be costly.
7. Set exit rules Most traders make the mistake of concentrating 90% or more of their
efforts in looking for buy signals but pay very little attention to when and where to
exit. Many traders cannot sell if they are down because they don't want to take a
loss. Get over it or you will not make it as a trader. If your stop gets hit, it means you
were wrong. Don't take it personally. Professional traders lose more trades than they
win, but by managing money and limiting losses, they still end up making profits.
Before you enter a trade, you should know where your exits are. There are at least
two for every trade. First, what is your stop loss if the trade goes against you? It must
be written down. Mental stops don't count. Second, each trade should have a profit
target. Once you get there, sell a portion of your position and you can move your
stop loss on the rest of your position to break even if you wish. As discussed above in
number three, never risk more than a set percentage of your portfolio on any trade.
8. Set entry rules This comes after the tips for exit rules for a reason: exits are far
more important than entries. A typical entry rule could be worded like this: "If signal
A fires and there is a minimum target at least three times as great as my stop loss
and we are at support, then buy X contracts or shares here." Your system should be
complicated enough to be effective, but simple enough to facilitate snap decisions. If
you have 20 conditions that must be met and many are subjective, you will find it
difficult if not impossible to actually make trades. Computers often make better
traders than people, which may explain why nearly 50% of all trades that now occur
on the New York Stock Exchange are computer-program generated. Computers don't
have to think or feel good to make a trade. If conditions are met, they enter. When
the trade goes the wrong way or hits a profit target, they exit. They don't get angry
at the market or feel invincible after making a few good trades. Each decision is
based on probabilities.
9. Keep excellent records All good traders are also good record keepers. If they win a
trade, they want to know exactly why and how. More importantly, they want to know
the same when they lose, so they don't repeat unnecessary mistakes. Write down
details such as targets, the entry and exit of each trade, the time, support and
resistance levels, daily opening range, market open and close for the day, and record
comments about why you made the trade and lessons learned. Also, you should save
your trading records so that you can go back and analyze the profit/loss for a
particular system, draw-downs (which are amounts lost per trade using a trading
system), average time per trade (which is necessary to calculate trade efficiency),

and other important factors, and also compare them to a buy-and-hold strategy.
Remember, this is a business and you are the accountant.
10. Perform a post-mortem After each trading day, adding up the profit or loss is
secondary to knowing the why and how. Write down your conclusions in your trading
journal so that you can reference them again later.
Parting Notes
"No one should be trading real money until they have at least 30 to 60 profitable paper
trades under their belts in real time in real market conditions before risking real money,"
says Novak.
Successful paper trading does not guarantee that you will have success when you begin
trading real money and emotions come into play. But successful paper trading does give the
trader confidence that the system he or she is going to use actually works.
The exercises in "Trading in the Zone" walk the trader through trading a system based on a
simple indicator, entering the market when the indicator gives a buy and exiting when it
gives a sell. Deciding on a system is less important than gaining enough skill so that you are
able to make trades without second guessing or doubting the decision.
There is no way to guarantee that a trade will make money. The trader's chances are based
on his or her skill and system of winning and losing. There is no such thing as winning
without losing. Professional traders know before they enter a trade that the odds are in their
favor or they wouldn't be there. By letting his or her profits ride and cutting losses short, a
trader may lose some battles, but he or she will win the war. Most traders and investors do
the opposite, which is why they never make money.
Traders who win consistently treat trading as a business. While it's not a guarantee that you
will make money, having a plan is crucial if you want to become consistently successful and
survive in the trading game.
by Matt Blackman (Contact Author | Biography)
Matt Blackman, the host of, is a technical trader, author, keynote
speaker and regular contributor to a number of trading publications and investment/trading
websites in North America and Europe. He also writes a weekly market letter.

Momentum Trading with Discipline

To engage in momentum trading, you must have the mental focus to remain steadfast when
things are going your way and to wait when targets are yet to be reached. Momentum
trading requires a massive display of discipline, a rare personality attribute that makes
short-term momentum trading one of the more difficult means of making a profit. Let's look
at a few techniques that can aid in establishing a personal system for success in momentum
Techniques for Entry
The impulse system, a system designed by Dr. Alexander Elder for identifying appropriate
entry points for trading on momentum, uses one indicator to measure market inertia and
another to measure market momentum. To identify market inertia, you can use
an exponential moving average (EMA) for finding uptrends and downtrends. When EMA rises,

the inertia favors the bulls, and when EMA falls, inertia favors thebears. To measure market
momentum, the trader uses the moving-average-convergence-divergence (MACD)
histogram, which is an oscillator displaying a slope reflecting the changes of power among
bulls and bears. When the slope of the MACD histogram rises, bulls are becoming stronger.
When it falls, the bears are gaining strength.
The system issues an entry signal when both the inertia and momentum indicators move in
the same direction, and an exit signal is issued when these two indicators diverge. If signals
from both the EMA and the MACD histogram point in the same direction, both inertia and
momentum are working together toward clear uptrends or downtrends. When both the EMA
and the MACD histogram are rising, the bulls have control of the trend, and the uptrend is
accelerating. When both EMA and MACD histogram fall, the bears are in control, and the
downtrend is paramount.
Refining Entry Points
The above principles for determining market inertia and momentum are used to identify
entry points in a precise style of trading. If your time frame of comfort corresponds to the
daily charts, then you should analyze the weekly chart to determine the relative bullishness
or bearishness of the market. To determine the market's longer-term trend, you can use the
26-week EMA and the weekly MACD histogram on the weekly chart.
Once the long-term trend is gleaned, use your usual daily chart and look for trades only in
the direction of the long-term weekly trend. Using a 13-day EMA and a 12-26-9 MACD
histogram, you can wait for the appropriate signal from your daily comfort zone.
When the weekly trend is up, wait for both the 13-day EMA and MACD histogram to turn up.
At this time, a strong buy signal is issued and you should enter a long position and stay with
it until the buy signal disappears. By contrast, when the weekly trend is down, wait for the
daily charts to show both the 13-day EMA and MACD histogram turning down. Such an
occurrence will be a strong signal to go short, but you should remain ready to cover the
short position at the very moment that your buy signal disappears.
Techniques for Exiting Positions
The major reason momentum trading can be successful in both choppy markets and markets
with a strong trend is that we are searching not for long-term momentum but for short-term
momentum. All markets trend within any given week, and the best stocks to trade are those
that regularly exhibit strong intra-day trends. With that in mind, you must remember to step
off the momentum train before it reaches the station.
As already mentioned, once you have identified and entered into a strong momentum
trading opportunity (when daily EMA and MACD histogram are both rising), you should exit
your position at the very moment either indicator turns down. The daily MACD histogram is
usually (but not always) the first to turn as the upside momentum begins to weaken. This
turn, however, might not be a true sell signal but a result of the removal of the buy signal,
which, for the impulse system, is enough impetus for you to sell.
When the weekly trend is down and the daily EMA and MACD histogram fall while you are in
a short position, you should cover your shorts as soon as either of the indicators stop issuing

a sell signal, when the downward momentum has ceased the most rapid portion of its
descent. Your time to sell is prior to the trend reaching its absolute bottom. As contrasted
with a carefully chosen entry point, the exit points require quick actions at the precise
moment when your identified trend appears to be nearing its end.
As you have probably already noticed, the impulse system of trading on momentum is not a
computerized or mechanical process. This is why human discipline continues to hold so
much sway on your degree of success in momentum trading: you must remain stalwart in
waiting for your "best" opportunity to enter a position, and agile enough in keep your focus
on spotting the next exit signal.
Until next time, all the very best in your trading endeavors

Trading Psychology And Discipline

There are many characteristics and skills required by traders in order for them to be
successful in the financial markets. The ability to understand the inner workings of a
company, its fundamentals and the ability to determine the direction of the trend are a few
of the key traits needed, but none of these is as important as the ability to contain emotions
and maintain discipline.
Trading Psychology
The psychological aspect of trading is extremely important, and the reason for that is fairly
simple. A trader is often darting in and out of stocks on short notice, and is forced to make
quick decisions. To accomplish this, they need a certain presence of mind. They also, by
extension, need discipline, so that they stick with previously established trading plans and
know when to book profits and losses. Emotions simply can't get in the way. (To read more
about trading psychology, see Master Your Trading Mindtraps.)
Understanding Fear
When a trader's screen is pulsating red (a sign that stocks are down) and bad news comes
about a certain stock or the general market, it's not uncommon for the trader to get scared.
When this happens, they may overreact and feel compelled to liquidate their holdings and
go to cash or to refrain from taking any risks. Now, if they do that they may avoid certain
losses - but they also will miss out on the gains.
Traders need to understand what fear is - simply a natural reaction to what they perceive as
a threat (in this case perhaps to their profit or money-making potential). Quantifying the fear
might help. Or that they may be able to better deal with fear by pondering what they are
afraid of, and why they are afraid of it.
Also, by pondering this issue ahead of time and knowing how they may instinctively react to
or perceive certain things, a trader can hope to isolate and identify those feelings during a
trading session, and then try to focus on moving past the emotion. Of course this may not
be easy, and may take practice, but it's necessary to the health of an investor's portfolio.
(For more, see Understanding Investor Behavior.)

Greed Is Your Worst Enemy

There's an old saying on Wall Street that "pigs get slaughtered". These little pigs want more
and more. This greed in investors causes them to hang on to winning positions too long,
trying to get every last tick. This trait can be devastating to returns because the trader is
always running the risk of getting whipsawed or blown out of a position.
Greed is not easy to overcome. That's because within many of us there seems to be an
instinct to always try to do better, to try to get just a little more. A trader should recognize
this instinct if it is present, and develop trade plans based upon rational business decisions,
not on what amounts to an emotional whim or potentially harmful instinct. (Keep reading
about this in When Fear And Greed Take Over.)
The Importance Of Trading Rules
To get their heads in the right place before they feel the emotional or psychological crunch,
investors can look at creating trading rules ahead of time. Traders can establish limits where
they lay out guidelines based on their risk-reward relationship for when they will exit a trade
- regardless of emotions. For example, if a stock is trading at $10/share, the trader might
choose to get out at $10.25, or at $9.75 to put a stop loss or stop limit in and bail.
Of course, establishing price targets might not be the only rule. For example, the trader
might say if certain news, such as specific positive or negative earnings
or macroeconomicnews, comes out, then he or she will buy (or sell) a security. Also, if it
becomes apparent that a large buyer or seller enters the market, the trader might want to
get out.
Traders might also consider setting limits on the amount they win or lose in a day. In other
words, if they reap an $X profit, they're done for the day, or if they lose $Y they fold up their
tent and go home. This works for investors because sometimes it is better to just "go on
take the money and run," like the old Steve Miller song suggests even when those two birds
in the tree look better than the one in your hand. (For more, see Removing The Barriers To
Successful Investing.)
Creating A Trading Plan
Traders should try to learn about their area of interest as much as possible. For example, if
the trader deals heavily and is interested in telecommunications stocks, it makes sense for
him or her to become knowledgeable about that business. Similarly, if he or she trades
heavily in energy stocks, it's fairly logical to want to become well versed in that arena.
To do this, start by formulating a plan to educate yourself. If possible, go to trading seminars
and attend sell-side conferences. Also, it makes sense to plan out and devote as much time
as possible to the research process. That means studying charts, speaking with
management (if applicable), reading trade journals or doing other background work (such as
macroeconomic analysis or industry analysis) so that when the trading session starts the
trader is up to speed. A wealth of knowledge could help the trader overcome fear issues in
itself, so it's a handy tool.
In addition, it's important that the trader consider experimenting with new things from time
to time. For example, consider using options to mitigate risk, or set stop losses at a different

place. One of the best ways a trader can learn is by experimenting - within reason. This
experience may also help reduce emotional influences.
Finally, traders should periodically review and assess their performance. This means not only
should they review their returns and their individual positions, but also how they prepared
for a trading session, how up-to-date they are on the markets and how they're progressing in
terms of ongoing education, among other things. This periodic assessment can help the
trader correct mistakes, which may help enhance their overall returns. It may also help them
to maintain the right mindset and help them to be psychologically prepared to do business.
(For more, see Ten Steps To Building A Winning Trading Plan.)
Bottom Line
It's often important for a trader to be able to read a chart and have the right technology so
that their trades get executed, but there is often a psychological component to trading that
shouldn't be overlooked. Setting trading rules, building a trading plan, doing research and
getting experience are all simple steps that can help a trader overcome these little mind
by Glenn Curtis (Contact Author | Biography)
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jerseybased regional brokerage firm. He has since worked as an equity analyst and a financial
writer at a number of print/web publications and brokerage firms including Registered
Representative Magazine, Advanced Trading Magazine,,, and Prudential Securities. Curtis has also held Series 6,7,24
and 63 securities licenses.

Ten Common Reasons Traders Lose Discipline And How To Avoid Them
Ten Common Reasons Traders Lose Discipline And How To Avoid Them.
There is very little that is new in the world of trading psychology but mastering the basics
and mastering our mind is essential if we are to develop as highly efficient traders. The
following are common discipline issues and suggestions to counteract them. Discipline is
needed if you are to succeed as a Forex trader
1. Boredom and a need to trade for the buzz
Try to use dead time between trades for things like self improvement training i.e. read a
book by your favorite personal development guru or learn to meditate/practice Yoga!
Anything that keeps you in the right frame of mind for the job of trading. A positive mindset
will have a positive impact on your bottom line over time.
2. Trading when tired.
One of the great things about trading is that we can close for business whenever we want. If
you are not in the correct mindset for trading then shut the shop! There will be no customers
banging on the door shouting for you to open up.

3. Not taking a loss well and revenge trading

Very common and something we always need to be mindful of. I find it best to stop trading
after a couple of losses in a row and refresh the mind. Everybody has a different tolerance
level to losses and you should observe your actions in this area and look to improve.
4. Loss of confidence.
If you are suffering from lack of confidence it may be worth cutting your position size and
slowly working your way back to an optimal frame of mind. It is also vital that any strategy
employed has been adequately tested before trading it live.
5. Over confidence.
I find it also pays to step away from the market if I feel over confident. A common trader
phrase is I can afford the loss as its a great month so far. No! Only take the trades that fit
your trade plan criteria and dont needlessly give back winnings.
6. Pressure to earn money to pay the bills
The harsh reality is that scared money is often lost money and an alternative income stream
should probably be sought it you need a regular pay check. The market will always be there
so put yourself in the right position to benefit from what the market can give you and dont
take trades that do not match you rule criteria.
7. Over leveraging a position.
Eventually this will bite you. The market has a habit of seeking out inefficiencies and you
may get lucky a few times but eventually it can result in a string of big losses. Be the Casino
and work your edge. Only risk a small pre-defined percentage of trading capital on any given
trade as the markets are full of hidden surprises. These surprises usually happen when you
think you have a certainty.
8. No trading plan.
Any trading plan is better than no plan. Commit to writing a simple plan which is easy for
you to follow. Modify it only during times when you are not trading. It should be something
that helps you make decisions under pressure and take away from the irrational heat of the
moment scenarios which can happen when trading financial markets. Without a trading
plan that we commit to following we can easily make rash judgments which will ultimately
have a negative effect on our finances.
9. Trading when working through general life issues.
Life has a habit of giving us random issues to deal with and we need to recognise that these
can affect trading performance. Please see point 2 again and shut the shop when you need
10. Fighting a trending market.
The old sayings that the market is always right and markets can remain irrational longer
than you can remain solvent are oh so true. We should be looking for ways to align
ourselves with the market forces and not get into scenarios where you are trying to be right.
See point 3 again. If you take a counter trend position and the market proves you wrong this

time just take the loss and move on.

An awareness of the above will put you in a much stronger position to benefit from what the
financial markets have to offer.

Be Patient. Stay Disciplined.

It's a virtue...Especially in trading.
Arnold H. Glasgow, an American humorist, once said, "The key to everything is patience.
You get the chicken by hatching the egg, not by smashing it."
Developing your trading plan will take time. Developing skills will take time.
Waiting for the right trades requires patience. Entering and exiting a trade at the right
moment requires patience.

Discipline is also a virtue, and it means doing the things you need to do to progress and get
better....even if you don't want do it.
This means preparing for each trading day or week with research and chart study.
If you're a mechanical or automated trader, this means back testing systems and constantly
trying different settings and strategies as the environment changes.
And of course, don't forget about journaling and reviewing every single day you trade.
Journaling is the one trading task that separates the wannabe traders from the real deal
traders. Unfortunately, most newbies won't do it.
Trading concepts and techniques are simple and easy to learn. What's hard to learn is how
to be patient and disciplined to do the right things and make good trading decisions.
Truthfully, it will be one of the most difficult endeavors you will ever take on.
To a newbie, sitting on the sidelines and watching the markets move while you wait for your
best setups means you're missing out on profits.
This way of thinking leads to a failure of patience and discipline and causes some of the
most notorious trading mistakes in the book:

Impulse trades
Letting losers run too long
Cutting winners too quickly
Revenge trades
These actions will kill your account!
Remember that your job as a newbie is to learn how to make good trading decisions

The best thing you can do to stay patient and disciplined is to look at your career as a trader
as a marathon and NOT a sprint.
This is not an overnight, get-rich-quick scheme.
This is a commitment to build skills that will allow you to profitably trade in any environment
the market will throw at you at any time.
And essentially, free you from the chains of the "Man." Fight the Power!!
If you stay patient, maintain discipline, and commit to constant improvement, then your
results today as a forex noob will probably be nothing compared to the results of the trader
you will become after years grinding it out in the markets.

Another thing....
Always remember that opportunities for good trades occur ALMOST EVERY SINGLE DAY!
No need to rush into bad trades. They will only set you back from reaching your goals.
Stick to your best ideas and setups, and if they don't come that session, just wait for the
Unless the world stops trading currencies (knock on wood) then there will always be
opportunities around the corner