Guest post by ForexTraders.com
It is well-known that a majority of forex traders fail. But it is not equally well-known that the main cause behind such a high rate of failure is unrelated to the market itself. Not analysis, and strategy, not education and learning, but lack of emotional restraint and mental composure are the leading causes that lie behind the many failures of forex traders. Although it is popular to blame forex brokers for the failure of risk controls and lack of a correct attitude to trading, the fact that a majority of these institutions are doing their business while being monitored by authorities shows that the source of the problem may lie elsewhere Indeed, experienced traders readily acknowledge that the most important lessons learned by any beginning trader is differentiating between what happens in the market, and what the trader perceives. Price action distorted by excessive emotional responses is the candidate to being the worst enemy of the forex trader.
But while that is the case, it is also true that the key to great riches and striking achievements in trading are also the result of composure and calm while in action. Many of us seek the keys to El Dorado from creators of forex robots or magical forex strategies, but especially in the case of technical trading, money management and emotional control are the only solution to the riddle of money making in forex. Strategies do fail: that much is unavoidable. Ensuring that the failure of a strategy does not result in a wiped-out account, that our gains are not eaten out and exhausted by sudden losses is the heart and soul of a successful trading style.
So how do we achieve all that? In order to learn how to win, we must learn how to lose. This may be true in all walks of life, but nowhere is it as valid as in the field of trading where losses and mistakes are as natural and commonplace as water and breath are to many living organisms. We know that we will suffer losses, so we must take the necessary precautions to minimize them. And that is all that money management is about. We will cut our losses short, before they become too big for our trading style, and we will not be too fast to realize gains in a trending market. It sounds simple in principle, and for calm and composed individuals it is, but most of us are much more hot-blooded, and need some discipline and study to acquire the correct attitude.
But don’t be pessimistic. Indeed, to begin the task, you must get used to avoid both optimism and pessimism in trading. To learn forex, you must learn about yourself, so that you can improve yourself to suit your purpose. And afterwards, the road to El Dorado is long, but a lot less arduous and troublesome.
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