Reasons Why Your Forex Profitability Is Limited

Posted on 08th January 2018
Reasons Why Your Forex Profitability Is Limited

Being consistently successful in forex trading is easier said than done. Most newbies have a tough time in trying to gain a foothold in the currency market. There can be several reasons as to why we may be unsuccessful or factors which restrict our profitability. For instance our interpretation and analysis of technical indicators may be faulty or we can go amiss with our speculations. Let's take a look at few common causes which may impede our progress:

1.Over-reliance on Indicators & Trading Robots: It is very important for traders to be in-tune with the market. Majority of traders in their search for the Holy Grail of trading experiment with every new trading robot, software or EA available in the market and eventually end up with a simplistic approach or quit trading altogether. However, in order to make a mark as a successful trader you need to be able to interpret pure price action. No artificial software or computer program can match up to a human brain in order to navigate the ebb and flow of the market. If you depend too heavily on every possible technical indicator or EA your perception will only tend to get obfuscated with all the information overload.

2.Lack of Adequate Capital: Trading is hardly possible on a shoestring. You require ample capital to generate capital. Often forex marketers encourage you to trade in larger lot sizes and higher leverages with promises of huge returns against a pint-sized capital amount. Monumental gains maybe possible in the short term but with limited capital and magnified risk you will be more prone to emotional decisions and costly mistakes owing to anxiety with every sharp market movement. The best way to trade bereft of any emotion is to invest only disposable capital i.e. money not needed to meet your expenses or any other needs. It's definitely not a good idea to trade with money you can scarcely afford to meet your requirements with or take a loan for trading.

3.Poor Risk Management: A good risk management strategy is key to survival in the markets. Use techniques like stop losses, trailing stops etc to minimise losses and post reasonable gains. Use moderate trade sizes commensurate with your capital and avoid excessive use of leverage. Your goal should be to preserve your capital amount. Diminished capital reduces your chances of taking a profit. Also, if a trade is simply not working out make a timely exit.

4.Not Cutting Losses Early and Letting Profits Run: Learning to cut your losses early on and letting profits run is an important tenet for successful trading. Most traders are good at seizing profitable opportunities but their average losses overrun their profits. Why does this happen? This is because most of us get emotional instead of following a rational approach to trading. The golden rule is to exit any trade which is not in your favour. It is highly tempting to close a trade with a small profit but often patience can help you to earn bigger gains. Maintaining a proper risk/reward ratio enables you to earn more profits overall than you lose on trades.

Conclusion: Thus as in other things in forex trading too there are no shortcuts to success. It requires careful planning and preparation to be a pro and overcome the challenges that derail our profitability.

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