This week’s question comes from Sara, who asks:
What is it that makes trading Forex so difficult?
From an outside perspective, trading should be easy. After all, your only options are buy, sell, or do nothing.
That means you have a 50% chance of being right every time you act. At least that’s how the odds look on paper.
Perhaps that deception is part of what makes it so difficult. The market tricks you into believing that it’s easy when in reality it’s just the opposite.
You may be asking yourself, why do I want to read about this? How is reading about what makes trading difficult going to make it less so?
The bottom line is this…
The more you understand about what’s keeping you from getting where you want to be in your trading, the easier the process becomes.
You’ll also be able to achieve your goals that much faster. Who wouldn’t want that?
In this post, I’m sharing a few reasons why I believe trading is so difficult. By the time you finish reading, you’ll have a better understanding as to why you’ve been struggling and what to do about it.
Alright, let’s get started!
1. Lack of Education
In this business, degrees don’t matter. Whether you hold a Bachelor, Master or even a PhD, I’m here to tell you that it won’t help you much as a Forex trader.
Society may consider you to be an educated person, but the market doesn’t care.
The truth is, I have no degree. I went to school long enough to get one, but I ended up bouncing between majors enough times that I never ended up getting one.
To be honest, I don’t spend one day regretting my decisions. I may get scolded by someone for saying that, but I believe there are many forms of education; school is just one path.
In the land of Forex, education comes from experience. There are no books or lessons that hold the secrets to consistent profits.
You can, of course, learn from books like Market Wizards. You can also study and learn about various candlestick and chart patterns on this website and others.
I even developed a member’s area in 2014 for Forex traders who are serious about taking their trading to the next level.
However, there is no substitute for experience. While that’s true for any profession, I believe that with trading, the market is your instructor.
So what’s the best way to learn how to trade?
Journaling. Maintaining a trading journal is a great way to educate yourself on the Forex market.
Use the journal to keep track of your observations each day. Did the market respect a support or resistance level that you marked? If yes, did it form a buy or sell signal? If not, should your level be repositioned or even removed?
You get the idea. By documenting your observations each day, you unknowingly train your subconscious.
After a few months of doing this, you will be able to recognize patterns with little effort. The moment you open a chart your subconscious will access its library of chart patterns and identify them for you.
It may sound too good to be true, but I can assure you that it works.
2. People Don't Like Randomness
I’ve never met someone who didn’t like to have control over a situation. Whether it’s deciding where to eat dinner or how much to spend on your next home, having control is preferable.
Nothing about the market is in your control. You can’t decide how far the EURUSD will drop, and you have no say over whether the AUDUSD will move higher or lower from today’s price.
That doesn’t sit well with most people.
So what do they do? They try to control it by staring at the chart hour after hour as if attempting to control the market by telekinesis.
I joke, but I also know that feeling of helplessness all too well.
When I first began trading more than a decade ago, I had a real problem letting go. I can remember countless nights going to bed well past midnight because I couldn’t stop watching my trades.
I knew I couldn’t control the markets, but for some reason I couldn’t stop staring. I was addicted to my trades, and not in a good way.
So you know what happened next?
I made some terrible decisions. It became clear to me that the longer I sat in front of my charts, the worse my trading got.
One of the most important lessons I’ve learned over the years is to embrace randomness. Whether we like it or not, the markets will always exhibit a degree of randomness.
That’s why planning for every outcome is essential. Even the best trade setups can and will fail. It’s up to you to be prepared.
To get a jump on the competition, be sure to check out the late great Mark Douglas’ book Trading in the Zone. I don’t get compensated for recommending it, only the satisfaction of knowing I’m vouching for a book that helped turn my trading career around many years ago.
3. No Boss, No Rules
Most of you probably have jobs. Whether you sit behind a desk, walk around helping customers all day, or work under the hood of a car, chances are you have a boss.
You may even have multiple bosses. Why have one person telling you what to do when you can have two or three, right?
I know the feeling. I used to work behind a desk as an engineer.
On paper, I had three direct bosses. That meant three people I had to go to every time I wanted a vacation, a LOT of meetings, and a never ending flow of assignments.
Essentially, I had a ton of rules. After all, an assignment from your boss usually involves a list of rules to follow so the outcome is satisfactory.
Another way to put it is that I didn’t have much freedom. I arrived at work every day knowing what needed to get done and in what order.
So how does trading Forex compare? Do you have a boss or multiple bosses? Do you have to ask permission to raise your leverage or add capital to your balance?
Unless you’re working for a trading firm, the answer to every question is no.
That gives you a ton of freedom. You can trade whichever currency pairs you like, deposit as much money as you can, and increase your leverage to the max.
You can also risk as much as you want on any given trade. In many ways, it’s the opposite of working for someone else.
But here’s the deal…
That’s all the more reason for you to develop a set of rules to follow. The very lack of rules in the Forex market begs you to make poor decisions.
The bottom line is that most people need rules and a process to follow in order to succeed. That’s true whether you’re trading Forex, writing a book or training for a triathlon.
If you’re curious what some of your rules should include, just have a look around this website. Every lesson and article is full of ideas you can use to construct your own process and set of rules for trading the Forex market.
Here are a few from Ed Seykota to get you started.
4. Patience is a Virtue
It also happens to be an incredibly powerful and lucrative quality for a trader.
The issue is that most people lack patience. Whether standing in line at the checkout counter or waiting for a package to arrive, people don’t like to wait.
The irony is that waiting is the foundation of good trading.
In fact, if you aren’t spending most of your time sitting and waiting, you’re doing something wrong. Most likely, that “something” is losing money on subpar trade setups.
Let’s take a step back for a moment and connect the dots.
I don’t think anyone will disagree that most people lack patience. Not all, but certainly most in my experience.
Similarly, most traders lose money. Again, not all, but most.
Is that a coincidence, or is there something more to it?
After more than a decade of experience, I can guarantee you that it is not a mere coincidence. The fact that most people lack patience and that most traders lose money is as direct a correlation as you’ll find in this business.
So what’s the solution?
Have more patience when trading, of course. That’s easier said than done though, right? If everyone could simply “have more patience” there would be a lot more profitable retail traders in the world.
The good news is that there are a few simple rules you can follow that will help.
Use the daily time frame
Doing so not only produces more reliable buy and sell signals, but it also slows things down.
Instead of frantically searching for your next setup this hour, the daily time frame allows you to wait several days.
That may sound like a bad thing until you recall that less is more when trading the Forex market.
Aim for one to two setups per week
Give yourself a weekly limit of one or (at most) two trades. If you reach that number on Tuesday, you’re done for the week.
It’s up to you to hold yourself accountable because as I mentioned above, you are the boss. Nobody else is going to slap your hand right before you’re about to enter your third trade of the week.
It’s up to you. Write your weekly trade limit down somewhere visible and do not deviate.
Follow this rule for at least a month and see if your results improve. I can all but guarantee that they will.
Stop trying so hard
Yes, you read that right. It’s easy to think that the harder we try, the better we’ll become and the more money we’ll make.
However, trading is different. While exerting more effort toward your goal to run a marathon might speed up the process, ‘trying harder’ as a Forex trader can be devastating.
It’s how accounts get wiped out. You experience a series of losses so what do you do? You try hard to make back the money you lost.
You know what happens next. You lose even more money, right?
If you’ve been trying hard and thinking about Forex day and night yet you’re still struggling, try to stop caring so much.
Give your trading goals some breathing room and let the process work for you.
I could go on for days about why people aren’t wired to be great traders, at least not from birth. The markets are built to prey on our emotions, and they’re incredibly good at what they do.
That means you won’t be a great trader in the beginning. It’s important to accept that as fact and to embrace the process.
Yes, trading Forex successfully is insanely difficult—and not because it’s complicated or requires some form of advanced education.
It’s difficult because you make it difficult.
You may disagree with me, and that’s okay. I’m used to it. Heck, someone disagrees with me every time I buy or sell a market.
It’s true, though. You are your own worst enemy in this business. Whether you risk too much, trade too frequently, gamble on the news, or all the above, it’s all your choice.
You don’t develop a process and set of trading rules because the market is overly difficult to read. You create rules to protect yourself from your own impulses and emotions.
Keep that in mind as you navigate the market and I guarantee you’ll find the process more enjoyable.
Your Turn: Ask Justin Anything
I’d love for this weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.
To do that, I need your help.
Here’s what you can do to get involved and have your question answered in next week’s post:
- Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
- Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.