Why do so few succeed at Forex trading?
The answer to this question is incredibly subjective. Some will say it’s because the market is rigged for us to fail, or that retail traders don’t have sufficient resources to compete.
There may be some truth to those, particularly the first. It’s no secret that the odds aren’t in our favor. Otherwise, there would be a lot more profitable retail traders out there.
But here’s the thing…
Those are just excuses. They may offer some insight into why success is so elusive, but they are not the real reason why so many fail.
Want to know the only reason so many Forex retail traders fail?
They give up!
That’s it. There’s no other logical explanation.
Sure, things like having the odds stacked against us and somewhat limited resources might make it more difficult, but they aren’t the reason why so many fail, they’re just challenges along the way.
This website is full of strategies, methods and helpful tips on how to stack the odds in your favor. I’ve shared my favorite candlestick patterns, chart patterns and just about everything else that has helped me over the years.
But there’s one secret to success that I haven’t shared until today: your ability (or perhaps inability) to avoid the Forex market.
Yes, you read that right. If you want to succeed as a Forex trader, you have to put some space between yourself and the market. Otherwise, you run the risk of overtrading or just getting burnt out.
Burnout is one reason so many people throw in the towel. They don’t know when to just back off and come back for a fresh start tomorrow.
This could be for a variety of reasons, which we’ll get to next. For now, just know that most Forex traders I’ve mentored started to find success only after distancing themselves from their charts and their desire to succeed.
In other words, they started to avoid trading.
I’m about to share with you a few reasons why you might need to distance yourself from the market. I’ll also give you five simple ways to get back on track and rid yourself of destructive habits like overtrading.
Ready to get started? Let’s do this.
A Few Reasons Why You Might Need Some Space
I get emails all the time from traders who have been trying for years to become successful–with little to show for their time or effort.
In most cases, there are a few quick fixes that can help. But almost every single one of these individuals suffers from the same dilemma.
They want consistent profits so badly that they have become their own worst enemy.
Instead of taking a structured approach to their chart analysis, they’ve become obsessed. Now, I’ll be the first to admit that an almost obsessive passion is necessary to succeed at trading Forex.
However, there’s a big difference between an abundance of passion for something and obsessive unstructured actions.
The latter will get you in trouble–fast.
Passion is only useful when channeled through a logical approach. That means if there are no favorable setups today you should walk away and come back tomorrow, regardless of how badly you want to succeed.
Forcing your way through situations where the market is telling you to do nothing is a recipe for disaster.
But there are other reasons you might want to consider putting some space between yourself and the market.
Here are a couple of the most common reasons:
Immediately following a large profit or loss
You have probably heard someone say that it’s a good idea to take a break after a loss or a string of losses, and I wholeheartedly agree.
However, one thing you may not have heard is that it’s a good idea also to take a break following a large profit. The same holds true for a string of profitable trades.
You see, just like after a string of losses, your emotions begin to run wild after a series of wins. For one, your confidence grows. This can be a good thing, but all too often overconfidence creeps in, which can be disastrous.
In these moments, it’s a good idea to avoid trading altogether. Once you’ve had a day or two to collect your thoughts and reel in your emotions, feel free to get back in the driver’s seat.
Unfavorable market conditions
Consolidation and choppy price action usually go hand in hand. Not always, but the two tend to find each other more often than not.
Whenever you see consolidation take over after a trend, it’s a big red flag to avoid the markets for a while.
As a general rule, we want to catch the trends and avoid consolidation. The easiest way to do this is to identify your key levels and then wait patiently for a breakout in either direction.
One thing I see quite often are traders misjudging the end of consolidation. Usually, the fear of missing out causes them to jump in too early.
Always assume that a period of consolidation will last longer than you expect. By doing this, you reduce the fear of the market taking off without you. It will also help you avoid unnecessary losses by keeping you out of the choppy price action.
Stop Caring So Much
As if the topic of this article wasn’t controversial enough, now I’m suggesting that you stop caring so much about becoming a successful Forex trader.
You’re probably thinking, Great, what’s next?
Before my inbox fills with emails from disappointed readers, allow me to explain.
Since 2007, I’ve had ups and downs like you wouldn’t believe. I’ve also had the pleasure of working with more than 1,000 students and connecting with hundreds of thousands of visitors on this very website.
One thing almost everyone I’ve come across has in common is that they care too much. They want consistent profits yesterday. Not tomorrow, not next month and certainly not next year.
They want it now!
I get it. I was the same way when I started trading equities in 2002 and not much changed when I made the switch to currencies in 2007.
One thing I’ve learned over the years, though, is that there’s a big difference between being passionate about a goal and exhibiting the discipline to see it through.
It’s knowing when to take your foot off the gas pedal and hit the brake instead. That’s what separates the successful from the not-so-successful in this business.
So, by all means, continue to have the passion to make it as a Forex trader. Let that fire burn inside of you day and night.
Just remember that it’s a marathon, not a sprint, to the finish line. This means having the discipline to know when to avoid the markets altogether.
5 Simple Ways to Regain Control
Now that you know that one of the best ways to succeed at Forex trading is to avoid the market, let’s discuss a few ways to do just that.
The following tips and techniques will help you stay patient and adopt a low-frequency approach to the markets.
1. Use the daily time frame
This is by far the best way to learn to avoid the Forex market.
When you begin using the daily time frame everything slows down. You have more time to analyze your charts which results in better decision making.
Moreover, using the daily time frame to watch for price action setups simplifies the entire process. You’re no longer sitting in front of your computer for hours watching six indicators and five different time frames for signals.
And you know what? Simple is good!
I was just rereading my Market Wizards books the other day and was reminded of how many traders in those books endorse the idea of keeping things simple.
You don’t need multiple indicators and sophisticated algorithms to be successful in this business.
Nobody ever said a trading edge needs to be complicated. Look no further than the price action strategies I teach on this site.
If you want to get back to basics and learn to avoid the markets while conditions are unfavorable, switching to the daily time frame is a great place to start.
2. Find a hobby
It’s important to have activities you enjoy doing other than trading. The truth is, if you’re trading the daily time frame you may only get five to ten favorable setups each month.
That means you’re going to have quite a bit of time on your hands. This is where many Forex traders get burned.
Instead of finding something else to do with their time when conditions are unfavorable, they force trades. They spend hours staring at their charts hoping for something to do.
Don’t fall into this trap. If there’s nothing to do at the moment, find something else to occupy your time until favorable conditions return.
3. Stop searching for setups
A few weeks ago I wrote about the idea that if you look hard enough for something you will find it. After a while your mind convinces you that what you’re searching for is right in front of you, regardless of whether it is or not.
There’s an old saying that if you go looking for trouble, you’ll surely find it.
As a Forex trader, It’s far too easy to fall into this trap. After hours of staring at your charts, that one setup you didn’t like at first looks better by the second.
Before you know it you’ve convinced yourself that it’s an “A+” setup when it’s really more of a “B” or even “C” setup.
Why does that happen?
Most of the time, it’s because you were searching for a setup rather than scanning for one.
You see, once you have your levels drawn for each currency pair, scanning for setups each day should only take minutes. If nothing jumps out at you right away, it’s a sign that you should walk away and come back tomorrow.
The problem when you search for setups is that you develop a “must find” mentality. In other words, you need to find something to trade before you get up and walk away.
Think about the last time you lost your car keys or your phone. Did you give up searching when they didn’t turn up right away?
I bet not.
Scanning, on the other hand, is more of a casual browsing session where you spend no more than a minute or two on each chart.
If you find something, great. If not, there’s always tomorrow.
Keep your analysis sessions as brief as possible. The longer you sit in front of your computer scanning for a setup, the more likely it is that you will find one regardless of its quality.
4. Recalculate your expectations
How long does it take someone to become a successful Forex trader?
How much do most profitable Forex traders make each month?
These are two common questions you’ll find on just about any Forex-related forum on the internet.
The answer to both usually goes something like this–it depends.
Personally, I agree wholeheartedly with that answer. It’s a mistake to think that anyone can put a definitive timeline on how long it takes to become successful or how much a trader makes each month on average.
However, one thing I will say is that most people tend to be overly optimistic with their assumptions.
So how long does it take?
My answer: years. Not days, weeks or months.
How much, on average, do most successful traders make each month?
Probably less than 5% and certainly less than 10%.
Once you know these figures, that 2% gain you made last month starts to look a lot better.
And if you’ve been at it for two years with nothing to show for it, don’t worry. It may take you three, four or even five years to reach your goals. But as I said at the beginning of this post, giving up is the only way you can fail.
Remember, this is a marathon, not a sprint. There are no shortcuts or free rides, just hard work and perseverance.
5. Recondition your mind to see money saved as money earned
This is probably my favorite way to increase profitability as a Forex trader.
There seems to be this unspoken belief in the trading world that if you aren’t in a position you’re somehow missing out.
In other words, if you aren’t trading you’re losing.
This couldn’t be further from the truth. The fact is that trading when there’s nothing to do just so you can claim to be trading is a surefire way to blow your account.
Think of it this way, it takes a 100% gain to recover from a 50% loss. So if you started with $10,000 and lost $5,000, you’d have to double your money just to get back to your starting balance.
The best way to overcome trading for the sake of trading is to learn to enjoy being on the sideline.
Convince yourself that protecting your capital is far more important than growing your account balance. That’s how you make it to the next level of your trading career.
If you want to achieve consistent profits in the Forex market, you first have to learn to avoid it. Once you can do that without the temptation to risk money for the sake of excitement, you’ll be well on your way to achieving success.
Using the daily time frame is one of the best ways to avoid unfavorable market conditions. It’s easier to see the flow of supply and demand and it also slows things down so you can evaluate setups on your own time.
Another great way to stay patient is to stop searching for setups. Instead, let them come to you by scanning your charts one to three times each day. If nothing catches your attention right away, it’s probably best to do nothing and come back later.
Every dollar you save by avoiding losses is one you don’t have to earn back later. Remember that it takes a 100% gain to make back a 50% loss so staying on the sideline in the absence of something to do is a smart choice.
Have you been making any of the mistakes I outlined above? Did this post help?
Share your experience or ask a question below and I will get back to you shortly.