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Guest Commentary: 5 Reasons Why Early Success in Forex is Worse than Early Failure

Guest Commentary: 5 Reasons Why Early Success in Forex is Worse than Early Failure

2012-09-21 02:00:00
Yohay Elam, Forex Crunch,
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Before dipping your feet into the waters of forex trading, you are warned that losing is part of the game. In fact, you are aware that there are more losers than winners. Nevertheless, you educate yourself, take this thing into account and enter the markets cautiously.

And now, you begin having success: you win a trade and then win another. Your confidence grows. Personal confidence is a great thing, but it can be too much. After a few successful trades, you begin feeling that you are invincible. And that’s when trouble begins.

Here are some of the things that happen when you become overconfident:

  1. Taking larger trades: You have more money in your account, so you can enlarge your positions and make more money. Greed takes over. Well, are the larger trades proportional to the larger account size or far off the mark? The latter is probably what happens and you begin risking larger portions of the account.
  2. Taking more trades: If trading makes money, more trading makes more money. However, this also enhances the chances of losing more money.
  3. Moving stop loss points: With more cash at hand, you feel you have the capacity to bend the rules. It may result in a larger loss rather than a wider range for your trade.
  4. Trading at hours you wouldn’t have traded beforehand: Why not expand trading hours with proven success? You forget that your system may not necessarily work, you might be tired and that you might be losing touch of the big picture.
  5. Neglecting trading plans: Upon having success, you may feel that the system is not behind this success, but rather you and only you. So, what good is a system when the real trader is inside and you can win any trade with your skill? Also here, the road to a margin call becomes short.

So, perhaps it is better to have very limited success at first, or even suffer some losses, in order to avoid the crash following an early success.

What do you think?

Further reading: 5 Most Predictable Currency Pairs

By Yohay Elam, Forex Crunch

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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