When you start currency trading, you need to use a demo account first. Many traders do well on the demo account only to find that they start losing money when they trade live. There are many reasons why this happens and you need to know about this. If you know about the reasons why traders fail with live currency trading then you can avoid this problem.
Currency Trading Without a Plan
The ease of opening a demo account has lead to people trading without a trading plan. When these people feel that they are making enough on the demo account they move to live trading. However, they continue to trade live without a set plan. This means that all of their trades are based on instincts and feelings instead of a solid plan that they can follow daily. This leads to inconsistent trading and no way of knowing what went wrong when they lose on a trade.
It is important that you always have a trading plan when you start trading even with a demo account. The demo account is where you test whether you trading plan will work on the live market. Trading without a plan is not a good idea at any point.
Having Discipline When Trading
Trading on a demo account is a lot easier in many respects than trading live. The biggest difference is that when you divert from your trading plan you do not have to worry about losing money. As all the money you work with in a demo account is virtual there are no actual consequences to lacking discipline. This is not the case with a forex live account. When you trade live you stand the chance of losing your money and this will happen when you lack discipline.
This is one of the main reasons why forex traders fail when they begin trading live. They have learnt bad habits with the demo account and are not ready for the consequences of their actions. The best way to instil discipline is to have a ratio of trades that you use your plan against trades where you have diverted. This ratio should only have a very small amount of trades completed with diversions from the plan.
Not Adapting to the Market
The forex market is constantly changing and you have to be able to adapt to it. If you are unable to adapt you will either lose money on trades or not be able to trade very much. Success in adapting to the market starts with being able to identify when the market is changing. This should be done through technical analysis where you determine whether the market is trending or ranging.
Some traders recommend that you have more than one trading strategy to make the most of the market. If you are primarily trading long-term then you should have a short-term strategy to supplement your income. If you are going to be trading short-term then you should consider strategies for trend and range markets. These are the two flows that the market goes through and you should be able to profit from both of them.