As with all professions; with good, there has to come some bad. This post will take you through the far less glamorous side of Forex trading and the stress that comes with it! We will look at the main issues that traders face, including problems when trading your own personal account.
The short answer to the title question is that Forex trading can indeed make you a very successful living. However, the so-called “gurus” and coaches rarely mention the difficult side of the industry. Neither does the copious amounts of educational material on the internet.
Before we go into the details of the article, it is important to understand why we never hear or read about the stresses of Forex trading in forums and books and indeed courses that we may have purchased.
Why We Never Hear about the Stresses of Forex Trading
The reason is two-fold. Firstly, it doesn’t pay to put your customers off from buying your products. Secondly, most of those teaching have never actually traded in a professional capacity. I believe it is very important to understand every aspect of the business before fully committing yourself to it.
The most common dream of a new Forex trader is to go online, read a book and then become fully self-sufficient; to trade their own account and make a consistent living from home.
The reality is far different.
Imagine having guaranteed bills and obligations but no guaranteed income. This is the exact scenario that drives people into full-time employment in the first place. The risks associated with self-employment are the exact same risks that a Forex trader faces when going it alone.
The difference is that Forex trading is usually a completely new industry. And how much money you make from trading is completely out of your sphere of influence.
When this is circling around in the back of your mind and you have just had a few bad days trading, it can very quickly become extremely stressful. Because at the end of the month, you still have to pay your bills.
A common scenario is having a negative month trading; having to use some of your trading capital to survive and then having to take more risk on what is left to make money in the future. This is just one of many situations which will lead to even bigger losses.
This level of stress can wreck havoc with your life. It is not to be taken lightly and should be accounted for well in advance of quitting your job and trading full-time.
How to Avoid These Scenarios
First of all, NEVER just pluck profit forecasts out of thin air (it’s amazing how many traders do this). Only base your profit predictions on your past history that you have actually achieved on a trading account, by physically taking the trades.
Anything else, including back-testing, is absolute nonsense. It will hurt you in the long-run.
Secondly, ensure that you have a financial buffer in place that you can use to cover your costs without eating into your trading capital and without any draw-downs.
The minimum you need is enough to cover 6 months bills and living costs. The longer you can do without income the better.
Finally, work out how much capital you need based on your existing history. Do NOT use leverage to quickly grow your account!
Leverage (and the abuse of it) is one of the biggest killers of new traders. Avoid it.
As a percentage, work out what your average profit is each month. Then, ensure you have enough capital to generate a figure that will support you without using leverage. The worst case scenario is that you will fail to make much and may even lose a bit instead. But with leverage, the worst case scenario is always so much worse.
These are simply ways to lessen the stress before you start, but if you find yourself in the saddle already and you are becoming more stressed, then take some time off. Get a change of scenery and stay away from your screens until you are yearning to get back and you are once again excited by the challenge.
Nothing is worth risking your health for, so make sure you follow the tips above to keep yourself as focused and stress-free as possible!