5 Major Challenges In Forex Trading And How To Overcome Them

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When someone plans to pursue trading in the forex market, they mostly search the internet to learn more about the global currency market and start preparing to become a trader. A lot of learning and planning must be done before stepping into the dynamic forex market as a beginner. You should make sure that you have enough funds to get into trading. For that, you can use a margin calculator that tells you the margin you will need in your account for placing a particular trade based on the lot size, leverage and currency pair being traded along with your account base currency. 

Margin shortfall and margin calls are some of the most common challenges that you may face during the trading process, and knowing how to deal with them is important to trade better. Being aware of these challenges is essential to do your best as a trader. In this article, I will be talking about 5 major challenges in forex trading and how you can overcome them to build a successful trading career in the long run.  

  1. Lack of Patience

One thing you should know before deciding to become a forex trader is the fact that trading requires a lot of patience and focus. The forex market keeps moving all the time, but traders should be able to stay calm while seeing the frequent fluctuations in exchange rates or currency pair prices. Being impatient and jumping to conclusions will make the trading process riskier as you are not taking enough time to analyse the situation and move in the right direction. 

Hence, a lack of patience can make the trading process challenging and stressful in every sense. The impatience is not just about the urge to take up every trading opportunity you come across. It is also about not waiting for the right time or price level to enter the trade as you are restless and desperate for a win. However, this approach is dangerous for a trader as they are most likely to make poor trading decisions due to momentary impulses. 

Being impatient leads to a brain fog, and you need to apply logic in whatever action you are about to take. You end up placing trades without calculating the potential results you may get in the end. Traders always expect to make a profit, but the risk of loss is often overlooked when someone cannot sit still and just wants to execute trades due to the FOMO they experience.  

  1. Absence of a Proper Trading Plan

The next challenge that traders face in the forex market is the absence of a proper trading plan. This can either be not having a plan at all or the plan needing to be more specific with definite goals or means of achieving the set goals. Devising a plan with unattainable targets and unrealistic expectations is not any different from trading without a plan, as such a plan will not make the trading process any easier. A well-defined trading plan is a prerequisite for trading success. 

A trading plan should allow you to trade with a clear mind; otherwise, you will see yourself needing clarification and guidance while witnessing market fluctuations. The trading plan should be precise and simple, as making it complex would only make it difficult to follow for a beginner. The trading plan should state all the details about your strategy, trading style, timeframes, methods for analysis and risk tolerance. Your trading plan should also be well-aligned with your skill level. 

You need to get the numbers and values right, which can be tough at times due to the frequent changes in conversion rates. This can lead to errors if you are converting the amount manually. Hence, it is better to use an online currency calculator that automatically converts one currency to another, applying real-time exchange rates to ensure accuracy and give instant results. Such tools are very helpful in the planning phase. 

  1. Not sticking to your plan

Once you devise a plan or strategy for trading, you will be able to start trading for real after testing it with historical market data and revising it based on the results you get. You should also try the strategy on a demo account first, as it shows us the performance of your trading system in the current market scenario. This gives you a clear idea about what kind of results you can expect when you follow this trading plan. However, many traders end up deviating from their plan or strategy after a while. 

Several reasons lead to traders switching from one strategy to another, and one of them fails to get the expected results. They start thinking that the plan or strategy is not working and simply abandon it without giving it another chance. However, you should never expect quick trading results, as becoming profitable takes some time, even with the best strategy. 

Being disciplined and sticking to your plan is very important in the initial phase of trading, and it will become easier over time. You can also modify or improve your plan to adapt to the changes in market situations, but you don’t have to jump from one strategy to another. Trading habits like emotional trading and overtrading are classic signs that say that you are not staying true to your plan. 

Planning is easy, but following it is a challenge. In order to overcome this challenge, you need to build trading discipline and train your mind to stay rational instead of making illogical decisions that are driven by emotions. You should only make a decision by calculating the potential outcome, and tools like trading calculators must be used for estimating the trade-related metrics with accuracy. 

  1. Not Taking Enough Time to Prepare and Practice 

This is more of a careless mistake than a challenge, as each and every trader should take their time to learn, prepare and practice before trading with real funds. As a beginner, you are lacking when it comes to knowledge and skills. Navigating the volatile forex market will be much easier for a newbie with prior experience. Spending some time on the demo account for practice can make up for the lack of experience to a certain extent. 

Because you will get to observe the market in real-time, executing trades with virtual funds is the method for developing your skills as a trader. Unfortunately, many newbies rush the learning process or don’t follow a serious approach while practising on a demo account. This makes them more prone to committing costly mistakes later in the live trading process. 

Besides practising on a demo account, a new trader should also research different forex brokers, trading platforms, trading tools and trading techniques to choose the best ones for themselves. You can use demo accounts to try the available options in a risk-free space, and this allows you to make wise choices based on your needs and requirements.  

  1. Mental Stress 

The last challenge is the mental stress that many traders experience during the trading process. I already stated that traders make wrong decisions under the influence of emotions and feelings. The mental stress traders have to deal with leads to emotional trading. You may not feel any stress while trading on a demo account, but the moment you risk real funds for trading, you will be afraid of losing, making you anxious about the results. 

A healthy amount of stress or fear is actually helpful, but too much stress can lead to anxiety, which lowers your confidence as a trader. Short-term trading strategies like scalping and day trading are more stressful than long-term strategies like swing trading and position trading. Because scalpers and day traders have to work with shorter timeframes, they will have to make quick trading decisions. Making quick decisions while dealing with intense emotions and mental stress is not that easy for a novice trader.

The fast-paced nature of the forex market can make the trading process even more complex for a beginner, putting you under a lot of pressure. To handle this pressure, you should learn about trading psychology, as it teaches you to manage your emotions so that your trading performance and results are not affected by the stress you go through while executing trades.  

Wrap up 

To wrap it up, the challenges I have stated in this write-up are not something to be worried about, as anyone can pass these challenges with flying colours if they indulge in systematic learning and continuous practice. The most challenging part of the trading process is the exposure to market risk; hence, risk management is one thing you need to prioritise while placing each trade. Managing your emotions and feelings is just as important as managing your trade positions. Finally, patience and perseverance are essential for finding long-term success as a forex trader. 

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