Done right, forex trading could be an extremely lucrative way of earning a living. The low minimum requirement for trading combined with margin leverage offers small investors a much needed competitive edge against more powerful heavy-weights.

Despite tremendous scope for raking in profits however, far too many novice forex traders jump in at the deep end and then end up drowning in losses. Take a look at the few patterns that are prevalent amongst new forex traders, which is what causes their inevitable downfall:

1 - Insufficient Research & Knowledge of Forex Trading – As an outsider looking in, forex trading may seem like a piece of cake and if you track the bigger financial institutions it would appear that they make money on every transaction. While this may be true, keep in mind that they would in all probability, have access to extensive resources including an array of advanced tools as well as an army of staff at hand to analyze current economic indicators. This is something that new entrants into the realm of forex trading are not likely to have. Spending some time studying how the forex market works is the only way you can expect to master it and come away a winner.

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2 - Unrealistic Expectations – Though forex trading does offer plenty of opportunities to make money, it is by no means the get-rich-quick scheme that new forex traders think it is. In a market that is as volatile as the forex market, you can expect to win some and lose some. Staying focused on the winning trades and knowing when to cut short your losses is key to avoiding failure in the forex market.

3 - Gambling versus Investing – While you could make a profit executing currency trades based on your gut feeling, it’s not a sustainable way to trade in the forex market. Trading in this manner is akin to gambling in a casino where you could possibly win the jackpot one day and lose it all within seconds. There is no logic to trades based on hunches and you could very well get wiped out before you know it.

4 - Lack of focus - As a newcomer to forex trading it is far better to focus capitalizing on the movements of a few of the more popular and solid currencies including the US Dollar, the Euro and the Japanese Yen rather than dabbling in too many currencies at once. Trying to analyze data and spot trends in too many currencies at the same time can be time consuming complex and in the end, not as profitable as you thought it would be.

5 - Not having a trading system - Trading systems vary widely and it is essential that you choose one that is best for you based on your individual personality, your goals and most importantly, your available capital.

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6 – Shifting from one system to another – Once you’ve zoomed in to a good trading system and you’ve determined your entry and exit points, it is vital to stick with it in good times and in bad. Getting nervous and exiting too early or getting over-ambitious and going for the big score can make your system redundant and you could find yourself losing out on a potential windfall or stuck in a trade even if something goes wrong. Setting your parameters and sticking may mean a more moderate profit margin but it also means your losses will be contained, which can be a very comforting thought in retrospect.

Although forex trading is poles apart from gambling, a successful forex trader is in many ways like a gambler. Knowing when to "hold 'em, fold 'em or run away" is a vital part of the process...