Why do Forex traders lose money?
"95% of all traders fail and end up quitting." This statement repeatedly appears on Forex websites and forums, yet there is no actual article or official statistic that will confirm the accuracy of this number. Let's address the issue of losses, and ask ourselves why Forex traders lose money.
Traders often forget that trading requires the development of skill over time. You cannot become a millionaire overnight. Unfortunately, nowadays too many traders take a wild west approach to trading. And it might work for a while, but when it's over, it's really over. Here are the main reasons why Forex traders fail to profit.
A prevalent mindset among beginners is that they can make easy money by trading Forex. Often beginners invest money they can’t afford to lose or spend little on trading big. Avoid discouragement and open trades proportionate to your capital. Otherwise, you'll find yourself worrying about every swing of the market. Remember that it is risky to trade large lot sizes using high leverage to generate high returns on a small amount of initial capital. Before investing, consult a broker about the recommended deposit amount instead of asking about the minimum, as the minimum is rarely enough to fully dive into the Forex trading experience.
No risk management
We cannot stress enough how important it is to implement proper risk management. You can be a very skilled trader yet suffer losses due to poor risk management. Have your emergency exits in place, such as stop-loss orders, and stick to the plan with your anticipated losses in mind, as well among other factors. Mitigate losses by learning and practising your trading strategy and keep a record of all your trades for future reference. Finally, remember to use lot sizes that are reasonable compared to your account capital.
Greed might prevent you from profiting. Not sticking to your plan hoping to squeeze every last pip out of a move in the market is the worst mistake you could make. Remember that the market is not something you beat, but something you must understand and join when a trend is defined. Always stick to your trading plan, as there is money to be made in the Forex market every day, and leaving your trades open for longer than you planned to grab every last pip before a currency pair turns can cause you to lose a profitable trade. The market moves constantly from Monday to Friday, so do not give into greed as the next opportunity is right around the corner.
Remember to stick to your trading plan and do not allow for bitterness or remorse. If your trade isn't immediately profitable, that doesn't mean you picked the wrong direction, and even if you did, your losses should always be anticipated. Never close the trade and reverse it just because you think your plan isn't right. In most cases, you'll only see the market go back in the initial direction that you chose. Pick a direction and stick with it.
Put egos away
The most common issue is one's ego. It is the best example of human nature as an obstacle in finance markets. You can blame the market, the broker and signals. We want to be right, always, even if we're not. Mistakes happen. You can plan a trade for weeks observing the market, or enter the market for the wrong reasons, or not have enough information to form a plan. It doesn't matter. What matters is that you can move on and not be discouraged. As we said before, there is another opportunity just around the corner. Admit you were wrong, forget about the trade and move on.
It doesn't matter what your level of expertise is. If you are involved in Forex groups, you’ll probably see hundreds of comments and advertisements promoting groundbreaking Forex trading systems for sale every day. Retailers and Forex traders who develop such systems will tell you that their product is 100% accurate and you’ll start profiting instantly. Let's be honest, there is no such system. The perfect Forex trading system simply does not exist. If you think that you can skip learning and pay a couple of bucks for a robot that will do the job for you so that you can enjoy high returns, you're wrong!
You should devote time and effort to learning and practising Forex trading. Success comes from building your method, strategy, and systems. Do not entrust your capital to less than reputable marketers who will most likely end up destroying your image of Forex forever.
The thing about Forex is that you should never stop learning and readjusting your strategy to the changing market. You cannot rely on the knowledge you once acquired, or think that you’ve got natural talent. Similarly, if you had a successful period in your trading, you still shouldn’t rest on your laurels. The market changes constantly and you need sufficient knowledge to enter and understand how it might affect your trade. Do not underestimate anything and be prepared for every possibility. Think what could go wrong. Remember that in Forex, there is no such thing as ‘enough knowledge’. This idea of knowledge intertwines with ego, never think that you know enough about Forex to be over-confident about it.
All of the above reasons are strongly interlinked and add significantly to unfortunate experiences that make traders withdraw from Forex trading. There is no holy grail in Forex trading. You must learn it and practice your methods and strategies to become successful. As a broker, we provide you with tools to help you avoid losses, but you still need sufficient Forex knowledge to operate in the market.