Evey Forex traders lose money at some point in their trading life. Regardless if you trade stocks, futures, or forex, most traders simply lose money while trading. So you are probably curious why this is a fact? I still remember my first winning trades, but it was more luck than anything else. Like most beginners, I gained some profit, but it had nothing to do with knowledge. Statistics show that over 78% of all forex traders lose money and some quits trading. New traders especially struggle a lot to become profitable. This post to help new forex traders understand more about the pitfalls of forex trading.
To make it easy, these are the eight most important reasons why forex traders lose:
LACK OF KNOWLEDGE
This is probably the main reason why forex traders lose money. I’m trading for thirteen years and still make errors. So why people think they can beat the market after looking at a one hour webinar. I lost money for a long time because I thought the same thing (I didn’t watch any webinar, and it probably wouldn’t make a difference).
If things are not failing, you are not innovating enoughElon Musk
Now, Most people remember making mistakes that hurt you. Either getting punished for something wrong you did or when you fell off your bike. The same rule applies to FOREX trading. If a lousy trade doesn’t hurt, you will probably forget about it and do it again.
How to fix
- before start FOREX trading, try to see “the big picture.” There are various sites where you can find a lot of information.
NO/BAD Money Management
Money management isn’t a very popular and important reason forex traders lose. Especially newcomers do not seem to care about stop losses. So besides a correct lot size for your account balance, it’s also essential to use a stop loss. Another tool that could help you is a trailing stop. This enables you to follow a trend longer without having to monitor the position. Money Management is very significant and much bigger than what’s here, so I have another post about Money Management
How to fix
- Use a stop loss and take profit for all trades. It prevents from experiencing large losing trades or profits, which vaporize because of retracing markets.
- You can use a forex robot to automate partially or fully your trading. I partially automate my trading (you don’t need to know to programming.) There a lot of free and paid robot trade assistants.
ADMIT TO BE WRONG
If you play multiplayer games, you probably know the meme, “It was lag, I swear.” Don’t do that with forex trading. A wrong trade is the wrong trade. Deal with it. That is why you should always check data such as average winning vs. average loss. This is evidence if a strategy profitable or not. Most traders take little gains and let the losers run. Forex trading isn’t a marriage, just admit that you are wrong in a trade.
How to fix
- A loss trade will happen, and it’s pointless to stick your head in the sand. Do not fear to be wrong; even the best forex traders will be wrong too from time to time. It’s part of life.
FEAR, GREED, REVENGE: EMOTIONS
Its common knowledge that emotions won’t help you as a forex trader. Fear will probably lead to leaving a fair trade too soon(I still make this mistake some time). Greed will most likely make you exit a trade where you could have made more pips. Or you will lose more by trying to get more than you planned.
Revenge is a disturbing emotion we can feel. If you act on it while trading, it mostly brings the end of your trading account. However, A person may not take revenge on their average day to day living. But you may do when it comes to trading.
Your stop loss was just hit by 2 points, after which price flew in your desired direction. You are furious and unbelieving in equal measure. You scan the charts furiously, looking for another trade and you find one, and you lose it too. So, You are even more angrier, you increase your lot size and take another trade. I assume you get the idea about this circle of doom! This will end up with a 0$ left on your account.
How to fix
- Since emotions will never help you while trading. Meditating is an excellent way to fix this (I’m serious). Yes, I don’t know a fix for it.
- Read More How to develop a confident trading mindset?
NO TRADING PLAN
Imagine you turn on your platform to take trades. What is your trading plan? When and why you decide to make a trade? Or are you just randomly taking a trade to see what happens. Most traders end up buying tops and selling bottoms and end up losing their trust in their forex trading skills. A trading plan is essential for making consistent profits in the forex markets. So before you enter a trade, it helps if you think precisely why you are making this trade.
How to fix:
- It’s simple, Make a trading plan and follow it. Yes, following it is hard. Now for humans, it’s common to hold losses long and take profits early (if this isn’t a problem for you… ). So creating a good plan isn’t enough; you should try to defeat these emotions.
- A good trading plan must also have excellent money management.
- Read More 7 Rules You Should Follow When Trading Forex
Do you any idea how much time a professional forex trader spends on trading every day? It’s as much as you spend in a day job(some times more than a day job, sometimes more than a day job). Why is it that most new traders think that with just 15min of reading and a mobile device, they can make consistent profits. Being a forex trader isn’t that easy (nothing that easy; well, maybe after some time) and requires time and consistency.
Even when you have the time to scan the markets, you still need time to enter a forex trader correctly. Don’t be sad, as most traders are not going to be a professional forex trader. But still, it is possible to make steady profits. It’s just a matter of finding a profitable trading strategy.
How to fix
- You can use a forex robot or indicator to automate partially or fully your trading to save time. I partially automate my trading. (you don’t need to know to programming.) There a lot of free and paid robot trade assistants.
Seriously? Did you send money to a friendly guy over the phone that told you how to become rich? Or did you go to a 100% deposit bonus banner? The brokerage business is very profitable. Therefore, a forex trader should check execution prices, regulation, support, withdrawal policy, platform, etc.
Complaining about your broker is also a lack of knowledge. There are plenty of official websites where you can check reviews. Or go on forums to see what others have to say about individual brokers.
But You Don’t have to worry about these we did the most of the work and narrow down the best brokers for you HERE
How to fix:
- Look for broker reviews on unbiased websites
- See if the broker is blacklisted on a regulators website
- Contact them and ask critical questions
- Read this article How To Choose A Good Forex Broker
Purchasing the Wrong Trading Strategy or Robot
Don’t worry. I am not going to promote any. I follow the basic rules before trading any strategy. So instead of believing any Holy Grail EA/strategies stories, just use your common sense. If it looks too good to be true, it probably is.
- Read More Forge Your Forex Trading Strategy
How to fix:
- I recommend making your own strategies rather than buying one(read the above post to learn more about how to forge your own system).