The fact that a large percentage of forex traders lose is a well-known truth. According to several websites and blogs, 70%, 80%, and even more than 90% of forex traders lose money and quit. Many forex traders perform better than that, according to the forex website DailyFX, but rookie traders still struggle to get traction in this market.
In this article, we will discuss and unveil some of the most common reasons why forex traders lose money.
Forex Traders Lose Money by Competing with the Market
The market is something you understand and join when a trend is identified, not something you beat. At the same time, if you try to obtain too much from the market with too little cash, the market might shake you out. Traders that have the attitude of “winning the market” are more likely to trade excessively aggressively or against trends, which is a formula for catastrophe.
Low Initial Investment
The majority of currency traders begin by seeking a means to get out of debt or make quick cash. To earn significant profits on a little amount of beginning cash, forex marketers frequently push you to trade large lot sizes and employ high leverage.
You need money to produce money, and you may achieve great returns on modest capital in the near term. However, with a limited quantity of cash and a high level of risk due to excessive leverage, you’ll find yourself becoming emotional with each market movement, jumping in and out at the worst possible times.
This problem may be avoided by never trading with too little money. For someone who wishes to start trading on a shoestring, this constraint is a challenging challenge to overcome. If you’re new to trading, $1,000 is a good place to start (micro lots or smaller). You’re just setting yourself up for disaster if you don’t.
Risk Management Mistakes
Risk management is essential for a forex trader’s survival, as it is in life. Even if you are an expert trader, inadequate risk management may wipe you out. Your first goal should not be to generate a profit, but rather to safeguard what you have. Your capacity to produce profit decreases, when your capital is drained.
Place stop-loss orders and move them after you have a respectable profit to fight this threat and practice proper risk management. Use sensible lot sizes in relation to your account capital. Above all, get out of a transaction if it no longer makes sense.
Submitting Yourself to Greed
Another reason why forex traders lose money is this. Some traders believe that they must wring every last penny out of a market shift. Every day, money may be made in the currency markets. Trying to get every last pip before a currency pair change might lead to you holding positions for too long, putting you at risk of losing the successful transaction you’re after.
The remedy appears to be self-evident: don’t be greedy. It’s great to aim for a decent profit, but there are plenty of pips available. Because currencies vary on a daily basis, there’s no urgency to acquire that last pip; the next chance is just around the corner.
Trading regret is something that may happen to anybody at any time. This occurs when a transaction you open isn’t instantly successful, and you begin to believe you made a mistake by choosing the wrong option. Then you terminate your deal and reverse it, only to watch the market return to its original course. In that scenario, you must choose a path and adhere to it. All of your flipping back and forth will result in you losing small amounts of money at a time until your investment capital is spent.
Picking the Wrong Tops and Bottoms
Many new traders attempt to predict currency pair tipping moments. They will enter a trade on a pair, and as it continues to move in the wrong way, they will add to their position, certain that it will eventually come around. If you trade in this manner, you will wind up with far greater exposure than you anticipated, as well as a highly unfavorable deal.
It’s advisable to trade in the direction of the trend. The fact that you accurately selected one bottom out of ten attempts isn’t worth the bragging rights. Wait for confirmation on the trend change if you believe the trend is about to change and want to trade in the new likely direction.
Take up the bottom in an uptrend, not a downtrend, if you want to pick up a position at the bottom. Choose a peak when the market is making a corrective move higher, rather than an upswing that is part of a wider downturn, if you wish to initiate a trade at the top.
Not Admitting to Being Wrong
A lot of forex traders lose money because they don’t want to admit their mistakes. Some transactions just aren’t meant to be. It’s human nature to want to be right, but you can’t always be. Instead of sticking to the concept of being correct and ending up with a zero-balance trading account, traders should accept that they are occasionally wrong and move on.
It’s difficult to accept when you’ve made a mistake, but sometimes you simply have to. Either you went into the business for the wrong reasons or it didn’t turn out the way you had hoped. In any case, admitting your error, dumping the deal, and moving on to the next chance is the wisest course of action.
Purchasing a System
On the internet, there are several so-called forex trading techniques for sale. Some traders are on the lookout for that elusive 100% accurate forex trading strategy. They continue to buy and test systems until they give up, concluding that there is no way to win.
You must recognize that there is no such thing as a free lunch as a beginning trader. Winning at forex trading, like anything else, takes effort. Instead of buying useless solutions from shady marketers on the internet, you may achieve success by developing your own technique, plan, and system.
Conclusion Of Why Forex Traders Lose Money
Forex traders that trade too aggressively, especially when opposing clear trends, might lose money.
Your first and most important aim should be to avoid losing what you currently have.
Stick with Forex trading for a while after you start it. Doubting yourself and switching back and forth nervously won’t get you very far.
It’s fine to recognize when you’ve been beaten. In the worst-case situation, be prepared to cut your losses.