Why Do Many Forex Traders Always Lose Their Money? Part 1

Why Do Many Forex Traders Always Lose Their Money? Part 1

It's commonly known that most forex traders fail. In fact, it's estimated that 96 percent of forex traders lose money and end up quitting. To help you to be in that elusive 4 percent of winning traders, I have compiled a list of the most common reasons why forex traders lose money. Let’s study and learn all the reason listed here.

1. Low start up capital

You must have some money to make some money. It's possible for you to generate outstanding returns on limited capital in the short term. However, with only a small amount of capital and outsized risk, you will find yourself being emotional with each swing of the market and jumping in and out and the worst times possible.

2. Failure to manage risk

Risk management is a key to survival. You can be a very skilled trader and still be wiped out by poor risk management. Your number one job is not to make a profit, but rather to protect what you have. As your capital gets depleted, your ability to make a profit is lost.

3. Greed

Some traders are greedy. They feel that they need to squeeze every last pip out of a move because there is money to be made every day. Trying to grab every last pip before a currency pair turns can set you up to lose the profitable trade that you are sitting on.

4. Indecisive Trading

Sometimes you might find yourself suffering from trading remorse. This happens when a trade that you open isn't immediately profitable, and you start saying to yourself that you picked the wrong direction, and then you close your trade and reverse it, only to see the market go back in the initial direction that you chose.

5. Trying to pick tops or bottoms

Many new traders try to pick turning points in currency pairs. They will place a trade on a pair, and as it keeps going in the wrong direction, they continue to add to their position being sure that it is about to turn around this time. If you trade this way, in the end you end up with much more exposure than you planned, and a terribly negative trade.

6. Refusing to be wrong

Some trades just don't work out. It's human nature to want to be right, but sometimes we just aren't. As a trader, sometimes you have to just be wrong and move on, instead of clinging to the idea of being right and ending up with a blown account.

7. Buying a System

There are many "forex trading systems" for sale on the internet. Some traders are out there looking for the ever elusive "100 percent accurate forex trading system". They keep buying systems and trying them until finally giving up deciding that there is no way to win.

8. Over-trading

This one is pretty self-explanatory, but it’s also probably the number one reason why so many Forex traders fail to make money in the markets. If you are trading too often, you are going to deplete your trading account very fast. You need to only enter high-probability trade setups and have the patience to wait for them.

9. Failing to Consider All 3 Elements of a Trade

The Elements of a Trade
There are three equally essential elements to every trade, each equally important to the long-term success of a trader. Unfortunately, most new and unsuccessful traders only pay attention to one, or at most two of these elements. The three elements to every trade are as follows: (1) entry (the price at which the trade is entered), (2) stop (the price at which the trade is exited for a loss) and (3) target (the price at which the trade is exited for profit). All three are equally important to the success of the trader, but most new traders only pay attention to the entry, and maybe the stop.

10. Moving Your Stops

Now that we’ve discussed what stops are, and how they should be placed, we need to discuss another major mistake made by new traders when it comes to their stops. Nobody likes to be wrong, and nobody likes losing, but unfortunately, both being wrong and losing are a major part of being a forex trader. The problem that new traders (and even some more experienced traders) often encounter is that they let their aversion to being wrong and losing interfere with their trade setups. If a trader sets their stop correctly, at the invalidation level of their trade setup, there should never be any reason to move the stop.

11. Risking too much per trade

This one is also pretty self-explanatory. But, time and time again traders blow out their trading accounts because they “loaded up” on a trade that they were “sure” about. The truth is that you NEVER know for sure which trades will win and which trades will lose, even if you have a high-probability trading strategy and follow it religiously. For this reason, it is critical that you effectively manage your risk on EVERY single trade you take. Eventually, if you are managing your risk effectively on each trade and using a high-probability trading strategy, you will make money over time.

12. Not Having/Not Following a Trading Plan

A trading plan is essential for all traders, new and old. A trading plan should lay out not only the setups the trader will look to trade, but also the risk management strategy of the trader. For example, a trading plan should include weekly, monthly and quarterly pip targets, the maximum amount of capital a trader is willing to lose in a given week, month or quarter, the pairs a trader will be trading, the maximum number of trades a trader will take at one time, what he or she is looking for, how much they are willing to risk, and how much they are looking to make. and anything else that may be important to the success of the trader. Trading plans don’t need to be overly complicated, but they do need to be created and followed.