What Causes Forex Traders to Lose Money?
Forex traders fail in significant numbers as it is a common fact. Most websites and blogs claim that 70%, 80%, and even 90% of forex traders lose money and stop trading. Many forex traders do better than that, but new forex traders still face challenges gaining a foothold in this market.
The following list will offer insight into the most common causes of currency traders losing money and will show you how to join the elusive percentage of winning traders.
Trading without a plan
Implementing a trading plan regardless of whether one trades forex or another asset class is essential. Any trading is governed by the adage, “Failing to plan is planning to fail.” Traders who succeed work within an established plan specifying risk management rules and returns on investment (ROI).
By following a strategic trading plan, investors can avoid some of the most common trading pitfalls; by not having a plan, you’re restricting your ability to earn in the forex market.
Giving in to greed
Some traders believe they need to get as much profit as possible from a move in the market. In the foreign exchange markets, money is made every day. Holding positions for too long can cause you to lose the trading opportunity you are pursuing if you try to get every last pip before a currency pair turns.
You should not be greedy. That’s the solution. There are plenty of pips to go around, so it’s OK to shoot for a decent profit. As long as currencies keep moving daily, there is no point in locking in the last pip; the next chance is just around the corner.
Having unrealistic expectations
Despite what others might say, trading forex is not a scheme for accumulating wealth quickly. A successful business is not built in a day. It takes a long time to accumulate profits. Mastering the strategies involved requires recurrent effort.
The usual consequence of swinging for the fences or forcing the market to provide abnormal returns is that traders risk more capital than the potential profits justify. To gamble on unrealistic gains, trade discipline needs to be abandoned and risk management, which is intended to prevent market remorse.
Refusing to be wrong
Occasionally, a trade doesn’t pan out. Our desire to be right is natural, but sometimes that doesn’t work out. Traders need to learn how to accept that they may be wrong from time to time and move forward instead of hanging on to the idea of being right and ending up with zero balances.
Admitting mistakes is not easy, but sometimes it is the only option. It either didn’t work out the way you hoped, or you entered the business for the wrong reasons. Either way, the best course of action is to admit that you made a mistake, dump the trade, and take your next move.
Bottom line
A similar set of factors lead to forex traders’ failure, as do problems faced by investors in other asset classes. Building relationships with other successful forex traders who can teach you the trading disciplines supported by the asset class will help you avoid many of these pitfalls. These include understanding the risk and money management rules for trading the forex market. Once you have a return expectation that keeps you from taking an excessive risk for the potential reward, you will be able to plan appropriately and trade accordingly.
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