Any type of trading, especially Forex trading, takes a considerable amount of time and effort to learn how to trade and build a firm foundation understanding Forex. In a volatile and unpredictable market like this, even the experienced traders had to spend a lot of time applying their vast knowledge and boosted confidence in real-time trading.
According to the report, 70% to 80% of all new Forex traders lose money and eventually quit. Our researchers have created a list of the top 5 reasons why most Forex traders lose money. Reading this article, you will be able to avoid the most common errors encountered by traders and learn from their mistakes..
Many beginner Forex traders are already at a backfoot. They start trading Forex because they need more money and believe it will be a quick and easy approach to generate a lot of money. This became worse by Forex marketers who encourage newcomers to trade with high leverage by offering large returns for a little initial investment. This is a high-risk strategy that will almost certainly result in you losing all of your money very fast.
In Forex trading, slow and steady wins the race. To make returns worthwhile and minimize risk with this planned method, you’ll need a substantial amount of capital to start with. If you are trading in micro-lots, $1000 is a decent amount to start with. Else you’re just setting yourself up for disaster if you don’t follow. However, If you don’t have enough funds, you should wait until you save up to the point and improve your trading knowledge and skill with a demo trading account prior to starting trading live.
If you’re a beginner in the forex, you mustn’t exceed risking 1% of your investment on each deal. Trading with more capital also increases the chance of losing more money. Once you gain experience in trading and you know how to manage everything properly, you can scale your risk-taking at 2% afterward.
Poor Risk Management
Poor risk management strategy or having no real trading risk management implemented are some of the most common causes why traders in forex lose money.
In Forex trading, including day trading, risk management is essential for survival. Even if you are an extremely good trader, bad risk management can wipe you out. You must not only ensure that you are implementing a sound Forex trading strategy in order to earn, but you must also minimize losses in protecting your capital.
There’s a reason why trading platforms have automatic take-profit and stop-loss algorithms. Make the most of them! This will significantly increase your chances of success.
As a Forex trader, you must learn how to effectively apply stop losses and take profit mechanisms based on market conditions at the time of your trade.
Not accepting responsibility for losses and mistakes
The blame game has no place in the world of Forex day trading. The most essential lesson you can learn is to accept responsibility for your losses and Forex trading errors.
Accepting responsibility allows you to spend less time and energy criticizing others and more time and energy picking yourself up after setbacks — after all, setbacks are inevitable. Rather, make the choice to move forward or immediately cut your losses, or whatever you need to do in the situation you’re in. Many Forex traders fail to make money because they are not willing to take responsibility for their losing trades and rectify them for future betterment.
One of the most common causes that prevent you from making money in Forex trading is overtrading.
Forex traders who are hesitant in their trading and rush in and out of the market in the heat of the moment will not only lose trades but will also build up a lot more expenses in the form of spreads and commissions.
To be successful as a Forex trader, you don’t need to make a lot of trades; you only need to make the right ones. This is why having a Forex trading strategy and being able to recognize the right conditions to trade are so important. This is true for day trading as well.
Risking too much
Trading is not the same as gambling. There is no more to say about it. Never risk more than 2% of your total available cash on a single Forex trade. You risk the chance of losing a lot of money if you do this. Rather, spread your money across a large number of trades to reduce your overall losses.
There’s no reason to put too much money on a single trade if you have a decent Forex trading strategy. Only when the value of your account grows, you should increase your risk per Forex trade. However, Trading on “emotions” is not really a good idea. Maintain a level of emotionlessness in your Forex trading.