Why Do Forex Traders Fail?
The failure rate of new Forex traders has been estimated to be as high as 95%. Why is this rate so high? What are some of the reasons for this failure. Listed below are some of the most common reasons why Forex traders fail in their quest to become Forex millionaires in FX trading, we go into greater detail on each topic down below.
- Traders are Under capitalized
- Refusing to Accept That You Are Wrong
- Chasing Yours Losses While Trading Forex
- Lacking the Patience to Wait for the Right Trade
- Opening a Real Account Before You are Consistently Profitable.
Traders are Under capitalized
Many Forex brokers offer very minimal initial deposits. This means that you can open an account with a Forex brokerage and fund it with as little as $1.
This may seem great, but in reality, you are not doing yourself any favors by starting out under-funding your account.
Many newbie traders have their heads filled with dreams of becoming the next Forex millionaire based on their $1-$100 deposit. It’s hard enough to succeed at Forex with a well-funded account.
Why do forex traders fail even when Information on trading is everywhere?
Neglecting to fully fund your account opens the door to risking too much of your capital on a trade to compensate.
Risking more than 2-5% of your account per position is not recommended and increases the risk of facing margin calls.
Margin calls are sent by your broker when your cash on hand doesn’t meet the minimum requirements to cover the margin that is currently tied up in trades.
When this situation arises, brokers can immediately close your positions to ensure that they are covered, causing you to lose money.
Funding your account on a level that gives you plenty of buffer between the margin used and the cash on hand will allow you to stay away from margin calls.
Setting a stop-loss will also prevent this by closing losing trades before they start pushing against the cash requirements.
Why Forex Traders Lose Money?
Many come to Forex trading in anticipation of soon becoming rich and retiring a Forex millionaire, this is exactly why forex traders lose money. Unfortunately, Forex trading requires a lot of studying and practice to become successful.
Forex trading takes a number of skills that must be developed over time. Great opportunities do exist if you are willing to learn or develop a winning strategy and execute it reliably.
But it’s not realistic to expect to open an account and immediately begin to profit without a strong foundation of knowledge.
Even if you execute someone else’s trading system, you will need to understand the terminology and basic concepts involved.
The more aspects of Forex and price action that you understand, the easier it will be to execute such a system, even for a newbie trader.
You will be able to see caveats and weaknesses in a system that you can possibly compensate for. These tweaks allow you to improve the system and make it your own.
This is what successful currency Forex online trading is all about—taking what works for you and dumping the rest.
Reasons Forex traders lose money..
Refusing to Accept That You Are Wrong!
A very important facet of successful currency Forex online trading is accepting that you are simply wrong sometimes. We can’t all be right 100% of the time. We can’t get emotional when we are wrong either.
We must kill the trade and resolutely continue on without the loss weighing down our thoughts. We won’t be able to perform if we keep focusing on the last trade—especially if we beat ourselves up over our losses.
Accepting that you can be wrong is an integral part of the learning process. And in something like Forex where we deal with probabilities, being wrong is a fact of life.
You will occasionally be wrong.
It is even advisable to set up your risk to reward ratio on your trades such that you break even with a 50% to 66% success rate.
That implies a 33% to 50% failure rate.
For example, when you evaluate whether to make a trade, evaluate where your stop-loss should be and where your profit target is.
If the number of pips you would lose by getting stopped out is more than 1/3 of the potential profit, skip the trade.
The amount of risk does not justify the reward. Forex millionaires stick to trades where the risk taken justifies the possible reward.
Chasing Your Losses While Trading Forex
This goes along with a refusal to accept that you’re wrong.
Instead of accepting the losses that you have suffered, you try to “get your money back.”
This is another common mistake that newbie traders make. This doesn’t work in the casino and it certainly doesn’t work in the Forex market.
Even worse, when you lose or you are still emotionally unstable from the loss, you start to think even less clearly than you did when you suffered the initial loss. This is a bad recipe for even more losses.
That’s why it’s important to set a limit and step away from the trading account when you exceed it.
Forex trading is a craft that requires focus and deep thinking.
Sometimes humans are not just able to perform. It is of utmost importance to find out whether you are not performing well as soon as possible and get away.
Don’t trade at all on days when you’re simply not on your game. Forex millionaires know when to step away in order to succeed in Forex, newbie traders will eventually have to learn this.
If you lose 50 pips on a trade, you will want to get your 50 pips back.
You enter a trade right away as soon as you can, possibly the same one from before. You end up losing 25 more. Now you’re 75 pips behind. This is how trying to “get your money back” works.
You keep digging a deeper and deeper hole the more you try to get out, like a tire stuck in the mud. When you suffer a loss, detach yourself from it as best you can. When you are in trading mode, try to detach yourself from wins and losses—this will keep your emotions in check.
You will have plenty of time to evaluate and process your wins and losses when your positions are closed.
Lacking the Patience to Wait for the Right Trade.
In order to profit in Forex, you have to wait for the right conditions. Without waiting for those moments when you have a statistical advantage, you are simply gambling and is one of the top reasons why Forex traders fail.
This is similar to someone approaching the poker table and playing every single hand they are dealt.
This is a classic strategy undertaken by some newbie traders and it is quite like pulling the lever on a slot machine.
You may win if you’re lucky, but not long-term, and you can’t claim skill had anything to do with it.
This is not how the mythical Forex millionaires do it and neither should you.
We must develop the self-control and mental discipline to wait until the time is right before we make our move.
Sometimes when you are waiting for the right trade, it can get boring and difficult to wait. That’s when we start looking for a bet to make.
Don’t gamble on Forex. If you find yourself without a trading opportunity and you are bored, step away and find something else to do.
Forex trading can be highly emotional, especially when we win or lose.
When we win, visions of the wealth and success of our life as a Forex millionaire can flood our mind if we let it.
When we lose, any disgust we have with our present situation is multiplied. If you are investing money you can’t afford to lose, you bemoan your existence and agonize about how you’ll never reach the level of success you want.
If you are investing money that you cannot afford to lose, visions of poverty and lack can take control of your mind.
Always invest only money that you can afford to lose.
Forex can take a long time to master and the road to Forex success is littered with the busted accounts of those who learned how to succeed in Forex the hard way.
PROBLEM - Opening a Real Account Before You are Consistently Profitable.
|Alliance Investment Management||www.allianceinvestment.com|
|Capital One Forex||www.capitalone.com|
|City Credit Capital||www.cccapital.co.uk|
|City Point Trading||www.citypointtrading.com|
|Credit Financier Invest||www.cfifinancial.com|
|Forex Broker Inc||www.forexbrokerinc.com|
|Fort Financial Services||www.fortfs.com|
|Global Brokerage Inc||www.ir.globalbrokerage.info|
|KGI Futures Singapore||www.kgieworld.sg|
|Larson And Holz||www.lh-broker.com|
|Larson&Holz IT Ltd||www.lh-broker.com|
|Mega Trader FX||www.megatraderforex.com|
|MultiBank Exchange Group||www.mexgroup.com|
|RBC Capital Markets||www.rbccm.com|
|Rosenthal Collins Group||www.rcgdirect.com|
|Sun Hung Kai Financial||www.shkf.com|
|Trade Pro Futures||www.tradeprofutures.com|
|Vinson Financials Ltd||www.vinsonfinancials.com|
|Xtrade Europe LTD||www.xtrade.com|
There is a reason why brokers provide demo accounts. Sure, it is there for you to get a feel of how the platform works.
But they also know that traders use them to practice. Some brokers would like you to enter the game as soon as possible, so they can get their hands on your money.
Market maker brokers couldn’t care less if you lose, and in fact, would rather you lose. This is because when newbie traders lose with a market maker brokerage, they win.
When you open an account before you are ready to trade, you are essentially gambling.
Instead of simply lacking the patience to wait for the right trade, they have no compass or consciousness for what the right trade is.
But instead of lacking patience, they lack knowledge. Thus, they simply bet “buy” or “sell” each time and end up suffering the same consequences as someone who lacks patience.
The Next Forex Millionaire?
We hope we have answered the age old question – why do forex traders fail? Failing in trading means losing money. And losing money is something nobody wants to do.
Many of the pitfalls that wipe out newbie traders deal with a lack of experience, a lack of mental discipline and a lack of proper Forex trading psychology.
These are all skills that can be developed over time. A lack of experience can be overcome through study and through practicing with a demo account.
Mental discipline and psychology can also be developed through practice, education and the proper mindset.
Through strong commitment and enough perseverance, you never know who will become the next Forex millionaire.