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Why Do Forex Traders Lose Money?

By testing | 06th Dec, 2022 | For New Traders
Why Do Forex Traders Lose Money

It’s not just a cliché that 90% of forex traders lose money.

Most new retail forex traders quit forex trading within the first year… Usually after losing at least a couple of thousand dollars.  And most will never trade again, relegated to those who think that “trading is just a scam”.

So, what’s the reason behind this, and how can you make money trading forex and be in the top 10% of forex traders?

This guide will mention some practical reasons forex traders lose and some key solutions, we’ve found to tip the balance in your favour.

So, here we go!

They Trade too much money too quickly

In hoping to explore the treasures of the mighty forex world, many people put too much capital upfront. They think that having a bigger account will automatically generate bigger profits for them.

As with getting started in any business, a reasonable upfront cost is necessary, but that doesn’t mean you should put all your savings into the forex account.

They put all the eggs in one basket and try to get a result just basedon the factthey think they have enough money to influence the market.

The truth is that it takes at least $10Million US to make the market move 1 Pip… Individual retail traders never drive the market.  It doesn’t matter how much money you trade, it matters, HOW you trade.

This is the experience of many new traders who don’t have any previous experience and don’t understand how the market really works.

Too much capital + no trading experience = 90%+ chance of ruin.

How Do You “Fix” This?

So, what’s the solution to this?

The best solution for a beginner is to start practicing their proven trading method on a demo account, where you can learn how your method works in the real world, without risking any of your capital.

Then, once you’ve honed your skills, you can start with a small account, like $100, to practice in the real world so you can feel the difference that having even a small amount of money on the market makes.

This will help you identify any technical or mindset shortcomings you may have and resolve them, without too much effect on your bank balance.

Make better decisions and then attempt to grow the funds in your account through strategic compounding of your profits.

With this strategy, even if you lose some trades along the way (and you will lose trads – everyone does), you won’t lose too much in those losses.

They Don’t Manage Risk

Let’s face it; no one likes losing. Many traders try to avoid losses by clinging to a losing trade, even if deep down they know it will never turn in their favour.

However, eventually, they lose! Why? Because they don’t have a proper proven, effective risk-management strategy in place.

Risk management means managing your risk on each trade : minimising losses on negative trades and locking in profits on positive traes.

Most retail traders have a passive risk management strategy where they do not risk more than 1% or 2% of their account balance on each trade.

So, for example, if you have a $1000 forex account, you shouldn’t risk more than $10 or $20.

This is a BASIC Risk Management Strategy that sets a limit on how much money you expect to lose on a negative trade, but really it’s just a reaction to the market turning against you beyond a break even result.

So What Do You Do?

Your trading method should have built into it small micro strategies to tip the scales of a trade into profit more often than loss and to lock in profits at key points.

Some other risk management factors include the time of day you trade, the currency pairs you trade, the analysis you conduct prior to the trade to determine where the people who actually drive the market are most likely to take price in the session, as well as when to lock in profits on your positive trades.

Having a well thought out risk management strategy that you can follow consistently keeps you disciplined and keeps the impact of psychology out of the mix as much as possible..

Remember that you may have a shaky trading strategy and still earn money if you manage risk effectively. You will lose regardless of your amazing trading approach if you have bad or no risk management strategies in place.

They Get Too Greedy

Fear and greed are the common emotions that drive the forex market. Humans have an inborn yearning for prosperity, and all the benefits that having a lot of money can provide.

In their eagerness, many try their “luck” in forex, believing that their investment would automatically enable them to meet their financial goals, just because they want it.

But, when the price begins to move against their position, they fear losing their investment and exit a position often early and at a loss (not appreciating how traders make price cycle through a series of runs and retracements).

Here’s a tip

Trading is not about chasing the money; you shouldn’t dedicate all your efforts to thinking of making billions of dollars.

Instead, concentrate on honing your trading skills on each trade in an effort to bring consistency to your trading and repeatable decent profit trades that you can take most of the time.

In the long run, you’ll discover that you’ll feel more confident, you’ll better understand the market and where the profit opportunities can be found and you won’t get too greedy.

The crazy thing that most people don’t get is that when you don’t care about profits, you’ll usually trade a lot more profitably.

They Trade Without a Focused Plan

“Plan your trade, trade your plan,” this saying should be posted on your wall above your monitor.

Unfortunately, many traders don’t, and they fall into the 90% failure category.

Trading without a plan gets you nowhere, except constantly moving in circles, or; worse still spiralling downwards.

Be the Trader with the Plan…

The consistently profitable trader has a clear plan of the circumstances in which they find their profitable trades: in which markets, on which currency pairs in what conditions and they execute their plan consistently.

Without a clear and easy to follow trading plan, you will have a greater potential to overtrade or revenge trade and; ultimately, lose in the end.

A trading plan is a clear road map for you to follow in your trading day or week.

Traders use their trading plan to identify key data and use this data to map potential trades.

Read more about Building a Successful Trading Plan HERE

They Trade Without Objectivity

In simple words, objectivity is found by applying a rule-based trading.

However, unlike just reading the word “objectivity”, applying objectivity practically in your own trading can be really difficult.

When you have real money on the line and when you have your hopes and dreams rolled up into being a millionaire from your trading, being objective can mess up your brain.

“I’m going to enter here, even though my method’s telling me to be patient and wait.”

“I’m going to hold this trade, so I can breakeven, even though my method is telling me to get out.”

“Even though my method is telling me that there is more profit to be made, I’m nervous because I lost on my last trade and I don’t want to lose again, so I’ll exit here with justa  tiny profit, because at least I didn’t lose money this time”

Thoughts like these pop into the minds of even the experienced traders, especially when they think that their money in the market has some effect on where the price is going (which we know doesn’t).

But there is a solution to this.

You will trade objectively when you appreciate that success in retail forex trading comes when you focus on what the big players are likely to do in the market.

It’s not about you because you don’t have enough money in the market to affect the outcome.

If you have a clear head, stay unbiased and follow the strongest market conditions, and make trading decisions exclusively based on the facts rather than just your desires, you will have th best opportunity to take advantage of the price movements that will produce the best long term profit.

For More on Developing a Profitable Trader’s Mindset, Read THIS ARTICLE

They Have No Support or Guidance

A trading coach or mentor has greater experience than you in the forex world. They have spent years gaining this experience and gathered successes along the way, both through their own experience and by coaching other traders through their challenges to achieve success.

However, many traders aren’t willing to listen, learn, or put their egos aside and actually take the coaching offered by their coach.

They think they know it all and they can manage their forex account better than anyone else, just because they feel like the have a better understanding than someone with much more experience than them.

I’ve seen this many times and eventually this stubborness destroys their forex accounts and with it any change of gaining true financial independence.

When you set your ego aside, it is only to your benefit if you learn firsthand from someone who has walked down the rocky and hard road of forex.

Why pay a coach to help you, if you don’t accept their help?

They Refuse to Accept & Learn from Their Mistakes

Having losses are part of successful trading, but not learning from those mistakes isn’t.

Many beginners get bogged down by getting a few losing trades, get despondent, trapped in a cycle of chasing losses with more losses, and fail.

The trader who has never had a big downturn or blown out on his or her trading account will never recognize the lessons from those results.  Understanding WHY a trade produced a result you didn’t want and what you can do next time you’re in that situation will help you recover from any worst-case situation.

You can do as much technical or fundamental analysis as you want, but there will always be uncertainties. The market is mostly predictable, but unexpected reactions to announcements, adverse news reports occasionally make the market move unexpectedly.

How to Use Mistakes to Grow Profits

As a retail trader, you can’t know all of the factors that are affecting an individual price movement and as a result, losses are unavoidable.

Viewing a loss as a learning experience quickly shifts your viewpoint. Rather than dwelling on the loss, concentrate on the bigger picture, i.e., you want to become a seasoned and disciplined trader.  Was my trade unprofitable because of a technical gap in my knowledge, an unexpected market fluctuation or because my mindset got in the way of me clearly seeing what was likely to happen?

Ok, so now what do I do about that?  What technical knowledge do I need, what risk management strategy should I bring in, how can I become more emotionally detached in the future to clearly see the most likely outcome?

They Buy automated forex trading systems that don’t work

Many people choose automated trading systems in hopes of collecting massive profits. They see some internet guru promoting them. With promises of easy money, and their eyes become starry.

However, they don’t realize that a bot or algorithm is an automated system and it’s bound to get stuck on limited parameters to make an accurate decision, unlike a human brain.

Banks and financial institutions, whose business it is to make money from trading, only ever use algorithms to support a human trader to make an educated decision.

The trader’s ability to analyse, balance risk, sort through the data to find the relevant and understanding of how other traders will react to market conditions is what makes the bank lots of money trading forex.

In addition, many forex systems allow traders to become overconfident and lazy.

They think they’ll make moolah while on a hammock, without any effort or work on their part.

The Truth About Algorithms

The truth is that most automated systems aren’t worth it in the long run, as they are bound to fail at some point and the results they achieve are, at best lacklustre.

Another factor to consider is that most algorithms are tied to the promoter’s affiliate or referring broker account.  The algorithm is just a vehicle for them to promote that makes them a small commission every time you place a trade (whether or not that trade makes or loses you money)  The more trades you make, the more money they make.

That’s why they promote the bot and often really cheaply to make you think it’s a good deal… It is, just not necessarily for you.

To Read More about How to Tell the Difference Between a Legitimate Opportunity and a Scam, READ THIS ARTICLE

Conclusion: Consider your strategy and resources

The legend of the forex trader who turns cents into billions of dollars is a myth.

If you want to trade forex and earn a lifestyle income, you must put in the time and effort to do it correctly, following proven strategies, managing risk and having a reality-based approach to your trading, focusing on developing your skills.

Before you take a forex trade, do your research. Learn everything you need to know about the market, your trading method and risk management.

When you believe you’ve learned everything to know, go back and learn some more. You never know what you don’t know.

Once you’ve found a method that works for you, stick with it.

By being a consistent, process-based, risk managed trader, you can achieve the Lifestyle Income From Trading you want.

More Information

For more trading term general definitions, visit our A to Z of Forex Trading 

To look at these concepts in action, please visit our sister site, Latest Forex Rates

What to do Next

If you have more questions or need further guidance, don’t hesitate to reach out to us at The Trading Coach International for personalized coaching and support.

If you would like to learn more about trading forex profitably and what steps you can take next to get on the right track to build your Lifestyle Income From Trading, you can book an no obligation, Free Strategy Call with our Lead Trading Coach by clicking on THIS LINK


The information, strategies, techniques and approaches discussed in this article are for general information purposes only.  The Trading Coach International does not necessarily use, promote nor recommend any strategies discussed in this article.  The information in this article may not be suitable for your personal financial circumstances and you should seek independent qualified financial advice before implementing any financial strategy. The Trading Coach International is not a financial advisor and does not have AFS registration.

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