According to statistics published by most forex brokers, 70-75% of individual traders who use their platforms end up losing. This means that out of every 100 traders who deposit into their account at the beginning of the year, only 25-30 are making profits and their balances ending at a level higher than the initial deposit amount. According to these numbers, there is no doubt that the vast majority of forex traders are losers, or in other words unable to turn a profit at the end of a long year of hard work. In this essay, we'll look at the primary reasons why most forex traders fail to benefit from the market, despite having access to a wealth of information. and wealth of knowledge freely available on various websites.
Trading without a plan
One of the most common mistakes that forex traders make is that many of them trade the currency markets without a pre-established plan, which is called a trading plan. Most losing traders do nothing more than open the chart and start trading right away, and sometimes they just trade based on their reactions to some economic reports or headlines, which in their eyes justify entering some promising trades quickly.
You may be able to achieve some winning trades even without using a particular trading plan, but you will eventually discover that your losing trades will exceed your winning ones, and the result is at the end of the year you get the title of losing trader. Forex trading with a clear plan means that you have predetermined conditions for entering and exiting trades, as well as setting maximum risk limits that you can take, which in turn helps to increase the chances of successful trading.
Lack of discipline and lack of commitment to the trading plan
Another main reason why most forex traders fail is that they don't stick to their trading plan to the letter, which often leads to emotional decisions. Many traders are rushing to open high-risk trades due to their limited winning trades, deliberately ignoring that a carefully crafted trading plan after a long testing period is primarily focused on trades with the highest chances of success.
Other traders get greedy and hold their losing trades even after the price hits the stop loss, hoping that the market will turn in their favour at any moment, but in fact end up incurring even heavier losses. The lack of self-discipline also explains why many forex traders rush to close their winning trades prematurely for fear of turning into a loss, but end up failing because the profits they get from successful trades are limited while they incur huge losses from losing trades. .
Failure to adapt to changing market conditions
You will discover over time that most losing forex traders do not like the idea of changing their trading plan to match the prevailing market conditions. Conversely, profitable traders have more flexibility to deal with changing conditions. For example, a trader might expect the price to bounce off a support level, but would be surprised if the price breaks below that level. In such cases, the successful trader rushes to adjust the trading plan and looks for selling opportunities instead of crying over the spilled milk in the buying deal.
Moreover, most loser traders overlook the fact that their main goal is to make profits, not to be right all the time, which inflates their inner ego and pushes them to stick to their initial analysis even if market conditions change upside down. Successful traders also come up with back-up plans to deal with possible worst-case scenarios, seeking to take advantage of unexpected events that take losing traders by surprise, while their assertiveness magnifies their losses.
Building expectations that are far from reality
One of the common characteristics of losing traders is that they have unrealistic expectations and perceptions throughout their trading journey, most of which boils down to the ability to make huge profits once they start trading. These unrealistic expectations of potential profits usually lead to taking unnecessary risks that quickly turn into huge losses due to the lack of experience necessary to achieve profits. Most loser forex traders also imagine that their trades will be profitable from the very first moment, and these are of course notions that are far from reality.
Forex trading is akin to running a marathon, you can't suddenly wake up one morning and run 42 kilometers. Passing a marathon requires many months of training, which also applies to trading in the forex market, as the only way to success is to stick to the trading plan for at least several months.
Poor money and risk management skills
One of the main reasons forex traders fail is to overlook the importance of properly managing capital, which often goes hand in hand with poor risk management skills. As the old saying goes, the markets will always go there, but will you go too? In essence, this wisdom is a warning to forex traders that they should be careful in the financial markets by taking calculated risks and minimizing losses so that successful trades can eventually cover these losses and make a net profit.
Most professional traders recommend that the amount of risk per trade not exceed 2% of the account balance. This rule makes it impossible for any losing trade to zero the account as might happen when risking big money.
Failed forex traders usually do not pay enough attention to preserving their capital, which is extremely important especially if you are investing a large amount in your trading account. Conversely, profitable traders who manage large accounts usually split and allocate the capital according to the strategy used in each account, so that the balance meets the various objectives pursued by the investor such as hedging, speculation or making profits.
Learning through trial and error
Relying on learning to trade the currency market by trial and error is one of the main reasons forex traders fail. The best way is to learn from the experiences of successful traders that will definitely help you avoid making common trading mistakes. In other words, trial and error is not the best way to learn because it will eventually lead to costly catastrophic mistakes that can ruin your future as a trader, when you could have avoided these pitfalls by taking advantage of the experiences of more experienced traders. You can learn from profitable traders by attending their seminars and reading their books, or even studying the many explanations available online, like the article you have in hand right now.
Conclusion
This article covers some of the common reasons why forex traders fail. However, it should be noted that the list of errors we reviewed above is not exhaustive, as there are many other reasons why a forex trader may fail. In any case, it is still very important to avoid making the mistakes we discussed above because they will cost you a lot of money and may kill your career as a trader in the early stages. Also, remember that you will only fail if you give up on your dreams in the world of forex, and that you can win this game if you avoid common mistakes and remain calm and wise in all your steps as a trader.