According to the statistics provided by most Forex brokers, “95% of traders fail” or “only the highest 5% of traders succeed in trading.” this suggests that out of 100 traders who fund their trading accounts at the beginning of a trading year, only 5 of those traders will close the year with extra money than their initial deposit within their accounts.
Those are discouraging numbers for anyone who is trying to achieve forex trading. While the numbers vary between studies, the very fact is most traders find themselves losing money in trading.
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These are the 7 major reasons why most forex traders fail
1. Following signals provided by the broker.
You’ll fail in trading because your broker gave you bad advice and mislead you in business.
As your broker plays a very important role in your trading but if you came across a wrong broker then it will be very tough to achieve your trading goals.
The number of brokers increases day by day so choosing the best of them is a difficult task. You need to think about different aspects before choosing the trader.
Like
- How will your day go?
- How many hours left for you to trade per day?
- Are you more into long term trading (Position trader), or short term trader (scalper)
Ps. Belive me every single detail matters to choose your optimum broker.
For example. If you are a short term trader, that means you will not pay too much attention to the swap fees, However, you will focus on the spread and how tight it is.
And Vise versa, If you are a long term trader, you may neglect how wide the spread is if your broker is offering a free swap trades.
Now, most people fail in trading forex because they decide to follow the signals provided by their broker, The point here no one knows how did he come up with these trading signals
- Did he use fundamental analysis?
- Did he use technical analysis? and what technique did he use?
My Point of view,
I don’t trust the trading signal recommendations, because even if they work you will not know how did the signal provider come up with his trade.
2. Get Rich Quick Scheme. (Over Using Leverage)
Many forex traders enter the market with the thought “I will get rich quickly trading FOREX”
This is often an incorrect idea. It’s unlikely that you will make profits within the first few trades you place. It takes time to understand how the market works.
Mainly new traders get tempted to overuse leverage without understanding how risky it is.
Indeed it is an advantage, However,
You have to be very careful when you place your trades and how much risk will you accept to lose per each position.
We will be talking about how to use leverage properly with a proper money management.
But.
Some of the new traders risk 20% – 50% of their capital in a single trade, Which is totally against our risk management police
P.s (We recommend to risk a maximum of 2% of your capital in your all active trades) (All Active trades, Not per trade)
3. Poor risk management.
One of the most important things to do before starting to trade forex is to have a trading strategy. and one piece of the trading strategy is managing the risks
you might want to know that bad luck is a piece of the game and you’ve got to be prepared to encounter them.
We tried to explain earlier that risk management is one of the most important parts to master when you are trading forex.
if you ask me which is more important “Trading Plan” or “Risk Management”, I would choose Risk management than a trading plan.
But
What is Risk Management?
In a Nutshell
Risk management is a set of rules you put together to trade your trading plans
My RIsk Management Rules.
You found the perfect setup to buy a certain pair, in my personal risk management rules, I do not trade more than 2 active trades, and both positions risks is 2% of my total capital. (Each position is 1%)
This gives me a better chance to focus and watch the price action closely.
Another Rule in my risk management plan is “I never trade if I lost more than 3% in a day or 5% in a week”. this help me to prevent the “REVENGE MODE”
P.s I will be talking about how to set your risk management plan, and how to prevent the REVENGE MODE in another post.
4. Discipline lacking.
Another significant reason why most forex traders lose their money is that they are not following their Trading plans
We all agreed that we all should not start trading forex unless we have a trading strategy with proper risk management in place.
if you are basing your strategy based on technical analysis, For example (Moving Average crossovers, and RSI overbought/oversold strategy), and this trade is proven to work.
Some new traders see trading opportunity with a half trading setup
like the fast-moving average has crossed the slow-moving average upwards, However, the RSI is not totally in the oversold zone. Now some new traders trade this setup assuming that the setup is complete, and unfortunately lose the trade.
Generally, A trader must put time and energy into building up an extreme trading strategy system. and this trading strategy should suit all market conditions.
5. Slow Learning Curve. (Giving Up really quick)
It’s important for new traders to understand that forex trading isn’t rich quickly scheme.
Like any business or a decent job, there’ll be a fair learning curve, However, Some times this learning curve goes steep and takes longer than what it should.
Forex Trading is an overwhelming business, and there is a lot of information you have to digest before start trading with a real account.
Learning a strategy or having a trading plan is not enough for you to be profitable, as we always suggest to do your homework and understand the fundamentals before placing your trade.
It is very important to choose a bias to trade a certain pair (Either buying only a EURUSD or selling only AUDUSD), and the bias is mainly confirmed by the Fundamental analysis, which is sometimes very hard to understand especially for new traders.
A perfect setup will not help you to be a profitable trader. you have to understand the news and the reason why did the price action moved in a certain way and not the other way around before confirming you entry using the technical analysis.
Unfortunately, there is no course or proper information out there that covers this part in particular. and this is why we’re here.
One of FXForexTrader.com’s main goal is to teach traders that trading the technicals only is not enough, and you have to understand the fundamentals to be a successful trader.
6. Failure to Adapt to Market Conditions.
The Forex market isn’t one stiff system that behaves exactly the same way without changing. T
If you face it with rigid Trading Strategies, you’re probably be disappointed.
It’s up to you to understand this and adapt to the changes that happen to the market and take advantage of them. One single trading strategy that you simply learned may go under certain circumstances, However, it may not work under others. Once you understand this, you’ll become a far better trader.
Surprisingly though, most new traders attempt to force that one strategy on every trade. then they get disappointed when the strategy goes wrong.
7. Emotions and the Psychology Factor:
Relax people can do better trading because they have enough control on their emotions.
Therefore, the more emotional you are the more chances to make mistakes while trading. During forex trading, you must be sober, calm, balanced, and totally disassociate from your emotions.
Generally, this seems impossible but you have to set a way to deal with your feelings.
To become an effective trader, you will have to control your emotions and you have to adopt reasonable behaviors of thinking to maintain your system.
Each trading decision should be taken after deep thinking without involving emotions. In other words, DON’t RUSH IT
By adopting good control of your mind and changing your way of thinking, you will control your emotions in trading.
It is also extremely important to remember that controlling your emotions does not mean anger or frustration. It only means that you have to control your emotions and channel them in a positive manner.
Conclusion
There are other reasons for you to fail trading forex, and the mentioned points above are not all the points that you have to consider while trading FOREX.
For now, If you are new to Forex trading, focus on the trading strategy and proper risk management.
If you are not new, Keep focusing on upgrading your trading Strategy.
Now, which of the points above is did you face while trading forex, did fail to adopt the market condition, or Overtraded using the leverage offered by the broker.
Please let us know in the comment below.