Why Do Forex Traders Fail
According to statistics published by most Forex brokers, 70-75% of individual traders using their platforms suffer losses. This means that out of 100 traders who deposit into their account at the beginning of the year, only 25-30 are profitable and their balance ends up being higher than the value of the original deposit. Judging by these numbers, there is no doubt that the vast majority of Forex traders are losers, or in other words, unable to make a profit at the end of a long year of hard work. In this article, we will focus on the main reasons why most forex traders fail to make profits from the market, despite the wealth of information and knowledge freely available on various websites.
Trading without a plan
One of the most common mistakes made by forex traders is that many of them trade the forex markets without a predetermined plan called a trading plan. Most losing traders do nothing but open the chart and start trading immediately, and sometimes they simply trade based on their reaction to an economic report or headline, which they believe warrants jumping into some promising trades quickly .
You may be able to get some winning trades even without the help of a specific trading plan, but you will eventually find that your losing trades will outweigh the winning trades and the result at the end of the year will be the losing trader’s title. Forex trading with a clear plan means that you have predetermined conditions for entering and exiting trades and set maximum limits on the risk you can take, which in turn helps increase the chances of a successful trade.
Lack of discipline and non-compliance with the trading plan
Another major reason why most forex traders fail is that they don’t stick to their trading plan, which often leads to emotional decisions. Many traders jump into high-risk trades due to the limited number of profitable trades they have, consciously ignoring that a carefully developed trading plan, after a long testing period, focuses mainly on trades with the highest chance of success.
Other traders get greedy and hold on to their losing trades even after the price hits the stop-loss level, hoping that the market will turn in their favor at any moment, but in reality they end up suffering much bigger losses . The lack of self-discipline also explains why many forex traders close their profitable trades prematurely, fearing they will turn into a loss, but end up failing because they only make limited profits from successful trades while suffering huge losses from losing ones suffer trades.
Failure to adapt to changing market conditions
Over time, you will find that most losing Forex traders don’t like the idea of adjusting their trading plan to prevailing market conditions. On the contrary, profitable traders have more flexibility to deal with changing conditions. For example, a trader might expect price to bounce off a support level, only to be surprised to see price fall below that level. In such cases, the successful trader quickly adjusts the trading plan and looks for selling opportunities instead of crying over the milk spilled on the long trade.
Additionally, most losing traders overlook the fact that their main goal is to make profits and not always be right, which inflates their inner ego and pushes them to stick with their original analysis even when market conditions turn upside down place. Successful traders also devise alternative plans to deal with possible worst-case scenarios, attempting to take advantage of unforeseen events that surprise losing traders while their rigidity magnifies their losses.
Build expectations far from reality
One of the common traits of losing traders are unrealistic expectations and perceptions throughout their journey in the trading world, most of which boil down to the ability to make huge profits once they start trading. These unrealistic expectations of potential gains usually result in taking unnecessary risks that quickly turn into huge losses due to the lack of experience required to make profits. Most of the losing Forex traders also imagine that their trades will be profitable from the moment they open, and of course these are notions that are veryare far from reality.
Forex trading is like running a marathon, you can’t suddenly wake up one morning and run 20 miles. Passing the marathon requires several months of training, and the same goes for trading the forex market, since the only way to succeed is to consistently use the trading plan for at least several months.
Poor money and risk management skills
One of the main reasons for Forex traders fail is the neglect of the importance of proper capital management that usually accompanies poor risk management skills. As the old saying goes, markets will always go there, but will you? At its core, this wisdom is a warning to forex traders to exercise caution in the financial markets, taking calculated risks and minimizing losses so that successful trades can eventually erase those losses and make a net profit.
Most professional traders recommend that the risk value per trade should not exceed 2% of the account balance. This rule makes it impossible for a losing trade to result in the account being wiped out as can happen when risking large sums of money.