Why do Forex traders lose money?

photo-1504639725590-34d0984388bdAccording to various sources, up to 90% of traders have lost their deposit or part of it at least once during Forex trading. In this article we have collected the most popular reasons for losses in the foreign exchange market. Use it as a checklist to understand in which direction you should work, and in which area you are already at your best.

Have you ever lost money on trading? If so, it is very important to identify the cause and analyze your behavior as a trader. This will help to avoid losses in the future. So why do traders lose money?

Reason # 1: Lack of knowledge

It’s cliched, but educational gaps in trading (and in any other area) are a common cause of failure. Knowledge is essential even if you are a copy-trading supporter. For example, on various trading platforms, understanding the intricacies of trading, it is easy to choose the owner of the strategy that suits you – someone who trades accurately and does not act impulsively. In this case, the investor will be able to draw conclusions not only from the indicators of profit in percent, but also competently analyze his schedule.

There are many free and paid online courses and literature for aspiring traders. However, even with an impressive baggage of knowledge, you cannot give up training. New algorithms, trading robots, indicators and analysis of the results of popular strategies are constantly appearing on Forex.

Free online webinars of different analysts will help to keep constantly up to date, replenishing the piggy bank of knowledge, navigate in a variety of indicators, skillfully use trading robots and algorithms.

Reason # 2: Misunderstanding of charts

Have you seen the stock photos of traders? In them, a person in a suit, as a rule, looks at a screen with a complex schedule with a view full of understanding and determination, despair or victory (depending on the mood of the image). If your cursory glance at a technical chart rather makes you want to turn it off immediately, then obviously you need to delve into at least the basic indicators. Charts are needed to build your trading plan based on the formed trends and patterns.

You can learn technical analysis by studying the recommendations of professionals. By following the analysis of professionals, it is easier to learn how to independently use the same indicators to form your own plan and strategy.

Reason # 3: Ignoring the news

Often the reason for losing is blind trading. Relying solely on charts, traders do not consider it necessary to monitor what is happening in the market. Meanwhile, any algorithm, trend or strategy will not show the correct price movement in the event of unplanned market fluctuations. Especially now, in the most eventful period of the coronavirus crisis.

However, keeping track of everything at once is not an easy task. Most often, those who trade all day long delve into daily fundamental analysis, spending 8-12 hours on it, of which at least a couple of hours are spent studying economic news. And also those who do not trust technical analysis and are sure that charts cannot accurately predict the further dynamics of a particular instrument.

The secret is to combine both technical and fundamental analysis. And so that it doesn’t take hours, it’s enough to watch daily video reviews from various experts who examine everything thoroughly. Especially for active traders, it is essential to receive the most important news and a comprehensive analysis.

Reason # 4: Inability to manage risks

The Forex market is very volatile, and beginners often do not know how to control risks. Even the seemingly insignificant news can dramatically change the rate of a currency pair. Therefore, even with the most reliable trading plan, a trader can fail. To avoid this, you must turn off emotions and greed. The main thing is not to invest all your savings in one deal, but to diversify your investments. Waiting too long or premature exit from the deal threatens huge losses, therefore risk management is closely related to the control of their emotions.

In order to effectively manage risks, one should not neglect simple but important tools: Stop Loss, Take Profit, hedging and floating leverage technology. To do this, you need to choose the most suitable accounts. For example, almost all brokers have floating leverage accounts both based on MetaTrader 4 and MetaTrader 5 (MT5). On MT5, when opening an account, you can choose one of two trading system options – netting or hedging.

Reason # 5: Lack of experience

We started with banality and will finish with it. But without this there is no way – only experience will turn your knowledge into intuitive and automatic solutions, when you are confident in every step.

To turn the time spent in the trading terminal into a truly valuable experience, you need to learn how to work with your own statistics. Therefore, many participants keep trader’s diaries. The trade journal helps you to notice market changes and adapt to them, adjust your trading system on time.

The most important rule is not to invest large sums until you are confident in your own trading system. Therefore, it is better for a beginner to practice on a demo account for a while, and then switch to large amounts on a classic account.

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