Why Traders Lose Money in the Forex Market

It is a well-known fact that over 90% of traders lose money in the Forex market. Many factors have been speculated to be the causes of this. However, no matter what they are, what is true is that the dreams of most traders to reap abundantly from Forex do not often materialise.

In order not to become a member of this category of traders, it is recommended that you study the factors responsible for their losses and then develop the discipline to steer clear of them. We have prepared this guide to help you do precisely that.

Hence, here are the top mistakes most traders make that lead to their loss.

  • They do before learning and they trade without goalsIt is always a tragedy that many people venture into Forex trading not because they understand its risks and potential rewards, but just because they are told about it. They depend on third-party opinions about Forex and immediately decide to go into it just because of the outrageous returns they see other traders make or because of what they see in the news.As a result, they are usually inclined to underestimate the risks of the business. Deceived by those promises, they throw all caution to the wind to take trades in the hope for phantom returns. Those people, unfortunately, are more of gamblers and less of traders. If you do not want to set yourself up for failure, never be one of those.

    Instead, study Forex first before you venture into it. Understand it. Know before you do. Also define your trading goals. That is, you must answer the question: “why do I want to trade this particular financial instrument? To what end?” Answering these questions will give you clarity as you go through the business.

  • They do not have a trading plan!Perhaps, this is the most fatal of the mistakes. The interesting thing is that it is not unconnected with the first factor discussed. An ignorant individual who trades without first learning the skills will not think of creating a trading plan. He will see no need for it – likewise, the one who has no defined trading goals.A trading plan is an invaluable weapon in the arsenal of Forex traders. They can use it to outline every essential detail of the business and how they aim to be generating profits from it. This is why the trading strategy, a collection of rules, guidelines, and set-up which help the trader to determine his entry and exit prices, is such an integral component of the trading plan.

    Another similar tool that you can also adopt, to reduce your chances of losing in the Forex market, is a trading journal. You can use this to analyse the trades you have taken, the mistakes you have made, and how better you could have done. Just like your trading plan can serve as your book of rules, so can your trading journal serve as your book of records.

    The two, employed together, can help you to at least lessen your chances for loss.

  • They do not accept responsibility for their trading and its resultsArguably, there is no other financial market that suffers from guru syndrome as much as Forex does. The internet is a testament to this: at every corner of it, it seems someone, anyone has got one or two things to say about this dynamic financial market, the largest of its kind in the world.Hence, you might be tempted to pause and listen to them, too. However, if you want to be unlike the thousands of traders who lose everyday, you must jealously guard your mental integrity. You must carefully handpick the Forex resources you pay attention to. Also, your ultimate aim should be to become your analyst and trade yourself.
  • The reality is: the Forex market is neither logical nor predictable. It is too huge for anybody or any guru to come in and manipulate its operations. Even though countries do this sometimes, such situations, however, are rare. As a result, instead of searching for a holy grail by looking up to gurus or self-appointed authorities with shadowy integrity, walk the path and become an authority yourself.
  • They cut their winners short and let their losers run“Let your winners run and cut your losers short” is a timeless recommendation for traders. It has been so echoed through the years that you would easily imagine that virtually every trader has thoroughly internalised it — in the bones, muscles, and mind. Regrettably, the contrary is the case.In fact, this study reported that the number 1 reason traders lose is that they let their losers run while they cut their winners short. They take wrong trades and instead of admitting they are wrong, they leave them to hope to magically reverse the direction of those losing trades. Eventually, they burn!

    And when they are lucky enough to make the right trades, they close out prematurely because of no clearly defined expectations of risk and gains beforehand. This cycle continues until those traders realise for themselves that their modus operandi is flawed. Most times, they subsequently quit for good.

    If you want to succeed, you must do the precise opposite of what most traders do. Follow the timeless advice. Let your winners run and cut your losses short!

  • They engage in emotional trading, and they over trade Perhaps, this is the most typical mistake that traders make. Usually, the reason for this is either a lack of a trading plan, a lack of discipline to stick to it. As a result, they engage their emotions, instead of logical rules, to make their trading decisions.The two disastrous offshoots of emotional trading are over trading and revenge trading. Nervous traders often take too many trades. To them, consciously or otherwise, the quality of those trades doesn’t matter. And when those trades result in losses, they attempt to fight back by even taking larger trades in the desperate desire to recuperate their losses. This tendency is known as revenge trading.

    Overtrading and revenge trading are two of the worst enemies of Forex traders. They are two of the foremost reasons they fail. So, if you want to succeed, you must not engage in them.

  • They see the Forex market as a place to make quick bucks Forex trading is not an easy way to riches. And you should never see it as such. It is the impending doom that you underestimate the most that rocks the hardest. This is how Forex can be if you do not exercise a lot of caution and see it as a fast way to wealth. Of course, the Forex market is full of money-making opportunities, but it has money-losing ones, too.

Consequently, you should learn to exercise patience. Forex is a business. It is not a game. It is not a sprint. Instead, it is a serious business. It is a marathon. And just like every other business, achieving success takes some time. Learning the basics will set you on the path, but do not expect only that to fetch you all the money you want to make.

Instead, use what you have learned to evolve a sound strategy. Then develop a strong sense of self-discipline to stick to it. Changing from one strategy to another will not make you a successful trader, but rather a confused one. And if you find the market too dynamic for you as a beginner, you might want to use a signal service.

For that, 1000pip Builder is there. Feel free to subscribe to their mentor ship forex signal service here and start earning like a pro.