Why you fail and loose money in forex trading

trading world is a big and a full of surprise world, In this article we will argue in favor of the idea that a trader is their own worst enemy, and that human fault is at the root of most problems. Briefly, the main reason why forex traders lose money it’s the traders themselves.

Over-trading

Either trading too big or too often – is the most popular reason why forex traders fail. Overtrading might be caused by :

1-Inappropriate high-profit goals.

2-Market addiction.

3-Insufficient capitalisation. 

Insufficient capitalisation:

Most traders know that it needs money to make a return on their investment. One of Forex’s largest advantages is the availability of highly leveraged accounts. This means that traders with limited starting capital can still reach substantial profits by viewing the price of financial assets.

Whether a fundamental investment base is reached through the means of high leverage or high initial investment is practically irrelevant, provided that a firm risk management strategy is in place. The key here is to ensure that the investment base is enough. Having a sufficient sum of money in a trading account develops a trader’s opportunities for long-term profitability significantly, and also lowers the psychological pressure that comes with trading.

As a result, traders risk smaller parts of the total investment per trade, while still collecting reasonable profits. So, how much capital is enough? It is important to learn how to stop loosing money in forex trading due to inappropriate account management. The smallest forex trading volume any broker can offer is 0.01 lot.

This is also known as a micro lot and is equivalent to 1,000 units of the basic currency that is being traded. As a general rule of thumb, beginner traders should risk no more than 1% of their capital per trade. For beginner traders, trading with more capital than this raises the opportunities of making fundamental losses.

Balancing leverage whilst trading lower volumes is a fine way to ensure that an account has enough capital for the long term. 

Trading Addiction:

It is another reason why forex traders tend to lose money. They do things institutional traders never do:” Chase The Price”. 

With short-term trading breaks & volatile currency pairs, the market can be fast stepped and cause an influx of adrenaline. It can also cause huge stress if the market moves in an unexpected direction.

To avoid this, traders need to enter the markets with a clear exit strategy if things aren’t going their way. Chasing the price is the opposite of this way, and can be described as gambling, rather than trading. Unlike what some traders would like to believe, they have no control or effect over the market at all. 

When these cases arise, smart traders will realize that some moves are not worth taking and that the risks related to a specific trade are too high. This is the time to exit trading for the day and keep the account balance right. The market will still be here tomorrow, and new trading chances may arise.

Not adapting to the market conditions:

Supposing that one proven trading strategy is going to be sufficient to produce endless winning trades is another reason why forex traders lose money. Because the markets are ever-changing, a trader has to develop an ability to track down these changes and adapt to any case that may happen.

A skillful trader evaluates changes, instead of fearing them. A trader needs to familiarise themselves with tracking average volatility following financial news releases and being able to differentiate a trending market from a ranging market.

Market volatility can have a major effect on trading performance. Traders must know that market volatility spreads across hours..days…months..years. Several trading strategies can be considered volatility dependent, with many producing less effective outcomes in times of unpredictability. A trader must always make sure that the strategy they use is consistent with the volatility that exists in the current market conditions.

Financial news releases are also significant to keep track of, even if a chosen strategy is not based on basics. 

As the market reacts to these events, there’s an unavoidable effect on supply and demand for respective currencies. Lastly, the inability to differentiate trending markets from ranging markets, often outcomes in traders using the wrong trading instruments at the wrong time.

Poor risk management:

Inappropriate risk management is the main reason why forex traders lose money fastly. It’s not by chance that trading platforms are provided with automatic take-profit and stop-loss mechanisms. Mastering them will improve a trader’s opportunities for success. Traders not only need to know that these mechanisms exist, but also how to execute them properly following the market volatility levels expected for the period, and the duration of a trade.

A ‘stop-loss to low’ liquidates a profitable position. At the same time, a ‘ take-profit to high’ might not be achieved due to a lack of volatility. 

What is the risk-return ratio?

The risk-return ratio (RR) helps traders plan how much profit will be made should trade progress as anticipated, or how much will be lost in case it doesn’t. 

To avoid risks completely in forex trading is to use a risk-free demo trading account.

Not having or not following a trading plan:

A real trader needs to invest time and effort into developing a thorough trading strategy. As a bare minimum, a trading plan needs to consider the best entry and exit points for trades, risk/reward ratios, along money management rules.

Unrealistic expectations or predictions :

Two types of traders come to the forex market. The 1st are renegades from the stock market and other financial markets. They move to forex in search of better trading conditions, or to vary their investments. The 2nd are 1st-time retail traders that have never traded in any financial markets before. The 1st group tends to test far more success in forex trading because of their previous experiences.

Experienced traders have realistic expectations when it comes to profits. Having realistic expectations also softens some of the psychological pressure that comes with trading. Inexperienced traders depart from their emotions during a losing trade, which leads to a spiral of poor decisions.

As with any business or pro career, there will be good and bad times, along with risk and loss. Make sure to understand that patience and stability are your best allies. 

About Marketsbloom:

Markets Bloom is a trading academy consisting of former trading industry professionals. We aim to help all types of traders looking to trade in the financial markets.

By registering with us, you will gain amazing insights into common issues traders face as well as how to instantly improve your trading approach. Our team of experts will be with you every step of the way on your journey to becoming a better trader.

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