Trading currencies online ought to be simple, making it easy for traders to earn money. Unfortunately, experience shows that this is hardly the case. To succeed, a much more methodical and systematic approach is required.
You need to execute a series of consecutive profitable trades if you want to succeed as a forex trader.
Despite the difficult realities of forex trading, many beginners believe they can constantly trade with an accuracy of 80% or more.
- Some believe that in a few months, they should be able to easily turn $1,000 into $100,000.
- They believe they can accurately forecast forex turning points down to the minute. They believe they can purchase a system with perfect accuracy. After a few months of trading, they even believe they will be able to leave their professions and support themselves completely.
- So, why do so many novice forex traders think that trading is a simple method to generate money? Propaganda! Between 60% and 85% of the clients of forex brokers that are obligated by EU law to report client losses typically do so.
- Highlighted below are some of the reasons forex trader lose money.
Not getting to Know the Market
When a trend is identified, you understand the market and join it rather than trying to outperform it. However, if you try to take too much advantage of the market with too little money, it can knock you off your feet. Having an aggressive” mindset is a definite way to lose money, and typically leads to trading excessively aggressively or against trends.
Low-Cost Startup
The primary goal of most currency traders is to reduce their debt or make quick money. For a modest amount of capital, brokers frequently urge you to trade large lot sizes with high leverage.
In the near term, you may be able to earn exceptional returns on modest capital, but you must have some money, to begin with. A person with little cash and too much leverage might find themselves reacting emotionally to every upswing and downswing in the market, jumping in and out at the worst time.
Never trade with insufficient capital to avoid this issue. This limitation makes it difficult for someone wishing to begin trading on a limited budget to find a solution. A suitable starting balance for trading is $1,000 if you want to do it on a small scale (micro lots or smaller ones). If not, you are only putting yourself in a position to fail.
Lack of Risk Management
As in life, risk management is essential to success as a forex trader. Even if you are an experienced trader, inadequate risk management might still bankrupt you. The most important thing you need to do is safeguard what you already have, not earn money. Your capacity to turn a profit decreases when your capital is exhausted.
Place stop-loss orders and move them after you have a respectable profit to mitigate this hazard and practice sound risk management. Use sensible lot sizes based on the amount of money in your account. Most importantly, exit a transaction if it is no longer rational.
Acceding to Greed
Some traders believe they must extract every last penny from a market movement. Every day, money can be made on the forex markets. Holding positions for an excessive amount of time can lead to losing the profitable trade you are attempting to execute since you are trying to collect every last pip before a currency pair turns.
Being less greedy seems to be the apparent approach. There are plenty of pips available, so it’s OK to aim for a respectable profit. The next opportunity is just around the horizon, therefore there is no rush to grab the final pip since currencies are still moving every day.
Uncertain Trading
When a transaction you open isn’t immediately profitable, you may occasionally experience trading regret, which causes you to start telling yourself that you made the wrong decision. Once your trade is closed and reversed, the market returns to moving in the way you originally intended. In that scenario, you must decide on and stick to a course. All of that back-and-forth moving will just cause you to steadily lose a small portion of your account at a time until your investment capital is exhausted.
Selecting Tops or Bottoms
Many retail traders try to anticipate when currency pairings will turn. If the trend continues against them, they will add to their position since they believe that the trend will soon reverse. Trading that way leads to significant exposure and a really bad trade.
It is recommended to trade with the trend. It’s not worth the prestige of choosing one bottom out of ten attempts accurately. Retail traders predicting a trend will shift and want to conduct trades in the new perspective direction are advised to wait for a confirmation on the chart.
