5 Common Reasons Why Forex Traders Lose Trades

It is often said that the odds of being consistently profitable and succeeding in the forex market are very slim, as more than 90% of traders are bound to face failure.

Here are five common reasons why this usually happens:

They don’t understand key indicators, key numbers, ideal times to trade, and how the market works.

Would you enter a battle without knowing how to use weapons or who your opponent is? When you place a trade, you literally go toe-to-toe against some of the biggest nerds in the industry. Many professional traders are not only super smart and Ivy League educated, they’re also rich. That doesn’t mean that you, the small guy or gal, can’t win.

It just means that you simply must educate yourself and be prepared to do battle. David can beat Goliath, but only if he’s prepared. Some people might think the cost of a trading education is too high. But the cost of ignorance is way more expensive.

They don’t have a tried-and-tested trading methodology

Trader loserWith no proven trading method or strategy, you are doomed to fail. You will end up quitting the game after a string of losses. But there is hope. With the right education, a workable method, psychological balance and persistence, it can be done.

Start by experimenting on different currency pairs, trading sessions, time frames, and indicators and pinpoint which ones work for you. Work on creating your own trading system and back and forward test if it’s profitable. Focus on the numbers and fine-tune your method to maximize profitability. This may take time, but using a trading method that you trust can go a long way at reducing stress while trading.

They risk too much per trade.

A wannabe trader risks 10% or more of her trading account on a single trade. This is problematic because when you’re worried about making money, you won’t focus on your trading process. You’ll end up focusing on your profits/losses.

Consistently profitable traders understand the trade’s risks and manage them first BEFORE thinking about profits. They don’t take trades if it forces them to risk too much. This gives them the staying power to keep their heads and make rational decisions even if they end up with multiple losing trades in a row.

They’re not mentally prepared.

Trading psychology is a huge part of trading and most people are not mentally prepared. When money is on the line, fear, greed, and other emotions make trading very hard. Make sure you understand the emotional aspects of trading and be prepared to control them before you risk your hard-earned money.

They’re having a bad day.

Sometimes, there are just factors outside of your control. You could spend bajillions of hours preparing for a trade and a surprise currency intervention, flash crash, glitch in your platform, or a natural disaster could turn the tides against your favor. It’s okay. It’s all part of the business. If you’ve managed your risk, you can chalk up the losses to a bad day and start again tomorrow.

That’s it for today’s list! Did I miss anything? What’s the usual reason for you losing your trades?

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  • Nazeem

    I usually lost my trades because of using stop loss that were too tight. I usually tried to keep it in the 40-70 pip range. Many times I found that just after I got stopped out, the market goes my way.

    A week or so back toward the end of Undergraduate in pips school, they went a bit into detail on the stop loss topic. Since then I have been using a 100 pips maximum for my stop loss. It helped a bit.

    I got stopped out once this far.

    The other issue is normally staying in a loosing trade too long. I have the habit of believing that because my stop loss is 100 pips, why should I close the trade before then.

    Yesterday NZDUSD were consolidating in the 0.72 area just above my trend line and I were anticipating a reversal and went long. They broke out of consolidation to the downside. I stayed in. About 20 pips loss later I reviewed an opinion that the pair is in a downtrend. I looked at the chart again and closed my trade. The pair continued to trend downward.

    Looking back now I realize I have made a stupid mistake which should not be tolerated ever as it is basic knowledge. Clearly the pair is in a downtrend and the consolidation was a bullish rectangle signalling trend continuation.

    Thinking about the mistake and why I made it, I realize that I should not completely blame myself. What I did was look at MACD divergence. This divergence were part of my reversal signal. The reason I was wrong, were because this was exactly the hidden divergence I am in the process of learning & understanding, which actually signals trend continuation.

    I`m glad to have cleared up my misunderstanding by myself and also have another good example of how to use hidden divergence.

  • Monsur Khan

    Many many thanks for sharing knowledge with us. I think time is the main factor of this market . Right time= profit, wrong time= account zero.