Forex trading has become something that many dabble in, but very few go on to actually master. When starting up, most novice traders run into brick wall after brick wall, and no matter how much you may think otherwise, it isn’t always something you can blame on “market fluctuations.” The main reason why forex traders lose money is because of the approach they take to trading.
To help you spot some of these pitfalls (and hopefully sidestep them), we suggest you read closely, as the following breaks down the top four reasons why forex traders lose money.
Reason No. 1: Overtrading
It stands out as the number-one reason why most traders struggle to generate any kind of momentum within the forex market. Whether it’s by going too big or trading too often, overtrading can create insufficient capitalization, unrealistically high-profit goals, and even market-trading fatigue.
When novice traders are “in the moment,” it can be incredibly difficult to put the brakes on any trading activity. So, the best approach to take is to be proactive against overtrading before you even begin. You need to train your approach to override your emotional pull toward certain moves or markets, instead only trading with logical and objective methods in mind. Remember this: The scattergun approach to forex trading isn’t going to get you anywhere, so trade like a sniper—plan appropriately and pick your spots, and you should be able to avoid overtrading.
Reason No. 2: Not adjusting to market conditions
Forex trading is far from a cut-and-dried process, which means that to be successful, you have to be adaptive. There is no perfect trading strategy out there that covers every market condition, and too many traders stick to a single strategy and pay the financial price as a result.
Because the forex market is anything but static, a trader must be willing to track changes in the market climate, adapting to new risks along the way. The upside is that while market shifts present a new risk, they also present new opportunities for profit. Keep abreast of financial news, track major shifts, and understand monetary policy decisions, and you should be able to adjust to whatever the forex market has to throw at you.
Reason No. 3: Bad risk management
We see it so often that it’s actually become a pet peeve: So many forex traders simply ignore the risk factors associated with investing. It doesn’t matter whether you are parting with $50 or $5,000; you need to have risk management mechanisms in place that can work to protect you should things go south.
Risk management should really make up a major part of your trading strategy in general, but there are tools you can use “on the fly” that can work to protect you from heavy losses. Stop-loss orders and trailing stop-loss orders allow you to restrict just how low a loss can dip before pulling you out. You can’t get it right every time when you trade forex, but what you can do is have the correct risk management tools in place to ensure that, when losses do occur, they don’t run away from you.
Reason No. 4: Unrealistic expectations
This one may seem a little obvious, but we’ve seen far too many traders enter the forex market with unrealistic expectations. While expectations often come with experience, those new to trading can have images of untold wealth in mind when they trade forex, even if they are only doing it on a part-time basis. This mindset has the power to disrupt any trading strategy.
It is crucial for first-time traders to remember that forex is anything but a “get-rich-quick scheme”; it is a form of investing that carries both financial and psychological pressure that must be addressed. On top of that, every forex trader (experienced or otherwise) has to grasp the fact that both consistency and patience are keys to success. Traders will never generate a fortune through one or two “big” trades and arguably don’t need to, as this just enforces a bad approach to trading. Becoming a successful trader means having realistic expectations of the market, along with what it means to trade in a professional fashion.
It’s been debated and discussed a thousand times over within trading circles, but now we have laid it out bare. The above has addressed exactly why many forex traders lose money and struggle to get out of the blocks when it comes to mastering the markets. So, take heed, adjust your approach, and you may just find that you don’t fall into these common pitfalls next time you choose to trade forex online.
The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.