This is a very well known fact that more than 96% of forex traders continuously lose money until they rip their accounts off with negative balance. The most common question amongst traders is why do most forex traders lose money?
Trading forex is one of the most difficult jobs/businesses you’ll ever hop on to make a living. Now, you may be thinking that why is an endeavor that is just based on buying/selling so difficult? How is it possible? Well, it’s not just buying and selling. There are tons of other factors too that set you up for success and failure in the foreign exchange market.
” There are a million ways to make money in the markets. The irony is that they are all very difficult to find. “
Let’s start with a few key statistics, from online educational resource Tradeciety:
- 80% of all day traders give up within the first 24 months;
- Among all traders, nearly 40% trade for only one month;
- Within three years, only 13% continue to trade. After five years, only 7% remain;
- The performance of the average individual investor is down 1.5% per year;
- Active traders underperform by 6.5% annually;
- Traders with up to a 10 years negative track record of forex continue to trade and keep losing money forever.
The last point/statistic suggests that traders belonging to the group that has experience of losing money for 10 years, still keep trading; in fact losing money once and for all.
Now, let’s come to the factors which cause such a huge number of traders to fail.
The Battle of Judgement & Over-Confidence
There are two kinds of people in forex trading when traders’ perspective about them comes to a count.
1- The Judgemental Ones
Traders of this category are way too insecure and think of forex trading who just landed on earth and got out of control and they are unable to deal with it. They judge themselves and have a certain fear in their hearts and minds. The fear to lose money; the fear of failure. And they are too fragile to fight this fear of theirs.
Building a successful forex trading career is less about judging the price of a certain pair. What matters the most is emotional management. How do you deal with your fears? How do you celebrate your successes? Emotions build the foundation of success in forex trading. If you can’t handle your fear well, you’re set to lose. SO you need to tell yourself, YOU CAN DO IT!
In order to build a mentality of taking enough risks to succeed in Forex Trading, you should definitely check out these quotes about risks. They’ll help you big time in keeping the head up whenever the hard time hits you.
2- The Wolves of Wall Street
Traders in this category take their confidence in themselves and their trading skills too far. The difference between confidence and overconfidence is as slight as a thread. Which side of the thread you’re standing right now makes all the difference between you being a loser or a role model in the market.
But the traders in this category are those who watch “The Wolf of Wall Street” or “The Big Short” once in their studio apartment at Inwood or Windsor Terrace, New York City and they believe they just the code of the market can turn the market whenever and however they want. And this is where the downfall of their bank account and credit card begins. They take every trade like the market has no balls to go against their positions and 5 trades later, the margin call from their broker is what wakes them up from their dreams.
The Misguided Approach towards Forex Trading
Before actually starting forex trading, almost all of the forex traders are told that forex can make them rich overnight and within a couple of days, weeks or months, they ‘ll be out there at the Malibu beach with their fantasy Hollywood star, partying on the rocks under the stary moon and around, Well, that’s possible if you’re nephew or niece of Jamie Dimon which you’re definitely not.
Not only they are told that the forex trading is just another legit get rich quick scheme, but they are misguided about the ways to make the said money too. Like, they are never suggested to actually learn tow to trade the market, but they are directed to use the effortless shortcuts like indicators and ready-made best strategies and all that kinky stuff out there. Having said that, we’d like to clear a few points here;
- Trading indicators are nothing. Sorry for the language but we had to say this.
- There is no one best strategy for every trader. After all, not everybody likes or can digest that banana shake full of protein and calcium.
- Forex trading is absolutely NEITHER a get rich quick. It’s just another business that involves high risk and high rewards.
Double-Edged Sword;The Lack of Patience
Let’s move out of the trading for a moment. What trait do humans lack the most nowadays? Patience, right? Whether they’re commuting from home to work, or they are arguing about something with their colleagues or juniors, walking their pet down the road or trying to make a point about a certain point with their children, people lack PATIENCE. This is the most common reason why most forex traders lose money.
Now let’s correlate this with trading. Let us show you how all the traders with lack of patience react to different price movements with a little visual aid;
Whether they are entering long or short, their trades are in profit or loss, they always react with a truckload of emotions to every single price movement. If their analysis tips them off for a buy signal, they enter with a target of 50 pips profit, and the trade goes in their favor, they start panicking and worrying if the trade will keep going all the way to their profit mark or not.
Now what they usually do in such situations is that “close with x profit” and boom, right after they close the trade, the pair starts dancing and crosses their target but Alas! They’ve already got out of the position. And this regret makes them ready to take more risks and wait more next time. But they just can’t hold it. They can’t be patient.
They keep repeating that. Their losses keep increasing and their profits keep getting narrower and narrower. And one fine morning, they are on the list of their broker’s margin calls.
Now just imagine If 90% of the traders don’t have patience, what would happen if you develop patience? This one fine trait of yours will set you apart from others and will make your way to the top. The time you spend finding that A+ setup and effort you will put in stopping yourself from entering that not so good trade, is what will make all the difference.
Trading forex is a journey. A journey or a process that never ends. Love the process and you’ll be there in no time.
The Passion of Money Rather than The Love of Trading
According to the statistics, more than $6.7 Trillion exchanges hands every single day in the Foreign Exchange Market. This is a very huge number. So huge that the estimation of the USA’s total revenue for the fiscal year 2019 was $3.438 trillion. That means, nearly twice the budget of the United States of America is traded every single day in the Forex Market.
Now, everyone in the forex market wants to have a piece of this. There is nothing wrong with wanting to make some money. After all, its the most important thing we need to stay alive. We can’t afford anything without money. But when making more and more money is the only motive of trading forex, it causes a very serious problem. It makes a trader impatient which is fatal for every forex guy down.
This passion of money gets into the one factor that you cannot control, yet can prevent you from becoming a successful Forex trader. What is that one thing? Passion! That desire that pushes you ahead after each account and refuses to go away regardless of how many times you’ve fallen. It’s a love for forex trading. And being crystal clear to you, we cannot teach it to you. You either have it or you don’t. There is no middle way.
” If you don’t absolutely love trading, you won’t succeed. ”
Conclusion: Why most forex traders lose money?
There’s no single answer for why most Forex retail traders fail. It’s a combination of factors that affect each trader differently.
However, the four aspects above are at the top of our list. Some are more obvious than others, but each plays a critical role in the road to successful Forex trading.
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