Why Do Forex Traders Lose Money ?

What Causes Most Traders To Lose Money in The Markets?
Most traders would agree with the fact that picking the direction that the market is likely to go over the upcoming week or month is not the most difficult part of trading. Indeed, by simply analyzing a daily or weekly price chart for a few minutes, most anyone can tell whether a market is trending higher, lower, or moving sideways. So, if picking market direction is not the most difficult part of trading the markets, why do most traders lost money consistently?

The fact of the matter is that people get from the markets exactly what they put into them. Meaning, if you approach the market with a lazy attitude or with a greedy or fearful attitude, you are not going to make money. What I have realized over my years of trading is that you have to ALREADY be in the mindset of a successful trader BEFORE you can become one. This means, if you aren’t doing the things that successful traders do, you simply will never make money consistently.

The truth is that many traders know what they should be doing to trade successfully; they just ignore these thoughts or put them on the back-burner. A typical thought process that many unsuccessful traders have goes something like this: “I will wait until my trading account doubles or triples and THEN I’ll start doing all the things I should be doing, like managing risk effectively and creating a comprehensive trading plan and trading journal”. These types of thoughts hold traders back from ever reaching their true potential in the markets. The truth is that you have to start behaving like a professional trader BEFORE you are one if you truly want to be one, it’s the only way.

What are some of the main reasons why traders lose money in the markets?

Not accepting that losing is part of winning – Many traders seem to have an innate ability to not want to accept that losing is part of the game of trading. They tend to place blame on the market, on their broker, on not having enough money in their accounts, or any number of other reasons. The simple fact of the matter is that you are going to lose trades no matter what you do. So, you better learn to accept this early on, embrace it, and figure out a way to incorporate losing into your trading plan. You can lose “successfully” by learning to take small losses relative to your rewards, never move your stop further from your entry, and always trade with a stop loss. There is usually no need to meddle with your trades. If you have pre-defined your risk then you should be OK with losing that amount of money, let the trade play out to either hit your pre-defined stop loss or move into profit. You need to do your work before you enter the market, not after.

·         Over-trading – This one is pretty self-explanatory, but it’s also probably the number one reason why so many Forex traders fail to make money in the markets. If you are trading too often, you are going to deplete your trading account very fast. You need to only enter high-probability trade setups and have the patience to wait for them.

Not learning to trade the daily charts first – I am a huge proponent of focusing one’s market analysis efforts on the daily charts. I believe lower time frames have a lot of random price “noise” and give a much more difficult to interpret picture of the overall market structure than the daily charts do. I see no problem in trading the 4hr or 1hr charts, but I recommend all my students learn to master the daily charts first. ·         Risking too much per trade – This one is also pretty self-explanatory. But, time and time again traders blow out their trading accounts because they “loaded up” on a trade that they were “sure” about. The truth is that you NEVER know for sure which trades will win and which trades will lose, even if you have a high-probability trading strategy and follow it religiously. For this reason, it is critical that you effectively manage your risk on EVERY single trade you take. Eventually, if you are managing your risk effectively on each trade and using a high-probability trading strategy, you will make money over time.

·         Incorrectly managing trades – Most traders mess up AFTER they enter their trades by meddling with their targets and stops or adding to positions unnecessarily. One of my core trading philosophies is to just “set and forget” your trades, because you are always going to be the most objective and clear-minded BEFORE you enter a trade rather than when the trade is live.

Gambling instead of trading – By gambling I mean trading without a proven high-probability trading edge. I talk with a lot of traders each day via email and via phone, and it never amazes me how many traders complain of losing money and yet they don’t even really have a definable trading strategy. Simply put, if you don’t know EXACTLY what you are looking for in the market you are never going to make money consistently, or at all.

Expecting to get rich quick – This point sort of encompasses the others in that if you are over-trading, risking too much, or doing any of the other things discussed here, you are simply being greedy and trying to make as much money as fast as you can. Well, the fact of trading is that the “harder” you try to make money and the more you feel a need to make money in the markets, the worse you are probably going to do. FOREX Trading successfully requires a clear and relaxed mindset, one that does not care whether you win, lose or draw, because you know that over a given period of time you will make money if you trade in a discipline and controlled manner.