Forex trading remains one of the most popular entities of its type in the world, but there’s no doubting the innate volatility of the foreign exchange and the potential for investors to lose money. Read on to find the top reasons why forex traders fail.
According to even conservative estimates, between 70% and 80% of all beginner forex traders lose money at the outset of their journey, many of which end up quitting as a result of this experience.
However, understanding this and the reasons why forex traders fail is crucial if you want to succeed over time, so here are some of the key considerations in this respect.
- A Fundamental Lack of Discipline
This perhaps the easiest mistake for any newbie trader to make, as the creep of emotive decision making and an instinctive desire to chase margin-based losses often turns relatively small issues into major crises.
Ultimately, all successful traders in the forex market are defined by their underlying sense of discipline and a keen sense of determinism, which combine to help them stay true to their carefully cultivated trading strategies while respecting the underlying laws that govern change in the foreign exchange.
These attributes also empower traders with the knowledge that they’ll incur both gains and losses (particularly when starting out), and that both should be processed without excess emotion or unhelpful knee-jerk reactions.
So, while large or consecutive losses can well sap your confidence and encourage less considered decision making, it’s important to maintain your discipline at all times and continue to trade according to a strategic and patient mindset.
- Trading Without a Plan
On a similar note, even the most knowledgeable and well-resourced forex trader cannot hope to achieve sustained success if they look to operate without a clear plan or strategic direction.
This is why so-called demo accounts are widely recommended in the foreign exchange, as they enable users to spend a period of months trading a simulated marketplace in real-time as they look to hone and develop their strategies.
Quite simply, demo accounts bridge the deceptively large gap between theoretical knowledge and practical experience, and the reason that they’re so popular is that they encourage investors to realise the importance of developing a viable plan of action.
Even on a fundamental level, adhering to a strategic trading plan can help investors to evade the most common pitfalls of forex trading, while also helping to keep emotive decision making at bay.
- Failing to Adapt to the Market
This is another common reason for forex traders fail, and one that reinforces the importance of recognising the innate volatility and uncertainty that underpins the forex market.
Ultimately, even the best-laid plans can go awry, which is why you should take care to create a plan of action for every conceivable trade. To achieve this, you should use your knowledge to conduct scenario analysis and make full use of the technical indicators at your disposal, in order to calculate potential outcomes and create an agile trading plan.
On a similar note, you should also use automated risk management tools such as stop losses. These entities, which are available on all online demo accounts, can be used to automatically close open positions once they’ve incurred a predetermined level of loss, helping you to maintain your capital and adapt to potential market shifts.
Ultimately, a proactive approach is required here, and one that ensures that you’re agile in the face of sustained market volatility.