Why Forex Traders Fail? The Root Cause?

by May 14, 2020Trading Psychology

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Why 90-95% of Forex traders fail by trading on the Forex market. Large number you would say. And it is really large number.

If that large number of traders lose their money it must be something that they all do wrong. Is there some step, decision, tool, or something else that causes such large percentage?

I will try to show you what are the most common problems each trader faces when he starts trading on the Forex market.

At the end you can find the root cause of all problems that are listed. With the knowledge from this post you can start working on yourself to overcome all the problems you are facing right now. 

Thinking it is Easy is Why Forex Traders Fail

I bet you that during trading on the Forex market you had a feeling that trading is so easy. You have found the trade and the price is heading your way and you close profitable trade.

It is easy when that happens and your confidence rises where you think that each next trade will be profitable. That is the feel of success that carries your forward.

But then the losing trade comes in and you do not know when to open new trade. Nothing looks like a good setup and you stay away from the market. You do not want to lose the money again on a bad trade.

Maybe you are lured into Forex with the promise of quick and easy money. Maybe someone told you that there are easy ways to accomplish that.

Trading on the Forex market is not easy and you should act like it is not. It takes time to comprehend all the stuff you need to trade profitably. 

Unrealistic Targets, Goals and Expectations

If you do not love trading, you will not succeed as a Forex trader. If your passion is on something else you will not master trading techniques you need to become successful.

You will not succeed if you have only one goal and that is to earn the money. Real goal should be how to become better trader.

The traders set the goal only to make money. Make money quick and easy. They do not think about anything outside that.

The expectations to earn quick money and become rich without investing to much time into mastering the trading makes them losers.

They tend to take higher risk in each trade or open to much orders where their account cannot sustain those orders for to long. That is the wrong approach you should not follow.

Read more: Do I Need 1000 Pips to Get Rich 

Why Forex Traders Fail – Lack of

There are several points you should check before going into trading on the Forex market. You need to check them and beat them in order to succeed in Forex trading.

Why Forex trader fail is because they lack of: 

Discipline

Discipline is very appreciated in Forex but there are to few traders with good discipline. They do not understand what kind of discipline you need to have.

Many traders fail because of not following the trading strategy with discipline and without braking the trading rules. Lack of discipline moves them from the profitable path.

Lack of discipline in Forex trading moves the trader from the trading rules, from the risk management, makes him more open to emotions that are not welcome in trading.

When the lack of discipline happens the trader is doomed to failure. Do what you can do in order to become disciplined by following the trading strategy and risk management plan. 

Patience

Why Forex traders fail is because of lack of patience. Patience is very desirable quality each trader should posses.

Without patience you will start trading to often and that is called over-trading. You will not be able to trade by the rules where you need to wait for the correct signal.

By not waiting for the correct signal you open yourself to wrong trading signals which will lead you to losing the money.

Patience will force you to stay in front of the screen watching the market the whole day. Your fingers will want to click on something just to watch the market moves in your direction or against you. 

Knowledge

Knowledge is the power and without power you cannot be profitable. Many traders start trading without knowing all what is needed to be profitable.

Knowledge about trading station, about the tools you need for trading, about the risk you need to control, about reading the market is what is needed.

Imagine that you start trading on the Forex market without knowing what is a pip and how to calculate the pip value. That kind of knowledge missing is the cause why Forex traders fail.

What if you do not know how to calculate the desired risk to reward ratio? What if you do not know how to activate Sell Limit or Sell Stop order?

Lack of knowledge is the one of the reasons why Forex traders fail by trading on the Forex market.

Invest in your knowledge by learning how Forex works, how to use trading station and trading tools, how to draw support and resistance line. That knowledge is crucial if you want to succeed.

Read more: What is a Pip in Forex – How to Calculate a Pip 

Experience

New trader sits down to the computer and opens the trading station. He selects the trading pair and open the chart. On the chart he sees that the price is ticking up and down.

He decides to open buy order and he watches what will happen. He hopes that the price will move up because he wants to earn money. Eventually price goes up or down but mostly he lose the money.

The trader who knows how to trade because of his experience as a trader knows that he needs to do certain steps before opening an order. Life experience as a trader taught him hot to behave when trading on the Forex market.

Inexperienced trader will do beginner trading mistakes that will lead him to frustration and to losing his money.

Those mistakes are not following the trading strategy, not following risk management plan, over-trading, over leveraging, over sizing.

You do not want that to happen and you need to invest time in your trading life to become experienced. With the time experience will come and you will improve your trading results.

Capital

Why Forex traders fail is because of lack of capital in trading on the Forex. Without enough capital you as a trader will look how to increase your capital very fast.

To do that on small capital the only way is to trade more, over-trading, or increase the lot size, over sizing. That way you will hunt for more money with small number of pips.

But the problem happens when the trade is losing one where you lose to much money. Then small capital that is left does not leave you to much room for larger lot size. But even then you open large trades. You are looking to get even with the next trade which usually ends as a losing trade.

Capital is necessary to earn money. Money in Forex is made with money so plan to invest decent amount at the start of your trading life.

Read more: How Much Money do You Need to Start Forex Trading 

Psychological Reasons Why Forex Traders Fail

Our mind is the most complex machine we as a humans have get in contact with. In trading, almost everything is close connected with our mind.

Human emotions that are driven by our mind force us to do some steps that are not welcome in trading. Emotions have very much influence why Forex readers fail. 

Fear

Fear is among top five emotions that have influence on our trading results.

When you see some trading opportunity you start wondering is that trade signal correct. If you enter into that trade you are asking yourself will it be profitable or you will lose the money.

Fear of missing out or FOMO is common emotion that we all have. Not only in trading but in our common lives.

Imagine the situation when you see the commercial saying that new music event is in your neighborhood. It is the music event you always wanted to attend and the tickets are selling online for 1 hour.

To buy the ticket you are refreshing the website waiting to buy the ticket because you do not want to miss the chance to attend that music event. The fear of missing out buying the ticket online force you to stay in front of the computer and clicking on the refresh.

Similar approach traders have when there is news coming out which could drive the price of the trading pair in their favor. You do not want to miss that opportunity and you open the trade.

Even you do not know what news will say, you open the trade and wait. If the news are bad you will lose the money and if they are positive you will earn money.

Fear drives you to do the things you should not do and fear prevents you doing the right things when you need to do them. 

Hope

Hope is the last thing that dies. At least that is the saying in our lives. When everything falls apart the hope is still there to keep you up.

Hope in trading happens when the trader enters into the trade and hopes that the price will move in his direction. This way of trading is not good and it means you are trading without trading strategy or you did not do the proper psychological preparation.

If you cannot accept losing trade you will hope that each trade is profitable. When the trade is losing one you lose hope in trading results. You start thinking that the Forex trading is gambling, SCAM and you cannot earn money by trading.

When the hope is gone you will lose the passion for trading. Your expectations will vanish and you will quit trading. 

Greed

One of the worst emotions you can have in trading is greed. Greed will destroy you as a trader and your account will be empty very quickly.

If you come to the trading with only goal and that is to earn money very quickly, remember – you will lose that money very quickly.

The traders make that mistake all the time.

This situation is one of the common that happens all the time and it happens to all traders.

When you open the trade and you see that the trade is moving in your way you open new trade with larger lot size.

Then you wait a moment and you see that your account balance is increasing and you like what you see. You open the third order with even larger lot size.

The idea that you will earn a lot of money in a few minutes rises your confidence where you do the worst thing you can do. Greed have step in and pushed you to open too many trades with too large lot size.

You have open three trades where each new trade is with larger lot size.

And then happens. The reward being greedy.

The market moves against you because the market need to retrace a little bit. Your trades that are last open starts to give you the largest loss because of the large lot size.

You close that order and after that the second trade and at the end the first trade. The account balance is almost wiped with only three trades because of your greed.

Read more: What is Lot Size – Maximize Your Profits 

Refusing to Be Wrong

Being wrong is part of the trading on the Forex market. Not accepting being wrong is why Forex traders fail.

If you follow your plan or you trade without a plan any trade you open can be losing trade.

You need to accept that you will have bad trades. You will lose the money on some trades.

If you open a trade and you see that the trade is not moving in your direction. Do not let that trade become the largest losing trade.

What happen is that you open the trade and you set stop loss level. The price of the trading pair moves against you and you start thinking the trade will change direction eventually.

The price comes near the stop loss level and you think that the price could go a little more against you and then it will reverse the direction. 

Being Wrong and Moving Stop Loss Level

You move the stop loss level where you increase the amount of money you will lose when the trade is closed.

Then the price still moves against you and get close to your new stop loss level. You think that if you remove the stop loss level you will watch the price and you will close that trade manually.

And then you remove stop loss level and the price continue moving against you. You are watching how the loss increase and your free margin is reducing. Then the margin call starts to be the next step.

And at the end margin call gets activated and your trade is closed by the broker where you have lost all your money.

The problem was in you who did not want to accept that you have made the wrong decision when you have entered the trade. And you have set stop loss level which you should not touch.

You did not want to accept you are wrong and you moved your stop loss level where you have signed verdict that you are doomed. That was the beginner mistake which also an experienced traders do.

Read more: What is Margin in Forex – Money Reserved for Broker 

No Trading Plan or Trading Strategy is Why Forex Traders Fail

Why Forex traders fail is because not having a trading strategy which you should follow all the time.

Not trading by the trading plan moves your focus from the right steps which helps you to be profitable on each trade.

Trading strategy defines what you should do at which time. It defines the trading signal to be valid and to enter that signal with correct stop loss level and take profit level.

If you do not follow your trading plan you open the trades with less accuracy. Any trading signal that you think is the correct one, you open but at the end it becomes bad trade.

You do not follow the time frame on which trading signal is created. There is no stop loss level and take profit level.

You start to jump from one idea to another and eventually there are no consistency in your trading. And the trading account balance shows the same result, inconsistency and decreasing.

Read more: How to Stay Consistent Forex Trader 

Poor Risk Management is Why Forex Traders Fail

Not following the trading strategy, not following the risk management plan your trading results are not consistent. The risk management plan is there to protect you from losing the money on each trade and to maximize your profit on profitable trades.

It happens that you do not set stop loss level and you lose to much money on a bad trade. You could lower that risk with correct risk management but you thought that you will manage the bad trade.

When you open the trade and trade is profitable it happens that you did not set the correct take profit level and you lose money. That happens when you close the trade to early where you could leave that trade running.

Risk to reward ratio is defined by the risk management plan where the main point is to make you profitable when you sum all wining and bad trades. If there is no risk to reward ratio you cannot make the comparison between bad and wining traders and you cannot extract the necessary conclusion. The conclusion where you make bad decisions and where you make good trading decisions.

Many traders do not have risk management plan which is one of the crucial thing you should have. The goal of risk management plan is to protect your money which you need to earn money. 

Not Having a Trading Mentor

Not having a trading mentor is small cause why Forex traders fail. It is not mandatory to have one but it is advisable.

Without trading mentor you will lose to much time learning. You will make the beginner mistakes which you should not make if you do not want to lose the money.

Read more: Beginner Trading Mistake – Stop Doing in Order to Succeed in Forex

The time you will invest searching for the profitable trading strategy can be exhausting. You can wander around on the forums and lose to much money by testing the trading strategy.

You can lose to much time by demo trading before going live. The habits you adopt with demo trading can be futile on real account. That problem can be solved with good mentor who could guide you in the right direction.

Read more: How Long Demo Trade Before Going Live 

The Winner of Why Forex Traders Fail

And the winner among above listed points why Forex traders fail is: Greed for MONEY.

Greed makes you blind on the things you should follow. You do not trade by the trading strategy because it takes to much time and patience waiting for good signal.

Greed drives you away from the risk management plan. You open trades with larger lot size because you want more money on each trade. Stop loss level is not in your list and you lose to much money on bad trades.

Greed force you not accepting that you are wrong because you want the money so much and where you do not want to close bad trade with loss.

When fear of missing the trade appears, greed will force you to open the trade without any confirmation to enter the trade. The money you can earn by trading the news is the catalyst to open bad trade.

Having to small capital will wake inner desire to earn a lot of money. Small capital will push the greed in front and you will start looking for easy money. 

Other Goal Instead Greed

On each above point I have put the greed as a possible source. If you read over the internet about Forex trading you will see quick and easy money. There are no limits how much you can earn by trading on the Forex.

That is the idea that drives each trader to start trading. All that is greed searching for quick money.

Do not make mistake and look for quick money. There is no quick money in Forex but only quick losing money.

There is money in Forex but only with proper trading plan and risk management. Without emotions, with patience and time invested in trading.

Be smart, be better, do not be greedy, do not fear, have a trading plan, have a risk management plan. Invest in your knowledge and become profitable trader.

Read more: How to be Profitable Part-Time Trader With 9 to 5 Job 

 

What do you think what is the greatest cause why traders fail? Leave a comment below and let’s discuss how to solve the problem of losing money.

 

Frano Grgić

Frano Grgić

A Forex trader since 2009. I like to share my knowledge and I like to analyze the markets. My goal is to have a website which will be the first choice for traders and beginners.

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