Reasons why forex traders failed at trading
Are you having a difficult time being profitable in trading forex? Did you lose all your money in forex? Want to know why do You keep losing money in forex trading? Then I implore you to keep reading to find an extensive list of reasons why forex traders failed at trading.
Sometimes when trying to do something, the reason for your failure is obvious but you don’t recognize it until someone highlights it to you. Additionally, the first step of making progress in anything is to know what [where] the problems are so that you may tackle them with an effective solution.
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With that said, the list below includes most, but not all the reasons why most forex traders fail at forex trading; see which you can relate to the most to find the ‘anchor‘ that is holding you back.
In most cases, it is our own self [-disicpline] that is holding you back from being profitable and causing you to keep losing money in forex.
Reasons why forex traders failed at trading
Over 90% of forex traders failed to be profitable. The reason behind each person’s failure can be a single or a multitude of different reasons which can vary between internal and external variables.
Examples of internal variables why forex traders failed:
- Trading Strategy
- Time of trading
- Insufficient funds
Examples of external variables of why forex traders failed:
- Banks manipulation
- Broker’s dishonesty
Please take note that internal variables are things that the trader in question can control or change. While external variables are things that are out of the trader’s influence. With that said, please take note that despite the fact that a few external variables are influencing why forex traders fail, the majority of reasons are internal factors.
Top 21 reasons why traders failed at forex trading
1. Entering at the wrong place
Entering trades at the wrong place can lead to massive drawdowns and ultimately bad trades. Specifically speaking, buying at a resistance and selling at a support. This is one of the most underlying reasons why a trader tends to lose his/ her money and fail at forex trade.
More than so, it is often overlooked by a trader as the reason why most of his trades failed to hit TP or go in profit at all. To over overcome this, it’s best to enter at the beginning of an impulsive move (or end of a retracement/ pullback) which is normally at a previously broken structure (support or resistance) To put it short, it is best to buy at a support and sell at a resistance while following the bigger trend.
For more information on this, you can visit chapter 8 of the Rhasfx forex trading course which teaches you all about support and resistance.
The above picture shows an example of buying at support, the following media below shows how beneficial it could be selling at a resistance.
2. Entering at the wrong time
The time at which a trade was entered is also a key factor that can influence the trade’s likelihood of success. For example, entering a trade a few minutes before high-impact news, which can cause a massive candle spike against your favor. Hence why it is advisable to be mindful of the economic calendar and the upcoming news release relating to the currency pair you are trading. Use the Rhasfx news tool to avoid high-impact news.
3. Sloppy/ incorrect Technical analysis
Sloppy technical analysis could also be a leading cause as to why forex traders failed at trading. Technical analysis is important to do to understand what the market price is doing so a trader can estimate what [and when] the market price might do afterward.
However, this is easier said than done, cause simply overlooking one key structure could be the difference between a winning and a losing trade.
As for the following picture, it is an example of, more often than not, how your trade will play out when you buy at a resistance and/or sell at a support.
4. Reading the charts incorrectly
Another reason why forex traders failed at trading is due to the fact that they failed to comprehend what the market is doing. Failing to do so can cause incorrect predictions as it pertains to the future direction of the market price. In order to understand what the market is doing, one must:
- Have adequate information about candlesticks- candlestick patterns tell how the market is reacting to the bulls and bears fighting for power.
- Price action patterns: These patterns are not mandatory, but are a plus to have. They help to understand and calculate the probability of market price continuing its current trend or is gearing up for a complete trend reversal.
- Know how to read market structure (know the difference between support and resistance, how to identify supply and demand zones, etc) Information such as these are provided throughout the Rhasfx trading course.
4. Neglecting the larger time frames
At this point, it would be a bit redundant to say that neglecting [forgetting] the larger time frame is a big no-no that can cause traders to failed at forex trading. This is can be even more true if the trader is impatient and mostly do scalping since a retracement on the 4H or 1D time frames can cause a change in trend on the lower time frames especially 1H and below.
This goes without saying that adding the trend of a larger time frame as a variable in your decision-making process to choose whether to buy or sell an asset, could improve [increase] your consistency considerably.
5. Trading too many [correlated] pairs
Another important variable to consider as a result as to why most traders failed at forex trading. In any “how to trade forex for beginners” course, there should at least be a topic about correlated pairs.
As a beginner, it is hard to know right off the bat that most currency pairs move similarly from time to time; some of which are even inverted. trading strong correlated pairs can cause a double loss or a negation of profit.
To explain further, take for example GBPUSD and EURUSD, two financial assets that have a strong positive correlation most times. In the case of a double loss, if you buy both of these assets and they both fall to the point of hitting your stop loss, that would cause a double loss. However, in the case of negating profit, buying one and selling the other would cause the loss on one to negate the profit on the other.
NOTE: This is a tactic used by professional traders to hedge the market to reduce their loss.
6. Stop levels in low probability places
This topic begs the question, “Where are you putting your stop loss and your take profits?” A stop loss is best placed below or above a structure depending on the trend. In an uptrend, the most suitable place for your stop loss is a few pips below that of the previous low, while in a downtrend, the stop loss should be above that of the previous swing high. Price can retrace back to the previous swing high/low before continuing its primary trend.
Additionally, unless the previous high/ low is broken, then the primary trend is still valid. Take profits, however, are best placed at the previous swing high/ low where the previous impulsive move ended. But being that this could affect your risk: reward ratio, it’s commonly practiced to put take profit 2x the size of the stop loss.
7. Trading against the trend
Trading against the trend goes hand in hand with trading against the larger time frame as mentioned above. Trend reversal trading can be profitable, however, it is riskier than trading in the direction of the trend. This is speaking in terms of any given time frame of choice.
8. Trading against the daily trend
This is speaking specifically to the 1D time frame. This is an important factor to consider especially if you are a day or swing trader. Trading in the direction of the daily trend is can increase your accuracy, as well as the likelihood of the trade being profitable.
9. Using too many indicators
Most beginner traders failed at forex trading because they feel compelled to use too many indicators. Indicators are good tools to use in accordance with your strategy, but a trader should be mindful of how many indicators he/ she is implementing in his/ her strategy as too many can lead to confusion. In fact, too many indicators is a sign that shows:
- Fear of the market: The trader is afraid of losses so he wants to reduce the probability of losing trades as much as possible.
- Lack of confidence: This goes to show that the trade is not confident in what he is doing. A confident trader relies mostly on his judgment based on what the raw-naked chart is showing, and only use indicator(s) as a form of confirmation to support his judgment.
The maximum amount of indicators a trader should have on his charts or should be using in his overall strategy to avoid confusion is 3.
10. Staying in the market too long
“Time in the market is more important than timing the market“. Staying too long in the market is a factor that has caused a lot of forex traders failed at trading. This is especially so if you are a day trader. Scalpers are in and out of the market in minutes. However, day traders can sometimes “overstay their welcome” by holding on to trades too long that are already in profit without closing, just to give it enough time for it to reverse and be forced to close at a loss.
11. Using your phone (MetaTrader) to do technical analysis
Just because it is the same data feed as your desktop MetaTrader or web version of tradingview, doesn’t mean it is a good idea to use your mobile device to do your in-depth technical analysis. Please bear with me, using your mobile to review a trade setup that was already been analyzed is good and is also recommended to do at times.
But if the trade setup was not properly analyzed on a more sophisticated device with a bigger screen, then I would not recommend you take trades based on the analysis you did on your phone alone. This is because looking at previous price movements, and where price had reacted to structure in the past is a key component in doing technical analysis.
Using a small screen to do so can be tiresome and can often cause you to unintentionally overlook important structures due to the smaller screen size.
12. Insufficient start-up capital
It is a no-brainer to know that sufficient Funds are needed to maintain a trade margin. Likewise, it is also needed to maintain drawdown in case you have entered the trade a bit too early. It would be best to use a forex broker that gives a deposit bonus to increase your trading capital.
13 best Forex brokers that offer Deposit bonuses
- RedMars market
- Fort FS
- FP Markets
- Vantage FX
13. Poor Risk Management
Most gurus across the web would tell you that most forex traders failed at trading because of improper risk management, and in most cases, that is true. Failure to apply good risk management can cause the market to bleed your account to bleed dry of every cent it can take. Read how to apply proper risk management in the Rhasfx forex trading course
14. Not accepting responsibility for losses and mistakes
Accepting your wrongs is one way of overcoming failure in forex trading. But since most people don’t like accepting wrongs, it is also a reason why forex traders failed at trading.
A good way of doing so is by using a trading journal to log all your trades, both good and bad ones. After each passing week, look at the trades to see what you are commonly doing in all [most] of the winning trades and likewise the losing ones.
What you did in most of the winning trades, you would continue to repeat such actions till it becomes a part of your trading strategy. Of course, anything that you are doing commonly in most of your losing trades, you would want to eliminate from your strategy.
15. Over-trading / Trading Addiction
Over-trading is a big thing that can cause a reduction in both physical and mental functionalities. In terms of physical, sitting before the computer screen over a long period of time can cause long-lasting damage to the eyes. As regards mental functionality, the brain is also a muscle, and as you work it is being strained just as your triceps and biceps are being strained when you go to the gym.
Eventually, you have to give rest to those muscles or you will hurt yourself as the prolonged exercise can backfire and start to do more harm than good. Prolonged trading can cause you to dull your sense and cloud your judgments. Hence overtrading could also be a reason why forex traders failed at trading because of entering too many bad trades.
PRO TIP: The less you trade, is the less you Lose. The more you Trade, the more you’ll likely to lose.
16. Poor Forex trade management / no trade management
Risk management is also a part of trade management, but in this case, we are talking about adjusting your stop levels (stop loss & take profit) as per price movement. Failing to breakeven your trades so they can be risk free could also be a reason why forex traders failed at trading
17. Not having a trading strategy
A profitable trading strategy is a must-have when it comes to trading the forex market. However, not many can put together a profitable forex trading strategy hence why it is also one of the leading causes as to why most forex traders failed at trading. Read how to create a forex trading strategy.
Video: How to create a profitable forex trading strategy
18. Unrealistic Expectations
New traders are often drawn to forex trading because of the endless possibilities of fast sports cars, dream houses, traveling, expensive jewelry, and more. This causes them to be impatient which bred the mentality of getting rich quickly. Getting rich overnight from forex trading is an unrealistic expectation is a variable that caused most forex traders failed at trading.
A more realistic expectation is to believe that you will earn 5-10% profit each month. It is possible to make much more, but it is best to set your bar low so that if you don’t make that much, then you would not feel completely disappointed.
19. Getting Psyched Out
Another reason why forex traders failed at trading is due to the lack of confidence. Having confidence in what you are doing can be a reinforcement to your trading strategy. Having confidence in what you are doing will prevent you from second-guessing yourself, this will prevent you from being phased by what the market is currently doing, and your emotions under control.