Why Forex traders are losing? The reasons for the failure of Forex traders
Let’s consider the following scenario. The market only goes up or down in the long run. Thus, based on the most basic risk / reward ratio (1: 1), 50% of traders must succeed, but this is not the case. A trader is his worst enemy and human error is rooted in many problems. In short, the main reason for the financial losses of Forex traders is very simple, the main culprits are traders. Fiscal trade, especially in the currency markets, requires long-term and accurate planning at various levels. The trader can not start trading without understanding the basics of the market and constantly analyzing this volatile environment. Those who are interested in investing and trading are better off to read the following suggestions in order to avoid financial losses in Forex trading.
Overtrading – doing very large or frequent transactions is one of the most common reasons for the failure of Forex traders. Having the goals of unrealistic profit in the head, market addiction or lack of sufficient capital may lead to too much bargaining. We are now ignoring the unrealistic expectations because this concept will be discussed later in this article in general. First of all, we look at the lack of adequate capital. Most traders know that they can not earn money without money. One of the greatest benefits of Forex is access to leverage accounts. In this way, even small traders can make significant profit by predicting the price of financial assets, or vice versa. As long as a risk management strategy is fully operational, the foundation of a significant investment from a high leverage or high initial investment is not important.
The key is to ensure that you have an investment foundation. Having sufficient capital in a trading account increases the trader’s chance of long-term profitability and reduces the amount of stress during a transaction. As a result, traders risk a small portion of their total equity in a transaction, while gaining profitable earnings. Well, how much money is it enough? The loss of money in Forex trading is due to an incorrect trading account management that you can avoid: 0.01 Litas is the minimum amount of trading brokers offer. This volume is called microlat and equals 1000 units of the base currency that is traded. Of course, trading in smaller volumes is not the only way to reduce risk. Beginners and experienced traffickers must both carefully focus on setting Stop Loss. The general rule of risk for novice traders is a maximum of 1% of the total equity in each transaction.
If novice traders deal with more than that amount of money, they will likely increase their losses. The balanced and prudent use of leverage in small transactions is a good way to maintain long-term capital; for example, the amount of investment required to trade a microloop on a USD / EUR currency pair in a trading account with a leverage of 1: 400 is only $ 250. However, a higher leverage transaction would increase the risk of trading capital in the same proportion. In this example, an over-transaction of a microloat in a 1: 400 leverage account, quadruple the loss by comparison with a trading in a 1: 100 leverage.
Addiction to the deal is another reason for the financial losses of Forex traders. They are following prices, which even institutional traders avoid. Forex trading can be very exciting. A transaction in short periods of time and in pairs of variable currencies in a rapidly increasing market may have a lot of adrenaline. Also, if the market moves unexpectedly, it can lead to stress.
Traders should have a clear exit strategy, so if nothing is going to prevent this scenario, according to the plan. Following the price means opening and closing without planning transactions, and this is the opposite of the approach that has been mentioned. To put it more correctly, pursuing a price is more like gambling than trading. Contrary to what some traders think, they have no domination and influence on the market. In some cases there are limits to market efficiency. Clever dealers know at times that some of the measures are not worth the risk. This is just when you have to stop trading and think about keeping an account balance. You will have access to the market tomorrow and there will always be opportunities for new business opportunities. As soon as the trader sees patience as power and not weakness, he soon reaches a higher percentage of profitable trades. Although it may not seem contradictory, sometimes refusing to enter the market is the best way to profit from a Forex trader.
Incompatibility with market conditions
Another reason for Forex traders’ financial losses is the false impression that a proven trading strategy is sufficient to achieve a large number of profitable transactions. Markets are volatile, but they can not be traded on a steady and stable market. Because of this constant market instability, traders should be able to track down these changes and adapt themselves to any circumstances. It is true that these changes put you at risk, but due to these changes, new opportunities are created. A traded trader uses them rather than fears of these changes. In addition to other factors, a trader must check the average volatility by tracking the latest financial publications and can identify the Trending Market from the Ranging Market. Market fluctuations have major effects on business performance.
Traders should be aware that market fluctuations may spread over the hours, days, months, or even years. Many business-driven trading strategies provide unpredictable results in unpredictable periods; therefore, a trader should always use a strategy that is in line with current market volatility.
Tracking financial publications is also very important, even if the chosen strategy is not principled. Monetary policy decisions such as interest rate changes or economic information related to unemployment and consumer confidence can change the willingness of the business community. The market reaction to these events will inevitably affect the supply and demand of the relevant currencies. Ultimately, the inability to distinguish market trends from unstable markets often leads to misplaced business tools at inappropriate times.
Poor risk management
Inappropriate risk management will cause Forex traders to quickly lend money. It is by no means the case that commercial platforms are equipped with automatic Take-Profit and Stop-Loss mechanisms. Dominating them significantly increases the luck of traders to succeed. Traders should not only be aware of these mechanisms, but they should be able to properly apply them to the levels of market fluctuations (for the duration and duration of the expected transactions). Remember that a “downside down” can be the reason for the loss of a profitable position. At the same time, a “upward profit margin” may never be due to fluctuations. Paying attention to the risk / reward ratio is one of the most important parts of a good risk management. The risk / reward ratio is a benchmarking measure that helps trained traders to know if the deal goes according to the plan, how much profit and how otherwise it will be. Consider this example, if the “profit margin” is set at 100 pips and the “stop loss” is set at 50 pips, then your risk / reward ratio will be 2: 1. This means that you will receive at least one charge in all three transactions (provided they are profitable). Traders should always consider these two variables together to ensure their compatibility with profit goals.
Not having or not following a business plan
Why do other Forex traders suffer losses? Well, the weak attitude and the inability to prepare for the current market conditions are definitely contributing to this issue. It is strongly recommended that you deal with financial business as a kind of business, because that’s really what it is. Any serious business project needs a business plan. A serious trader must provide a complete business strategy with effort and time. A business plan should, at the very least, consider the optimal entry and exit points in the transactions, the risk / reward ratio, and the rules for managing the money.
Forex traders are two categories; the first is driven from the stock market and other financial markets, and they are looking for better business conditions or investing their assets in the Forex market. The second group is novice traders who have not previously traded in any financial market. It’s entirely natural that the first group will gain more from its experience in Forex trading. They know the answers to the questions posed by the newcomer, questions like why Forex traders fail? Or why do all the traders fail?
Experienced traders are realistic about their earnings expectations. This mentality will prevent them from pursuing price and breaking the rules of their business strategy – because these two features are rarely useful. Realistic expectations reduce some of the psychological pressures of business. Some experienced traders drown their feelings during a failed deal, and make mistakes. Newcomers should know that the Forex market can not be quickly turned into wealthy. Forex, like any other business or profession, has bad and well-worn risk and rewards courses. If the presence in the market is minimized for each transaction, the trader will be relaxed because his overall performance will no longer be affected by an unsuccessful transaction. Your best friend is patience and integrity. There is no need for a trader to arrive at one or two big deals. Because it will lead to bad business habits and significant long-term losses. The best option is to achieve positive results through smaller transactions over the months or years.