According to the statistics provided by most Forex brokers, about 70-75% of retail traders who use their platforms are losing traders. This means that out of 100 traders who fund their trading accounts at the start of a trading year, only 25-30 of these traders will close the year with more money than their initial deposit within their accounts. Therefore, there is little doubt that most retail Forex traders are losing traders who have no profits to show at the end of a whole year of trading. We shall focus on the main reason why most Forex traders fail to make a profit in the markets despite the abundance of free information through online websites.
Trading without a plan
A common mistake made by Forex traders who fail is that many of them trade the currency markets without a set plan of action also known as a trading plan. Most losing traders simply open their trading charts and start trading, or they react to some fundamental releases or news headline and quickly enter into a trade.
Although you might make a few profitable trades even without following a trading plan, you are almost guaranteed to make significant losses and end the year as a losing trader. Trading the Forex markets with a solid plan means that you have pre-determined trade entry conditions and a set exit as well a maximum risk limit, which increases your odds of becoming a profitable trader.
Lack of discipline in sticking to a trading plan
Another major reason why most Forex traders fail is that they do not follow their trading plans to the tee as they make emotional decisions. Many traders start taking big risks when they have a few winning trades and ignore the well-structured trading plan that made them secure the big wins in the first place.
Other traders become greedy and fail to close losing trades at the predetermined stop-loss level and let small losing trades turn into massive losses. The same lack of discipline makes Forex traders lose their winning trades prematurely, which means that they end up with small wins and very large losses leading to failure.
Failure to adapt to changing market conditions
Most losing Forex traders do not like to adjust their trading plan in order to ensure that it is aligned with current market conditions. Most winning traders know that in some cases they may be expecting the price to bounce off a support level, yet price actually breaks below the support level. In such cases, winning traders simply adjust their trading plan and look for selling opportunities instead of long trade setups.
However, most losing traders forget the fact that their goal in trading is to make money, not to be right, hence, they usually stick to their initial analysis of the market even if the market conditions have changed. Successful traders always plan for the worst-case scenarios and look to take advantage of unexpected events that usually catch the losing traders unawares, which leads to them booking massive losses.
Unrealistic expectations
Most losing traders have unrealistic expectations of their trading journey where they expect to make huge profits immediately they start trading. Their unrealistic profit expectations lead to them taking unnecessary risks that quickly turn into major losses because they lack the necessary experience to be profitable traders. Forex traders who fail also expect to be profitable immediately they embark on their trading journey, yet this is just not realistic.
Forex trading is like running a marathon, you cannot just wake up one morning and run a 42 km marathon. However, if you train consistently over several months, you could actually run and complete a marathon race. This is the same with trading the Forex markets, you can win by consistently following your trading plan over several months at the very least.
Poor risk and money management skills
All Forex traders who fail do so because they do not focus on managing their trading funds in the right manner as they have very poor risk management skills. As the old saying goes, the markets will always be there, but will you? This adage is a warning to Forex traders to exercise caution in the markets by taking calculated risks in order to have small losses, which are compensated for by much larger winning trades.
Most professional traders recommend risking a maximum of 2% of your trading funds on each trade, which makes it almost impossible for your account to be wiped out by a single losing trade.
Forex traders who fail usually do not pay enough attention to the preservation of their trading funds, which is crucial especially when you have a substantial trading account. Winning traders with large trading accounts usually segment their trading funds depending on the different strategies used in each account to meet different goals such as hedging, speculation and generating income.
Learning via trial and error methods
Most Forex traders who fail usually learn how to trade the currency markets via trial and error instead of learning from other successful traders who can help them avoid the common trading mistakes. Learning via trial and error is not the best way to learn as you are likely to make very costly mistakes that could lead to your ultimate failure despite the fact that you could have avoided some of these mistakes by tapping into the knowledge of other experienced traders. You can learn from other profitable traders by taking their courses, reading their books, or by studying the numerous guides found online, just like this one.
The bottom line
This article covers some of the most common reasons why Forex traders fail but it is not an exhaustive list given that there are many other personal reasons why a Forex trader could fail. However, it is vital that you do not make any of the mistakes discussed above as they are likely to cost you a lot of money and maybe even lead to your eventual failure as a trader. Remember, that you will only fail if you give up on your Forex trading dreams, you will eventually win in this game if you avoid the above mistakes and remain consistent in your trading activities.
