Forex Trading Basic

Common Reason for Forex Trading failure

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Common Reason for Forex Trading failure

Do know the Common Reason for Forex Trading failure? Do you have any Idea why 65-95% of Forex Traders Fail in trading when there is a 50% Chance of Winning a Trade? We believe there are 10 most common reasons for Forex Trading failure. Let us discuss these reasons.

Hankering after Instant Success in trading

 Many people see forex as the ultimate “Get Rich Quick” scheme. Actually, some brokers, marketers, broker agents and numerous forex advertising websites are main culprit behind this hype. Some forex dealers and brokers are trying to make money out of naivety and greed. They all propagate the idea that one can get extremely rich trading Forex, that you can retire wealthy within a short period of time, or that you can quit your job to trade Forex for a living.

Thinking of Incredible Returns in short time

As a new comer in Forex trading, you cannot expect to make 20-100% of your initial trading account per month from forex trading. If you do so, then you have already an improbable goal that is detached from reality and unworkable. The only way to make such huge profits is to use high leverage or trade multiple times per day, both approaches of which may work for you for a short while but will eventually destroy your account. You will enter into the double dangers of over-leverage and over-trading, as discussed below.

Searching to find the Holy Grail

One bitter truth you must take into account- there is no Holy Grail in Forex Trading! Most traders (both new and old) are always looking to get a Holy Grail system in Forex. This quest for the Holy Grail eventually ends in vain. I have been a seeker and to some degree I still am. I have long held the optimistic believe that somewhere out “there” someone has built the system that can beat the system. I knew there was a lot of crap out there, but if I can search far enough or dig deep enough on the net, I can find that “holy grail” system that others could not find and use it to build my fortune.

80%-95% of the trading systems are unprofitable for numerous reasons, and the great system of today can be in the waste bin tomorrow. Markets change and the system making steady profit in the last six months can suddenly find itself in a heavy, unexpected draw down. I have seen this happen with the best of scalping systems, for instance. Many of the best had made great returns during the Asian session for two straight years, returns consistent with their 10 year back tests, and then in 2011 I have seen them blow up. The historically range-bound period of the Asian session suddenly became a trending session and the counter-trend scalping trades initiated by the scalping EAs backfired on the accounts.

Taking Excess amount of Leverage

One of the most harmful reasons behind Forex trading failure is taking huge amount of leverage. A foremost reason for why many Forex traders fail is that they are over-leveraged in their trades. Or put another way, they are under-capitalized in relation to the size of the trades they make. With the false expectation that they can make 20-100% monthly returns, the new trader maxes out on the available leverage, quickly blowing up his account. The Forex market allows traders to leverage their accounts as much as 400:1, which if fully used can lead to massive trading gains in some few cases, and crippling losses in most others.

Most common leverage offered by brokers is 100:1. If the trader need to fully use the 100:1 leverage offered, his entire account can be wiped out in one trade. If the trader had a mini account of $1000, for instance, and used the 100:1 leverage to buy 1 standard ($100,000) lot, the currency pair would only have to travel against him by 100 pips before he was totally wiped out (100 pips X $10 per pip=$1000). The trader was trying to carry too big a position with too little money.

Over trading tendency of the traders

Some traders think that if they can use high leverage with placing so much trading, They can make huge profits. What he does not notice is that the Forex market is volatile and changes direction all day long, and it is impossible to expect profitable trades from every price movement. There is a reason why researchers have noticed that up to 90% of day traders fail: the day traders are exposing their accounts to more risk and reducing their win loss ratio. They are taking too many trades of short duration, trying to trade each change of direction on a small time frame scale, and often get chopped up in the process. They are also increasing their cost of trading as each time they trade they are paying the spread or commission.

Lack of Proper Forex Learning  

Another main reason behind Forex trading failure is because most traders don’t have the enough trading education. They don’t go through enough lessons of different Forex trading for beginner courses; they even come into trading without even reading a Forex learning book of watching tutorials to educate themselves about currency trading. Some Forex traders barely understand what technical and fundamental analysis is, and they execute trades on whim, intuition, gut instinct, the market moving sharply in one direction or the news of the day suggesting the direction in hindsight. Consequently, without knowledge of how/why prices move, many traders fail.

Lack of Trading Experiences

The lack of enough experience as a Forex trader makes the traders vulnerable to failure. They become undisciplined, impatient and emotional, causing numerous trading mistakes. Their lack of experience with the multiplicity of forces affecting the markets, as well as its high degree of randomness, causes them to underestimate and overestimate the market, causing numerous false interpretations of market direction. Their lack of experience with money management causes them to risk too much on each mistaken trade and they eventually get wiped out.

No Trading Plan or Trading System

Many traders trade without having a proper trading plan or system. They do not define specific risk and profit objectives before trading. Even if they establish a plan, they second guess it and don’t stick with it, particularly if the trade is a loss. Consequently they overtrade and use their equity to the limit (are under-capitalized), which puts them in a squeeze and forces them to liquidate positions. To trade without a trading plan is to be subject to all the human limitations covered above.

Not having a proper Money Management

In most Forex trading failure cases, you will find most traders totally forget about the risk of Forex trading. They will be thinking only about the win and never planning for the worst. Yet the worst does transpire more than one thinks. Trading without safeguards can be like skydiving without a parachute. Every trade has the potential to sharply turn against you and do so for any amount of time and for any amount of pips. If one is trading with high leverage and without stops, one has no money management in place and is instead vulnerable to having that one trade turn into a nightmare that blows up the account. No amount of praying or hoping or luck or patience can force a bad trade to move back in your favor. They don’t take the small loses and instead stick with the loser until it really hurts, then take the loss. This is an undisciplined approach and a trader needs to stick with a system with a clearly defined stop loss.

The Bottom Line:

Don’t forget that sometimes a trader may suffer from a loss because of unfavorable conditions of Forex Broker. So, Choosing Forex broker wisely is a vital task for every trader. So, we would like to recommend you to start trading with HYCM Broker who has friendly trading conditions for traders. Read more from HYCM Broker review.

READ MORE

Chapter 10Trade Psychology
Lesson 1What is Trade Psychology
Lesson 2Common Reason for Forex Trading failure
Lesson 3Forex Trading winning mentality
Lesson 4Emotional Weakness of Forex traders

Go back to Main Page: Forex Trading for Beginners

About the author

Syed Nazim

Syed Nazim is the Marketing Manager of RedMaroon, a Digital Marketing Agency for Financial Institutions. He is also involved with Forexing24.com as a writer and financial Analyst. He is a brilliant marketing geek with vast experience in every sector of Digital Marketing. He likes sharing strategies, tactics and proven methods to help you build a business and live the life of your dreams.

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