What are the Primary Reasons Why Forex Traders Fail?
Forex Blog Articles
Why Almost 95% of Forex Traders Fail?
If you have been reading up on forex trading, you may come across an eye-opening report with statistics claiming “95% of traders lose money” or “only the top 5% of traders manage to make a living from trading.” Those are demoralizing numbers for anyone who is trying to succeed in forex trading. While the numbers vary between studies, the fact is most traders end up losing money in trading. According to brokerreviews.org 10-20% of all FX traders achieve to make a profit.
The reason why almost 95% of forex traders fail is down to various reasons. These reasons include the following:
- Poor money management
- Bad timing
- Poor strategy
All the factors mentioned above play a role in achieving trading success, but there are deeper reasons why most traders end up losing in forex trading. We are going to explore the reasons why 95% of traders don’t succeed in forex trading in this article.
How much experience do propfitable and unprofitable traders have
Why the Forex Market Always Creates Doubts For You
Before we begin to explain the technical points about why Forex traders fail, we must understand an important point.
The Forex market is actually a place that is contrary to what we have learned all our lives.
This situation, along with the market that always goes one step further and two steps back creates situations we don’t know how to deal with.
Remember this! If you understand this point, you can fix the other processes and you are on the right path.
I will explain, there is always a feeling of missing out on the market, no matter if you have earned or lost. If you made a profit, you would think ‘why I sold too early’, and if you lost you would think ‘why did I not wait, I could have made a profit’. In short, you will never be satisfied.
Because the market goes in all directions, it creates a phenomenon that is exhausting us. The market always creates doubts for you.
The market examines us and gives us an emotional journey, once you end with a trade a new one begins, and the emotional journey begins again, the rollercoaster drops more and more people.
We have often seen it with our traders, who make great profits for months, and on one bad day, they lose everything.
But it is not over here, there are the professional requirements that are required to succeed in the Forex market, which are the opposite of our instincts and what we learned in our life.
For example, in sports, if the team against us has scored, we try to play harder, so it will not happen again, in the forex trading you have to be tolerant, do not play stronger, and maybe you should give up that trading day at all.
another example – In business, you’ll do everything to save the business, in trading you take the loss, you’ll learn to cut it early, using stop loss, you shouldn’t wait for the price to come back, otherwise, you might lose more. The opposite of what you were taught.
To sum up, most traders fail, and it’s not always their fault, if you can understand it and change your mindset, it’s a small step for you, and a big step for your career!
Why Forex Traders Lose Money
Most of the reasons why people fail in forex trading are because they don’t have a reasonable concept about trading and why they are trading. For many people, the motivation for getting into forex trading is the dream of becoming rich overnight. They are attracted to the lavish lifestyle of successful traders. However, they don’t consider the obstacles they overcome on their journey, or the years of experience they have acquired to get to that level.
Most people are only attracted to instant gratification, which reflects in their approach of trading in the market. This is the wrong approach to forex trading. You don’t become successful overnight in trading. The 4 main reasons why people don’t become successful in forex trading are:
- Poor risk management
- The absence of a trading plan
- Lack of strategy or tactics that lead to success
- psychological and emotional exhaustion
We are going to cover the major reasons why 95% of traders fail in forex trading in greater detail below.
Reasons why forex traders fail
Most people don’t take into account the requirements for becoming successful in trading and expect to achieve success with basic talent and skills. To succeed in forex trading, you must have a realistic mindset and a firm grasp of your own abilities. Traders sit in front of computer screens for hours on end, waiting for trading opportunities to present themselves while staring at price charts.
You need patience and discipline to capitalize on the opportunities that present themselves, for which you need a trading strategy. It is a fundamental part of obtaining success in forex trading. Without a trading plan or a trading strategy in place, you will struggle to succeed.
Trading on the forex market is also psychologically draining, and a lot of traders don’t have the patience to study the market. They get bored, frustrated, or tired, and start making silly trades without considering all the factors of that trade.
To humor you, we will say that the statistic of 95% traders failing maybe a touch high, but it is fair to say that forex trading isn’t easy by any stretch of the imagination. At The5%ers, we have worked with all kinds of traders over the years and have witnessed first-hand how traders end up ‘cutting off their legs’ when trading.
All traders, who struggle to advance their progress and losing trades, share the same characteristics. These are:
- Unrealistic expectations about the market
- Overcomplicating their analysis
- Trading with money they can’t afford to lose (money for bills, mortgage, etc.)
- Having a poor money management strategy
- Chasing market noise and price, instead of using reliable data
- Spending a lot of time over charts instead of trading
- No consistency due to a lack of a trading plan
- Failing to deal with a loss and reacting emotionally
- Impatience and not waiting for the right moment to trade
Go through the list of characteristics mentioned above to find out how many points you are guilty of. Have you been making the same errors? You may be if you’re failing in forex trading. However, don’t worry about this as you’re not the only one making those errors. All traders struggle with these problems, which is what mainly stops them from being successful in forex trading.
Let’s Cover The 4 Main Reasons Why 95% of Traders Don’t Succeed in Forex Trading
Lack of a trading plan
The most obvious reason that explains why almost 95% of traders fail in forex trading is down to a lack of a proper trading plan. The only way you will manage to become a consistent and profitable trader is by treating trading like a real business. A trading plan is a systematic method for evaluating and screening currency pairs for determining the risk that you should take or is available to you. This will allow you to form long and short-term investment objectives.
Any successful trading plan will include details about the trading system you must use. However, when amateur traders start to invest in the market, it can become difficult for them to create a trading plan. There is an easy solution to that problem and answering some simple questions should help you create an appropriate trading plan that suits you. These questions are:
- What time of the day do you want to trade?
- How long will you hold your positions/trades?
- How much are you willing to risk?
- What are your trading goals?
- Which currency pairs are you following?
An appropriate trading plan improves your chances of making successful trades in the forex market if you align it with a proven strategy that is efficient. We are going to discuss the strategy next.
Lack of strategy or tactics that lead to success
A lack of a profitable trading strategy significantly reduces the chances of traders finding success in the forex market. So, what is the best way to find if a strategy is profitable? You back-test the strategy. If you don’t know what back-testing is, don’t worry. It is quite simple.
To back-test a strategy, all you must do is take that strategy and implement it in the charts using data from previous years. For example, if your strategy is based on a harmonic pattern, you must investigate the price action of 2018 and find out how many traders used that specific harmonic pattern that year. You shouldn’t limit yourself to testing a system for only 1 year or for 100 traders.
Once you have conducted the test, you will learn whether a strategy was profitable or not. This will be determined by the results of the test. So, if you find that out of 100 trades, 60 were losses and 40 were winners, does that mean this strategy isn’t worth it?
No, it means that if a trader uses this strategy they will win 4 trades and lose 6 trades on average. But, if the trader uses authentic risk management techniques, they will find success in the forex market.
Poor risk management
One of the most common mistakes made by traders in forex trading is poor management of funds. When it comes to investing in any market, risk management is essential. if you don’t know how to build and use risk management, read this article, it will help you create risk management strategies for trading forex successfully.
The same applies to the forex market. Traders should use lot sizes based on the money available in their accounts. This is the one thing that separates successful traders from those who fail in forex trading. Successful traders avoid losing money by managing their funds efficiently.
Any trader with poor risk management isn’t going to win a lot of trades, which is one of the main reasons why they are failing in forex trading.
Trading psychologically Exhausting
A lot of problems in forex trading are psychological. Traders who give up too easily will not find success in forex trading since they don’t have the psychological traits and character required for success. The top 5% of trades are continuously spending time on personal improvement and fine-tuning their trading strategies, which is what it takes to have a successful trading career.
Why Forex Traders Fail Conclusion
The forex market will tear you apart psychologically. The financial sector is a super-competitive and ruthless world that has brought grown men to tears. It’s imperative that you know what your weaknesses are and work to improve them since you will have a lot of ups and downs in the forex market. Most forex traders tend to lose money, but this doesn’t mean that you will lose money as well. Work on improving your weakness, developing a solid trading plan with a successful trading strategy, and improving your risk management. Only then will you be able to find success in forex trading.
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