April 29th 2021 Blog

5 Reasons Why Forex Traders Fail

Back to blog

Failure in Forex Trading

As the popularity of forex grows, so does the number of people giving it their all to gain consistent profits. Each year millions of people who have never traded forex before in their life, start their journey as forex traders. Equipped with whatever knowledge the internet could provide in a short amount of time, these first-timers often get blown away by the risks and losses involved. It comes as no surprise that in the beginning, novice forex traders who do not know how to day trade, tend to lose money more than they make. Most people feel disheartened and leave forex trading for good thinking it isn’t for them, but the reality is quite different.

Let us take an expert look at the top 5 reasons why forex traders usually fail and learn from these mistakes.

1. Making decisions based on emotions rather than logic

The emotional factor is undeniably the biggest setback that forex traders, especially first-time traders, experience. Most of the time, people tend to be overwhelmed before placing a trade at the right moment. Instead of freezing in front of the screen, watching the price movements instead of opening/closing trades will only make you lose the perfect opportunity to enter the market. Truth is, emotions only come in the way of professional forex traders.

Emotionally-driven traders often sell something that they bought just moments ago after seeing minor price action. This way they lose the chance to make a profit on many genuinely profitable opportunities. Calm-minded traders tend to make the right decisions at the perfect moment. The problems forex traders face at the hands of basic human emotions are;

  • Getting overconfident after gaining a considerable amount and then trading without any prior plans only to lose most of their capital.
  • Forex traders often make mistakes just like any other person, it is important to recover from that situation. But emotional forex traders tend to lose faith altogether mounting losses.
  • If a trader is guided by emotional and psychological factors rather than rational thoughts and knowledge, then they care little about trading strategies and improving their trading style.

2. Choosing the wrong broker to handle trades

Trading involves making several decisions and among the first of those decisions is choosing a reliable broker to start forex trading. This step requires research to find the list of legitimate forex brokers and then choosing one that offers ideal qualities that fulfil your need. Preferably a forex broker should abide by a set of rules and regulations to allow users from different countries to trade forex at a fixed minimum deposit amount. The risks of associating with an illegal or mediocre fx broker are

  • Withdrawal options do not operate the way users expect them to and cause thousands of unsuspecting traders to lose millions.
  • Sensitive information and documents provided by users during KYC are utilised for illegal activities or worse, sold on the dark web.
  • Scam brokers tend to have customer support which is never available for users of their platform.

3. Trading forex without essential knowledge

In the past few years, financial markets have become easily accessible for people all around the world. This gives some individuals a wrong impression regarding how complex forex trading could be in reality. Although one can educate themselves by tens of thousands of alternatives found over the internet, understanding how to make a fool-proof forex trading strategy requires in-depth knowledge of market analysis.

Traders who simply begin to step into the world of forex without comprehending the importance of various indicators, chart patterns, fundamental & technical analysis always end up in a situation beyond their expectations. Without knowledge regarding forex you cannot cope with the following;

  • Unknowledgeable traders have nothing guiding them through the market conditions, especially when the odds are against them.
  • Anyone who is well-educated about the dos and don’ts is safe from falling a victim to some of the most common forex scams.

If you have no prior education regarding the forex market then it is impossible to make a situation work to your advantage.

4. Managing risks and capital poorly

Financial markets can often be highly eventful, thoroughly dynamic, and quite uncertain. Without having any prior knowledge and a consistent income, people lose most of their initial capital in a few moments. Expert forex traders recommend that a person has a secure means of income to trade freely guided by a proper trading strategy with a professional broker.

But not all traders pay heed to these prerequisites. Some search for answers to know how to day trade and start their full-fledged forex trading career without going through critical risk management principles. The harm in trading without risk and capital management are;

  • As mentioned before, one could lose all capital stored in the trading account by executing a series of bad trades.
  • Risk management ensures that a trader’s capital grows sufficiently with time to continue trading.
  • Once a person loses a considerable amount of money, they lose the heart to trade ever again or worse go bankrupt in the process.

5. Trading forex without a trading strategy

Having a trading strategy when you trade certain financial instruments such as forex, acts as armour to protect traders from the ups and downs of the market. Just like one cannot get into a battle without any preparation, it is deemed unprofessional to proceed with forex trading without a basic trading strategy.

Having a strategy is advantageous for the following reasons;

  • Trading strategies serve as a set of rules that help an individual to know their capabilities and open/close positions only when it’s rewarding.
  • Having a fool-proof trading strategy that incorporates technical indicators as well as economic factors means managing risks efficiently.
  • Strategies help people refrain from making impulsive decisions that often end badly and could lead to insufferable loss.

So, unless you have some confidence in your decisions and avoid committing such mistakes, your forex trading experience is going to be rewarding and quite exciting.