Why do individual investors usually lose money in Forex ?… The most common statistic thrown around about the forex market is that something like 95% of people that start in it will inevitably lose their money and fail.
I only work in Forex, but I find that the main reasons people fail are that they risk too much before they understand what they are doing.
I don’t find that traders are greedy. they just want to do things well.
The problem is that too many people try other things and fail, and then hope that Forex will put them on the road to riches.
Before they start, though, in this highly volatile environment, they need to understand that the same underlying drivers that caused them to be needy, fail or what ever else they haven’t addressed for themselves in their lives, will follow them into Forex, and Forex is very unforgiving!
Addressing negative subconscious programming is the first thing that needs to happen. Then, rather than going on a manic learning quest that can lead so easily to ‘paralysis by analysis’, especially in the early stages, they need to find something simple, a technique that works, and keep practicing till they crack it – before they risk their investment!
There are a multitude of reasons why traders are unprofitable. I think that the reasons are many, personally. Here are some of the most common ones.
- The trader has unrealistic expectations.
They have been talked up by marketing material or think that they can create a fortune overnight with forex trading. The lack of experience and insight into what makes a successful trader facilitates their fall that much faster. They don’t have an appropriate plan or the knowledge they need to be successful in forex.
- The trader overestimates their ability.
Many, many people go from a demo account straight to blowing out their first trading account. The smart ones only used a fraction of their desired starting capital. The others manage to lose thousands in the transition.
For some, there isn’t a great difference between demo and live trading. For most, it is drastically different from a psychological angle. There’s a world of difference from putting fake money into the markets and putting your hard earned money out there. The smart approach is to start Live with a small amount and add to it later once you have results.
- They do not solidify their trading edge through a solid plan.
A trading plan is an essential part of successful forex trading. No trader can succeed if they do not a concrete, repeatable methodology.
Every trade will not be a favorable one but we must strive to maximize as many favorable trades as we are able to make. We must have a clear definition in mind to spot the potentially profitable trade that is manifesting on the charts. The trader should also have their risk management, entry, and exit criteria clearly defined.
Really – it all boils down to a lack of respect for the potential of the forex market. It is a fool’s errand to enter any business transaction without your mind clear, information researched, contingencies covered, and a solid plan on how to succeed and minimize loss. Even then, there’s still a significant amount of luck involved.