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Why Forex traders lose their money

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Why Forex traders lose their money


There is no accurate information on the percentage of losers in the Forex market. However, the majority of unrecorded sources online suggest that more than 90% of currency traders join the losers' camp sooner or later. However, promotional phrases that try to entice many to join this market remain widespread amid the claim that "trading is not complicated." But if the profit in this market is so easy, why do so many traders fail? Let's analyze in the coming lines the reasons behind the poor performance of most forex traders.


Why Forex traders lose their money
Why Forex traders lose their money

Do not use a tried strategy
All forex traders know how important it is to use a strategy that has been thoroughly tested and tested. However, few have the patience to test their strategy for long enough. Currency pairs take a bullish or bearish trend for weeks, which allows for good profits by using a trend tracking strategy. However, when the market enters a consolidation phase, this strategy begins to fail and may end up causing heavy losses for the trader. It is therefore essential that the strategy be tested in both turbulent and volatile markets. The previous test is not the final step in the strategy experience, it is nothing more than a step to determine the feasibility of using it in the market. This should be followed by improving the strategy settings and using them on real prices (whether via paper or demo). Forex traders who lack the patience and the skin to implement these steps are more and faster than joining the camp losers.

Low risk to yield ratio
There are always trading opportunities available in the foreign exchange market. At least you will find two or more major currencies taking clear directions on which to trade. However, you do not have to open all trades unless you meet risk-to-earnings criteria. For example, if the currency pair is trading below a resistance level, it may be better to wait and enter after breaking this resistance. Opening the deal before the actual break might cause losses in most cases, for example because of a strong support level below the entry point. Applying the risk-to-yield criterion in this case would have prevented you from entering into a losing deal, so all traders who ignore the importance of risk assessment compared to the expected return also end up in the losers' camp.

Do not use stop loss orders
All traders, both professional and novice, know how important stop loss orders are. However, the application of this important tool in practice during market trading is somewhat difficult from a purely psychological point of view. It is common to see some traders complaining about hitting stop levels due to sudden price jumps. Here comes the role of intelligent capital management. Only practice will enable the trader to determine appropriate levels of stop loss. But in any case, the importance of this important tool should not be overlooked. In other words, a forex trader who ignores placing stop loss orders will find his or her account balance sooner or later at zero.

Misuse of leverage
Forex brokers mainly leverage leverage to increase trading volumes. However, the trader must use this dangerous tool with utmost caution and wisdom. For example, a full lottie on a EUR / USD pair with a $ 500 capital would be a risky venture, as a 50-pip move would hit the stop loss level. But when you use the same leverage, ie 1: 200, to open multiple trades of 1 lot each while the account balance is $ 10,000, this will allow the trader to operate in a safe environment. Thus, it can be said that currency traders need to scrutinize the choice of transaction sizes and avoid falling into the trap of misuse of leverage. Failure to adhere to these tips means once again sitting in the ranks of the losers.

Greed
A trader must close his open position once he knows that the trend is no longer in his favor. But in practice this decision requires a kind of iron will so that the trader does not hesitate a second one in closing the deal. Greed gives a false feeling to the trader that he can wait indefinitely until things turn in his favor. But what happens most often is that the trend continues in the opposite direction and the trader only gains more losses. Before the trader regains consciousness and begins to take control, the losses will have already reached the level of the margin call as the platform begins to close open positions too late. Similarly, a trader controlled by greed may also find it difficult to close his winning deal in time. The trader finds himself reluctant to close the deal and take profits even as he himself sees the currency pair reaching one of the major resistance levels. Although the deal may remain successful, a sudden and rapid reversal in the direction of the market could significantly reduce profits. Thus greed is one of the characteristics associated with losing traders.

the fear
Once the trader has opened his deal, he must keep the stop loss orders and take profits at their predetermined levels, waiting for the market to reach one of them and activate it. However, many novice traders tend to change places of stop orders after they have been intimidated. If the market starts moving in reverse of the open trade, the novice trader will shift the stop loss orders further and vice versa for profit taking with the successful deals.

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