Lesson 101: Why Forex Traders Lose Money

Wanting to be right

Why does someone start Forex trading? to make money as a trader… definitely, for the thrill… maybe, but what about the need for conclusive proof that you are right? Did you check your candlestick patterns. If you make a profit on a trade, you are right. If you lose, then you were wrong. This simplistic approach is dangerous as any trader needs to keep an clear disciplined mind. You must not see things with a closed mentality, which stops you from evolving your Forex trading plan as you develop as a retail Forex trader.

Why Forex traders lose money through aggression

As part of this, learning to take the low hanging fruit rather than looking for that killer trade will stand you in good stead. Taking a position against the grain such as George Soros did when he broke the Bank of England is for the rich, experienced and super intelligent. All too often beginner traders fall into the trap of trying to beat the market, often aggressively trading their capital away in the process.

Digging a deeper hole

One excellent way of losing money fast is to leverage up your trades. What should be a small cheap mistake to learn from, becomes an expensive one as you have leveraged your position. A typically aggressive way of starting for many novice Forex traders is to be successful with a few early trades, and then borrow on the basis that they know what they are doing. Secretly brokers want you to borrow. Brokers do not make much from you opening and closing trades. They do make a killing from interest from the amount you have borrowed (leveraged) to increase the size of your trade. The best things come in small packages! Stay away from leverage if you want to develop into a consistently profitable Forex trader.

Focusing only on the potential profit

In Forex trading there is something called 'risk'. It's a short, four letter word which rarely enters the mind of those wanting to learn to trade the Forex market. Too many novice Forex traders focus on the opportunity to make money, without realising that avoiding losing some in the first place is important. Risk management is the name of the game. Just ask Warren Buffet about rule n*1! Why Forex traders lose money becomes obvious when you forget such an rule.

Beginners Luck

Why Forex traders lose money can also be attributable to getting lucky early! This creates over-confidence and leads to cutting early the education in the tools needed to succeed. One of the easiest is stop losses. It does what it says on the tin. Once you have opened a trade, immediately place a stop at a price which gives your trade the latitude to have some volatility. Few trades go up straight away! Stop losses will often stop make a loss cheaper than it could have been. Remember markets are volatile and can turn on a dime. There is an argument that it is better for an aspiring Forex trader to learn why Forex traders lose money first. This will encourage them to learn from their mistakes. Beginners luck can actually be a curse!

No clear strategy

Would you buy a car or a house on impulse? No, you wouldn't. You research what kind of house you want, how much you can afford and what is important to you. So why start Forex trading without setting out what you want and some trading goals? It therefore makes sense to set down on paper what you are seeking to achieve from your Forex trading. For example, how much capital you can risk and how you are going to go about it! Why Forex traders lose money could be a question without need for an answer if Forex traders would plan their strategy and get a Forex trading plan!

Conclusion

Learning to trade Forex is like any form of money management. It is not rocket science but you get better with experience and through learning. Be ready to make small mistakes which you can recover from. Hopefully this article will have imbued you with a sense of caution. This will set you on a path to earn a passive second income from Forex trading!