Forex market is appealing to the traders. It operates 24/5, and it is the most liquidate financial market. It offers numerous trading opportunities to traders of all sorts. Since it has so much to offer, investors love investing in the market. However, these benefits often work against traders. Statistics suggest that 95% of traders lose their money in the Forex market.
A question may be raised here why most of the investors are unsuccessful in this market. There are quite a few to mention. However, today, I am going to talk about a very common factor that makes many traders unsuccessful.
We know winning trade and losing trade go hand by hand in the financial market. In the Forex market, it goes more frequently than other financial markets. Ideally, if a trader wins his 60% trades even with a 1:1 risk-reward ratio, he is considered a good trader. At the end of the day, he is making profit matters. By losing 40% of trades, he is still able to make money. It is simple math. Let us now dig into this simple math and find out how it could make a trader unsuccessful.
Let us assume a trader has learned or found out a strategy that offers 1:1 risk-reward with a 60% winning rate. He takes six entries in a week, and all of them hit Take Profit. In the following week, he takes four entries, and all of them hit Stop Loss (For the sake of statistics). He starts thinking something must be wrong with his strategy. He forgets the whole picture. Psychologically, he is down. Thus, he would have more problems with the strategy. He abandons his proven approach and starts looking for a new one, though, there is not anything wrong with the strategy.
As far as statistics are concerned, if on average a trade strategy gets us 40% losers, it means that 16% of the time (one every three losing streaks) a trader will encounter two losers in a row, 7% of the time he will get 3 consecutive losers, 3% of the occasions he will experience four losers. Are you already pondering? Here is the last data to be presented in front of you; about 1 in 100 trades, he will encounter five losers in a row. A trader needs to accept the fact because it is inherent to the statistical properties of his game.
We know a trader needs to do a lot of back-testing, study, demo trading before using it in live trading. This process consumes time. Moreover, a good strategy does not mean that it would suit every single trader. The new one may not be his cup of tea. Assume what happens next. He starts looking for another one.
Meanwhile, he starts losing his faith in him and this market. The consequence is obvious. He becomes a member of that ‘95% Club’.
The Bottom Line
It does not matter how good a trader someone is; he is to accept losing trades. The entire result is to be calculated. A trader must not worry about one or two losing trades, but must have faith in his strategy (which he uses after hours of back-testing, study) as long as it brings him consistent profit.