If you’ve ever looked at statistics about forex trading, you’ve likely noticed that the results seem bleak. If you haven’t, check out a couple of the current statistics we’ve listed below:
- 80% of all day traders quit within the first 2 years.
- 90% of traders lose money.
These statistics might shatter the delusion that forex trading is the answer, but this doesn’t mean you shouldn’t trade! You might be wondering what the point is if only 10% of traders never lose money. Well, most traders do lose at some point – maybe only a few dollars, or more, but this is expected. What matters is that you have more winning trades than losing ones. Still, you might be wondering why so many traders quit if forex trading is so great. Below, we will try to explain some of the main reasons why traders give up so that you can avoid falling victim to these common problems.
Reason #1: They Start with Unrealistic Expectations
Some people start trading for the wrong reasons. These traders hear about another person’s success and decide that they want a piece of the pie. Others think of trading as an avenue to get rich quick. Trading is profitable, but it takes a lot of hard work and determination. Plus, it takes time. How much time depends on the size of your initial investment, your strategy, and a whole host of other factors but the lesson here is still the same. You should only start trading if you’re willing to put the time into learning with an understanding that it could take a while to see a lot of profits, especially with a small investment.
Reason #2: They Use too Much Leverage
Leverage is attractive because it allows traders to increase their buying power. Unfortunately, overleveraging your trades can backfire. Many beginners turn to leverage without being fully aware of the risks. This often includes those that don’t have a large starting investment. Once these traders wipe out their accounts, they are usually scarred from the loss and never fund their accounts again, thus ending their trading career. The best thing to do is stick with a lower leverage option until you are more familiar with trading and well-aware of the risks. Even then, many professionals recommend using a leverage of 1:100 or lower.
Reason #3: They Risk too Much
Risk-management is essential for success if you decide to trade forex. No matter how skilled one is at trading, failing to use risk-management precautions is one of the biggest mistakes you can make. Setting a stop loss and reasonable lot sizes are some good examples of ways that you can limit your losses. Many professionals recommend only risking 1% of your account balance on any single trade. If you risk too much or you don’t have loss limiting precautions in place, then you’ll likely blow your account as many others have done.
Reason #4: They Let Emotion Guide Them
Emotion plays a bigger role in trading decisions than many realize. Anxiety can cause analysis paralysis, which results in the lack of ability to make any decision altogether or making delayed decisions when one needed to act quickly. Emotions like greed or excitement can cause the opposite, where one fails to stop trading when they should, and they risk too much. Traders that don’t recognize these emotions and their effects often fall victim to their downfalls. If you want to avoid these, research trading psychology to be more aware of the problem and work on self-discipline.
Reason #5: They Don’t Have a Trading Plan
It’s impossible to predict what the market is going to do, but a trading plan can help one to make more informed moves. Your trading plan or strategy needs to consider the best times to enter and exit trades, risk management, and other factors. An example of one common strategy called scalping revolves around making many trades quickly and profiting from small price changes. Day traders open several trades throughout the day and close them out before the end of the trading day. Swing traders do the opposite by allowing their trades to stay open for days or even weeks. Traders that don’t have a game-plan rarely fare well in live conditions. This is another way that traders wipe out their account balance early on and give up.
Reason #6: They Give Up Too Soon
Some traders get off to an unlucky start. Maybe they failed to get a proper education before opening a trading account, they didn’t have a good plan to follow, they used too high of a leverage, or some other reason. This doesn’t mean that person is a bad trader, only that they need to figure out where the problem is stemming from. Keeping a trading journal is one way to log this, but many traders don’t get that far because they become discouraged and convince themselves that they just aren’t any good at trading. If this happens to you, take a step back and look at the bigger picture. It may be discouraging to lose your initial investment but think of it as a lesson rather than a sign to give up trading for good.
In Summary
Statistics about the number of forex traders that quit might seem unpromising, but there are several reasons why traders quit that can be avoided. Here’s a quick summary of the most common reasons why forex traders quit:
-They don’t have realistic expectations and aren’t satisfied with making a small profit, so they quit trading entirely as it seems like too much work.
-They use too high of a leverage, which can quickly backfire and blow one’s account, especially if that person doesn’t have much experience. After losing their initial investment, they feel defeated and walk away.
-They risk too much on their trades, which is another quick way to blow through a trading account’s balance.
-They fail to see the ways that emotions might be interfering with their decisions. Some may be too anxious to make quick decisions and fold under pressure.
-Others may become too excited and risk too much.
-They don’t have a good trading plan to follow. This results in trading decisions that aren’t properly planned and lead to financial misfortune.
-They get off to a bad start and give up before they have a chance to improve.
If you follow our tips, then your trading career should get off to a smooth start. It’s discouraging to see disclaimers about the percentage of traders that actually make money or how many quit, but potential traders need to realize how many of those people weren’t prepared. If you give it a half-hearted go, then of course you are likely to fail. Those that put the effort into securing an education, choosing a good broker, and devising a good trading plan should go on to have a productive trading career.
