Forex Basics

The Most Common Reasons Why Forex Traders Lose Trades

As traders, we are driven to do our best and to walk away with a profit, otherwise, what’s the point? While the market presents vast opportunities for profit and growth, it is also unpredictable and isn’t shy about throwing us a curveball when we’re least expecting it. Of course, there are some ways that you can limit the losses you take, starting with understanding the most common reasons why forex traders lose trades in the first place. 

Reason #1: They Don’t Know Enough

One of the greatest things about trading is that just about anyone can do it with a few dollars and an internet connection. The downside is that many newbies jump in too quickly and open a trading account before they really know what they’re doing. If you don’t understand key indicators, know the best times to trade, or understand how the market works, how do you expect to make money? These traders are also more likely to experience frustration when trying to figure out how to work their trading platform. All of this leads to lost trades but this problem can be avoided if beginners would spend more time learning. If you’re experiencing this problem, you should take a break from trading and spend some more time becoming acquainted with everything you need to know. Then, you’ll be ready to come back and actually start making real money. 

Reason #2: They Don’t Have a Plan

Traders need a detailed plan to follow. This plan needs to think about what they will trade when they will trade, how they will trade, and so on. Failure is often contributed to trading without a strategy or deviating from your plan once it’s in place. Those that don’t skip this step really know what they’re doing and they can avoid problems such as being unsure of whether to enter a trade because their plan tells them what to look for. A plan also gives you a place to start when it comes to improvement because you can go back to analyze your results, figure out strengths and weaknesses, and make changes when needed.

Reason #3: They Risk too Much

Some traders are tempted to take big risks in order to win big, but this isn’t gambling. We have to remember that part of the success of being a forex trader involves limiting your losses in addition to having winning trades. In some cases, you might even have a higher number of losing trades but come away with a profit because those losses were controlled. Many professionals recommend keeping your risk tolerance to 1-2% of your account balance per trade, but this really does come down to personal preference. Still, you should not be risking big chunks of your account balance on each trade, as this is a surefire way to lose your investment. 

Reason #4: They Don’t Understand Trading Psychology

Traders that don’t understand the ways that emotions can affect trades might not pick up on big mistakes they’re making. For example, if you’re feeling greedy, you might be prone to overtrading. Those that are anxious or fearful avoid entering winning trades or pull out too early out of the fear of losing money, some traders take up revenge trading when they are angry that they’ve lost money, and so on. Trading psychology is a broad field that covers several different topics, so all traders should be sure to invest some time into learning about it. This way you’ll be more likely to spot emotional mistakes and you’ll know where to look for tips to overcome them. 

Reason #5: They Trade on Bad Days

Some traders keep losing because they just don’t know when to quit. If you’ve had a horrible day with a string of losses, for example, perhaps you should take a break and clear your head so that you can come back to trading with a fresh start. This would also be a great time to review your recent losses in your trading journal to figure out what the issue is. A bad day could also be at fault of the market, where there just aren’t any good moves to enter. Instead of forcing trades that could end badly, this is another time when traders should just sit out and wait for better opportunities.

Forex Basics

Real-Life Lessons We Learned as First-Time Traders

Making the decision to become a forex trader is an empowering one, and while some of us are apprehensive about opening a trading account, others find it exhilarating. After all, if you’ve spent quite a lot of time researching and you feel that you’re totally prepared, then you’re ready to make money. This was how I felt when I opened my first trading account – I had an image in my mind of how it was going to be and how much money I was going to make. The good news is that I did make money, but I learned some lessons in the process. 

Lesson #1: Don’t Be too Sure of Yourself

Self-bias is a common problem that affects many traders. We tend to look for information that supports our hypothesis to enter a trade, while ignoring evidence that suggests we shouldn’t. We also might trick ourselves into thinking that a trade is guaranteed to be a winner because we feel overly confident. I made this mistake once and lost way too much money on a trade because it seemed like I just couldn’t lose thanks to the information I was receiving from my indicators. If I had remembered that the market is unpredictable and tightened my stop loss, I could have cut back on those losses. 

Lesson #2: Don’t Trade Just Because You Feel Like it

I woke up one morning, had a cup of coffee, and felt like being productive. However, the market just wasn’t showing me any good moves and there wasn’t any evidence that I should enter a trade. After sitting around for a while, I just couldn’t stand it anymore – so I entered a trade to feel like I was doing something. The trade lost money and I learned a valuable lesson in that sometimes it is better to do nothing. If you want to avoid this problem, always ensure that there is supporting evidence to enter a trade based on your trading plan, and don’t trade just to feel the rush. 

Lesson #3: Be Careful How Much You Risk

In the beginning, it can be tempting to risk too much money partly because you don’t realize that it’s too much. In reality, you shouldn’t be risking more than 1-2% of your total account balance on each trade, especially in the very beginning when you’re more likely to make mistakes. While I only risked slightly more than I should have, I did learn to tone it done after taking a couple of hits. Remember, being a successful forex trader is as much about managing your risk as it is about winning trades. 

Lesson #4: Don’t Open Too Many Trades

On another productive morning, I decided to enter multiple trades at once to increase my chances of making a profit. Unfortunately, I got stressed out rather quickly and had trouble watching over each open position. Some of us may be better at multitasking than others, but you shouldn’t push it in the beginning. It’s better to stick with a couple of positions at a time until you get the hang of it, or for good if you’re easily stressed.

Beginners Forex Education Forex Basics

Important Lessons from Four Successful Day Traders

When it comes to trading forex, making mistakes can cost you your own hard-earned money. This is why it can be helpful to learn from traders that have already tested out different things in the market, so that you may avoid making some of the same mistakes on your own dime. The experts can also provide insightful tips that can help those that are struggling to perfect their trading plan. Take a look at some of the best lessons we can learn from 4 successful day traders below:

Ross Cameron

Ross Cameron is the founder of a day trading chat room named Warrior Trading that was designed for day traders to meet and learn from each other. He has more than 500,000 followers online and more than 415,000 people have subscribed to his YouTube channel. In 2016, he reportedly made $222,244, although he doesn’t boast about his earnings. Instead, it seems that this successful trader spends a lot of time helping others.

Cameron uses a strategy that focuses on trading momentum in the market on stocks that are priced below $20. If you asked him for advice, he’d tell you that day traders need to learn their limitations, which includes taking a break from trading if you’re becoming overwhelmed. He also suggests figuring out what time of the day that you work most productively. For him, the time slot between 9:30 and 11:30 am seems to be the best time to trade. Next, he recommends that day traders work out how much they are willing to lose on each trade and use a tight stop loss to prevent further losses. Another pointer from this successful trader is to keep your strategy simple, as he believes that day trading is an exercise in repetition. 

Sasha Evdakov

Sasha Evdakov is the founder of the website Tradersfly, which offers courses, articles, and educational resources for traders. He is also a published author who has written more than 10 books since 2013. If you prefer to watch videos, you can join the 123,000+ subscribers on his YouTube channel.

Evdakov believes that the ‘real money’ can be found in the trading style of swing trading, although he does spend time day trading when he feels that the market calls for it. Sometimes, he will spend months day trading before reverting back to swing trading. This successful trader’s advice is to figure out which type of trading the market calls for and to switch up your strategy accordingly. 

Brett N. Steenbarger 

With a bachelor’s and Ph.D. in clinical psychology, Brett N. Steenbarger has published a number of books that focus on the subject of trading psychology. In addition to writing, Steenbarger is also an associate professor at SUNY Upstate Medical University, has a trading blog named TraderFeed that offers tips, and mentors traders that work for hedge funds and investment banks. 

As you might have guessed, Steenbarger’s advice relates to the psychology of trading and he has written his own trading rules. He focuses on breaking bad trading habits, teaches traders to become their own coach/psychologist, and covers several other topics in his books. If you haven’t spent much time learning about trading psychology before, we would strongly recommend picking up a few of his books.

Rayner Teo

Rayner Teo is very active online, with more than 500K views and nearly 200K subscribers on his YouTube channel, and more than 30,000 traders have joined the online community he built named TradingwithRayner. The website was created to provide trading secrets to help traders succeed.

Teo places a large focus on preventing traders from losing money by pointing out mistakes and teaching ways to overcome them. He also spends time on the basics, along with teaching traders about more technical elements related to trading. Price action trading, where to put a stop-loss, and focusing on setups with a higher percentage of return are some of the other important topics he discusses with traders.