Why Do Most Forex Traders Lose Money?
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Statistically speaking, trading the Forex market with a 1:1 risk reward ratio and no strategy or trading edge has a 50% chance of success (minus fees) over a long series of trades. Thus, most traders should approximately breakeven over the long run because trading with a (truly) random entry and a 1:1 risk reward is analogous
to a random coin toss.
Why do most Forex traders lose money then? What human variables contribute to the success rate being much lower than breakeven for most traders?
Perhaps the main reason most traders lose money is because the majority of people have little self-control and cannot resist the temptation to over-trade and over-leverage when there is no one to be accountable to. Another main reason most traders lose money is because they try to buck the trend for some reason, even though they KNOW they have a statistically higher chance of winning by sticking with the trend until it is clearly finished. In this article I will share with you my thoughts on why otherwise totally rational and successful people fall apart when it comes to trading the Forex market.
– Not accepting responsibility for losses and mistakes
As human beings we all have a tendency to pass the blame and find fault elsewhere. However, when you are trading badly, it is your fault and no one else’s. If you find you are losing money in the markets it is not your broker’s fault, nor is it the result of a bad quote, a bad tip, or a hardware failure. There is no mysterious “They” out to get you or steal your money from you. Everything that happens to you in the market, good or bad, is ultimately your fault; blaming anyone else or thing is not going to help you become a successful trader.
Accepting responsibility for your losses and trading mistakes is paramount to turning your trading around. If you use a “tip” or a piece of advice from a broker or from someone else, and you lose money as a result, it’s your fault for listening to them; at least the second time around. The first step in any self-help group like Alcoholics Anonymous is admitting you are the problem and that you have a problem. If you continually blame other people or things for your trading losses, you will never improve your trading because you won’t feel any need to correct your weaknesses if you don’t believe you have any. So, a big reason many traders fail to make money is because they won’t admit they are to blame for their losses. If you want to improve your trading you need to take full responsibility and go into Forex traders’ rehab.
– Over-trading and not trading higher time frames
One thing that definitely prevents most traders from making money in the market is over-trading.