Updated: Feb 10, 2019
90% of Forex traders lose, here's why
What does it take to become a professional, to become consistently successful in anything you do? Even though many people know the reasons why they're not good at something, they take no action to becoming better. This is no different in Forex trading. This article covers reasons why Forex traders fail and how to avoid being trapped in the 90/90/90.
90% of Forex traders lose 90% of their equity in 90 days (90/90/90).
The rise of the internet has increased the flow of information for good and for worse. Now retail traders have access to more information than any trader did 50 years ago. You don't know what trading means? A quick search on a smartphone or device and you have your answer.
Even though the increased information is useful for traders, it does not mean it is all useful. Now more than ever has there been an increase in false educators, signals and information on the internet. Even Donald Trump calls media outlets "false news". In the world of Forex most people will learn about trading with the first link they see of a google search, is this a bad thing? It is if the information that source tells you is wrong. Most educators and companies regurgitate the same education that is freely available from reliable sources but also replicate education and information from false education.
What does technical analysis mean? Technical analysis is when a retail trader analyses the price movements of an asset/ security, WRONG. Technical analysis is a combination of quantitative analysis which accounts for various technical factors. This includes:
Technical indicators (EMAs)
Purchasing Power Parity
Accumulation and Distribution Zones
Candlestick pattern analysis
Support & Resistance
and much more..
Yet retail traders are taught they can predict future price just looking at patterns? If it was that easy then hedge funds and investment banks wouldn't need quantitative AI systems, they wouldn't need the best economists and university graduates. All they would need is to wait for a pattern and they're rich! How absurd does that sound when you take a step back and analyse what you are taught objectively?
If you want to use a quantitative system that incorporates technical and fundamental factors through artificial intelligence then check out the logic strategy.
Even fundamental analysis has been tainted with a false interpretation. What does fundamental analysis mean? Majority of people are taught not only by only educators but also brokers that fundamental analysis is trading on news, it is not. It is using a quantitative system to analyse each economy using economic releases, news and data to determine the strength or weakness of a country and thus it's currency. Only monkeys look to trade high volatile news once its released to gamble on the outcome.
The only reason you are taught to trade on news is because there is a conflict of interest with the educator or broker through an IB agreement or because the broker wants more commission from you. The more you trade the more they make, the less trades you place the less they make. So, it's in their best interest to get you the retail trader to trade as much as possible.
Find reliable education source such as logikfx.
Always give what you are taught a second thought, don't be gullible.
Understand that there are conflict of interests in brokers and educators that try make you trade more.
It's always a great topic of debate on whether psychology is important in trading. Would your mindset be important if you were a professional football player? Would your mindset by important if you are a student looking to get the best grades? Of course the answer is yes. Psychology is one major factor that traders neglect in their trading plans. Most are so fixated on how to enter and exit the market that they forget your mind can influence major decisions which could end up in pain. 2 major psychological feelings a trader experiences is: Fear and greed.
There are a few types of fear that one can experience when trading:
Fear of failure
Fear of leaving money on the table
Fear of missing out (FOMO)
When someone fears failure in trading it normally causes them to cut profits short. This is a typical mistake for retail traders, they enter a trade and after a while they exit the trade because they were scared it would fail. What this does is continues the cycle of fear and puts commission in the pockets of your brokers.
Greed is also a common fear in trading, when you get scared that a trade could go further than you think you start to hold onto it. Even worse, you think a trade will come back to your entry from a loss because you don't want to lose that much. On top of this, greed can be a major cause of over trading which again adds those commission dollars to your broker. One way of reducing your trades only so you enter high probability trades is trading longer time frames using economic analysis provided by logikfx. Minimising your trades helps you lose less trades and pay less commission.
Fear can be heavily avoided through reliable education and thorough testing of a system, algorithms are better at this because it takes out human biases and shows the true system potential. You can automate your strategy and get results at on our automate your strategy page. Another step a user could take to reduce fear of failure is using economic analysis to support your decisions such as using the logic strategy which analyses over 500 pieces of economic data.
Top 5 tips:
Anything can happen.
You don’t need to know what is going to happen next in order to make money.
There is a random distribution between wins and losses for any given set of variables that define an edge.
An edge is nothing more than an indication of a higher probability of one thing happening over another.
Every moment in the market is unique.
"When the internal struggle ends, everything becomes easy."
- Mark Douglas
In the retail trading market there is still a large amount of traders who do not implement simple risk management factors. One of them being simple take profits and stop losses. Not having a stop loss can see your account get wiped out in one trade.
Always define your stop loss before placing a trade.
What happens in a traders mind when they don't set stop losses is they think small losses can reduce if they are patient for it to turn around and ride it out. What happens when it keeps going the other way? You go bust. Depending on your strategy, time frame and analysis you should always set your stop loss before entering a trade. This means you are aware once it breaches that point you were wrong in analysis or it was just a failed trade. Losses are a part of trading, no one wins every single trade not even the big funds.
Another reason Forex traders lose is because they do not approach the market with enough capital. Even if they are using using a profitable system if you don't deposit enough money you won't make it through the losses before you become profitable. This becomes an even bigger problem when traders start to over leverage their positions. Demo account trading is a good way to begin as when you learn you will incur a lot of losses, why waste money? Save up your money until you have enough capital to make some actual gains.
When traders set goals for themselves they are normally monetary goals. "I want to double my account in one week". The unrealistic targets and goals can cause a person to take on more risk on trades or even take more trades which inevitable increases your transaction costs and likelihood of failure. Setting goals of self improvement are much more realistic or lower numbers which you think can be achieved. E.g. I want to become a consistently profitable trader over 1 year, then 2 years then forever.
Always define your stop loss before entering a trade.
Set realistic goals and targets.
Read trading psychology books to improve your mindset when trading.
(The disciplined trader - Mark Douglas)
Hopefully you have found this article useful. Keep up to date with us at the logikfx info centre.