Why do traders start to trade on forex lose money? The first thing to learn is that trading is not a way to get rich; on the contrary, it presents many pitfalls for those who are not cautious enough. Here is a list that includes the five most common reasons why a novice trader loses money.
Lack of strategy
A common mistake among traders is to start their business blindly, without a real strategy. This does not have to be very complex – indeed, the simplest strategies are often the best – but it is nevertheless essential.
Without a plan, the results are random, the lessons difficult to learn and the failures, as well as the successes, depend only on luck. With a strategy, on the other hand, it is possible to evaluate why certain negotiations have failed or because they have succeeded, and consequently replicate them (or not) in the future.
Negotiating sums too high
Another favorite practice of novice forex traders is to trade too high sums too early. It’s tempting to bet $ 100 per point from the start, but you could be stopped quickly and / or faced with the dreaded margin call. Furthermore, it is not reasonable to negotiate outside the risk zone that can be afforded. When you’re out of this ‘comfort zone’, emotions can prevail too quickly, clouding judgment and making decisions more difficult. It is necessary to keep cool and remember that trading on high sums is not for everyone.
Emotionality and lack of discipline
The previous point is only one aspect of the continuous battle between emotions and discipline; there is a wider problem, which consists in the lack of discipline in the execution of the strategies. Regardless of the validity of a strategy, if the discipline is lacking to follow it to the end, not only this will not be worth much but we will also have to expect losses. Emotional traders pursue results and look for trends that do not exist.
Fear of letting a winning negotiation continue
The fear of leaving a winning trade continue its course is probably one of the biggest problems of any trader, let alone beginners. Winning trades are crucial to transforming an overall profit. In the same way, one must be able to admit when one is wrong and be ready to close a position before it causes too many losses.
You will win some negotiations and you will lose more. The challenge is to let the winning trades continue and close the losers. It seems simple, but the volatile price movement can make this activity much more difficult than expected. It often happens that a negotiation is stopped, only to see that it returns to move in our favor. Things of this kind are very annoying but you must still maintain your position consistently, follow your own strategy. Once you start moving stops into a losing trade, you’re taking risks you did not expect to take. All this can be connected to emotions and discipline.
Do not use the tools
Finally, one of the reasons why it is difficult to earn money in forex trading is the lack of knowledge of the platform and of all the tools available. For example, many beginners do not even know how to use the simplest tools, such as limit orders, trailing stops and graphical tools. Learning the basics of how to use the platform is very important. For beginners, the demo account is therefore a very interesting option.