Statistics show that approximately 90% of traders have lost all of their funds or part of it at least once in their trading career. The reasons were different in each particular case. Let’s focus on the most common reasons you need to pay attention to in your trading. Use our tips to determine your “areas of improvement”. The sky’s the limit, as they say. So why do we lose money in the market?
- Reason#1: Lack of knowledge
This may sound trite, but lack of knowledge nearly tops the list of most common trading blunders. Having enough knowledge is necessary not only for self-trading, but even when investing or copy trading too. For example, to choose the account for investing, you need to understand the intricacies of trading, be able to evaluate the manager’s strategy to see if the trader has a solid strategy or tends to act impulsively. To do this, you need to analyze the strategy itself, read other traders’ comments and reviews, study the charts. It would be prudent to make a small investment first, to test the strategy and see if the trading account manager is as good as he claims.
You can find lots of useful resources online – both paid and free online trading courses, books, articles, you name it. By spending 1-2 hours a day on self-education in just a few months you’ll get enough acknowledge for successful trading.
- Reason#2: Lack of trading experience
Studying dozens of Forex books won’t make you a professional trader. Practice will. Trading experience comes with hundreds of hours spent in the trading platform. Beginners often start trading on a live account right away without even trying a demo account first. Don’t make the same mistake – trade on demo first. There is no rush here. Don’t switch to a live account until you have a clear understanding of how the market works. You need to study the features different trading instruments, get to know yourself as a trader, your emotions, and how they may affect your trading. Without knowing your capabilities, any trade may “drain off” your deposit.
Sporadic trading and an unsystematic approach is another characteristic of novice traders that leads to bad trading decisions. Relying on your intuition, having no experience and solid trading strategy whatsoever will result in imminent loss.
- Reason#3: Not paying attention to the news
Having a trading strategy doesn’t guarantee a 100% success. Understanding the charts and being able to analyze the “technical” side of the market is great. But you also need to account for fundamental factors. The release of high-impact, important news can affect the market in the way you wouldn’t predict just by looking at chart patterns. In other words, try to stay updated on what’s going on in the world, especially now in a time of global uncertainty due to coronavirus.
Yes, it’s very time-consuming to monitor all the news, especially if you don’t focus on fundamental analysis in your trading. Still, we suggest you check the Economic calendar for important releases now and then and stay away from the market during the publication of significant news.
- Reason#4: Emotional trading
Forex trading is not just charts, news, patterns, and price levels. Millions of traders interact in the market, and you can’t underestimate the role of psychology in trading and investment decisions. Always keep in mind that the market is driven by human behavior and by human emotions such as greed and fear. Try to control these emotions to avoid hasty decisions that you will regret. If you feel that you’re about to lose it, step away from your computer for an hour or two. Getting your emotions under control will save you more money than you would have earned in those 2 hours.
- Reason#5 No proper risk management
Diversification is one of the keys to trading success. We discussed this topic in our earlier posts, you can read more about it here. Besides self-trading, you can register a PAMM managed account or a RAMM copy trading account. This will allow you to receive passive income, and profit received from your investments will cover the losses in independent trading if something goes wrong