The Top 5 Reasons Why People Fail At Trading Forex

Filed under: Learn Forex Trading |

Today, I’m going to outline a few of the most common reasons why people fail at trading forex. Please note that these reasons are not in any kind of order of strength. If you read through these and you realize that you are currently doing some or all of these things, it might be wise to re-evaluate your trading methodology.

1. Inadequate Money Management

This is one of the most common reasons for people blowing up their trading accounts. It might be the case that you have a trading methodology with a good edge – but if you don’t have the right money management, then you might not last long. For example, if you are risking 10% of your bank on every trade, then you may blow up your account even with an edge in your trades as every trader has a bad run of results at some point.

2. Not sticking to stop losses

Beginner traders are often tempted to move their stop losses in the wrong direction (i.e. increasing the risk) when a trade moves against them because they don’t want to lose any money. This is a big mistake.

3. Not having an “edge”

Some traders might have learned good money management skills and stick to their stop losses, but they have not got a trading methodology that has an edge.

4. Insufficient “risk-reward”

Your risk-reward scenario can significantly affect your profits. If you have a 1:1 risk reward, then your edge has to be very good to make a profit as the spread will slowly eat away at your bank.

5. Not understanding about lot sizes

Some traders seem to be obsessed by the amount of pips that they make on each trade. This is ultimately unimportant. We are trading to make money, not pips – and you must calculate the right lot size so that your risk is X percent of your bank. If you don’t learn a little math and get a handle on this, you won’t be successful.

So there it is. I hope that has hit home with some of you – I’ve certainly learned through making mistakes, as everyone does. And there is certainly nothing wrong with making a mistake. What is important… is to learn from them.

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