If you go by what the data suggests, trading the Forex market with a 1:1 risk reward ratio, without any strategy or trading edge would have a 50% success rate (minus fees) over a long series of trades. Visit multibankfx.com
Hence, a majority of traders are able to roughly break even in the long term since when you actually trade with a random entry and a 1:1 risk-reward, your chances of winning are similar to winning a coin toss. The key reason why a majority of traders typically lose money is that they happen to lack self-control and are tempted to over-trade and over-leverage. Yet another factor for loss is when traders try to go with the trend and exit the market before the trend ends.
Remember that trade has little to do with the right ideas and the right trades. What matters more is the way you manage your risks and adhere to your trading discipline.
1. Not setting stop-loss:
Stop-Loss is a great tool to avoid major loss.
A stop-loss order refers to the kind of order using which traders could ask their broker to sell the stocks even if the purchasing price is not met to curtail losses.
When this order is executed instantly, intraday traders could cut down their loss if the price does not move in their favor. However, certain amateur traders do not set stop losses and end up incurring huge losses.
Of course, as a trader, it is important to boost one’s profits probability but risk management is also a very important aspect.
2. Not conducting technical analysis:
Some traders tend to work with others’ recommendations and don’t make the effort to carry out their own technical analysis.
Traders must assess the prices, observe the volume, see what the prior trends were like and analyze several other technical indicators before they place intraday orders.
Being keen to place orders without conducting enough technical analysis is a common mistake that intraday traders make.
3. Going against the trends:
Trend really is your best friend and if you do not follow it, you could be making a mistake.
Unless you’re an experienced trader with a deep understanding of the market, avoid going against the trend.
If you notice that the market is in a strong uptrend, consider trading up only unless you find any strong resistance or chart pattern breakout.
Should the trader like to trade against the trend, having stop losses in place is a must.
4. Following the herd:
Certain traders ardently follow rumors and recommendations fuelled by media housesand brokers. If you are an intraday trader, you must avoid them and not follow them blindly without conducting your own analysis.
5. Being impatient:
There are a number of day traders who are in a hurry to earn profits or make hasty trading decisions that result in major losses. Several traders even end up booking profits before they zero down on their target price or stop loss.
Traders must carry out their trades systematically choosing their stop loss and profit target level and then going ahead and executing their trades. Be patient and don’t keep changing trading strategies frequently.
6. Over-trading and not trading higher time frames:
Here’s something which totally keeps a majority of traders from earning more, over-trading. Traders who keep moving in and out of the market driven by emotions end up incurring more loss and also paying more fees as spreads and (or) commissions annually. Traders who keep up with higher time frames, value self-discipline, and remain patient earn more.
Traders working with lower time frames often over-trade since they feel that they can spot several trading signals worth trading when they don’t always exist and are probably just “junk” signals and “noise”.
Thus, if you feel like you have been incurring losses consistently and are trading lower time frames, you must realize that switching to higher time frame Forex trading could in fact help you earn a lot more.
7. Risking too much, taking too little:
Trading must not be looked at with the same lens as gambling–don’t be tempted to “double down” simply because you seem to have lost some money or are on a winning streak. It does not work the same way. If you’ve been doing this, who are you–a Forex trader or a gambler?
Price action traders need to ace their trading strategy to the level that they are aware of precisely what is to be looked at in the market every time they get behind their screens to trade. Also, remember that simply because you know what you’re looking for does not guarantee that it will yield results. You get an edge with price action trading but that edge could be anything and yet in no way be an assurance that it will work out in your favor EVERY time
8. Averaging on losing position:
Averaging for a long position in case the prices are not moving in your favor works in the long term but may not be a good strategy for Day Traders.
Traders must accept the losses from their bad trade and avoid averaging their long positions since they must square off on the same day.
Hence, averaging on long positions is a key reason why intraday traders incur losses.
9. Unrealistic expectations
Another thing that is common to all traders who lose money in the markets is their own unrealistic expectations. With funds worth $500 to trade, you cannot expect to earn a living from forex trading because it is just not practical. Stay rooted to reality as you wisely assess what you can realistically expect to make weekly or monthly with the money you have to trade with. This would work only if you are sincere about working with effective Forex money management. It requires solid risk management per trade and thus you don’t want to think that you can live off your trade returns when you don’t have a considerable starting capital.
