When some traders join forex market and open the first trading account, they fill of hope, excitement, ambition, passionate and dream. But when they lose money in forex market, they give up and stop working. In this article we consider why some traders lose their money In forex market?
Don’t Trade against trends
It’s very wonderful that 90% of traders, when the market has uptrend, they sell! And when the market has down trend, they buy! Why? It’s really ridiculous, because they are not friend with trend. So, they lose more and more. For example, in one of my seminars, I see a trader who works more than 5 years in Forex, future, CFD and stock market. But he just lost all of his money. I tried to seek why he lose money in Forex. at least , I found the one reason for all failures. He is always against market. Always!!!
It’s a rule of success trading, You have to like trends, and trade with market direction. I know it’s unbelievable, but it’s a fact. 90% of traders bought gold in 2013 downtrends of Gold. The most successful forex traders bought it too. Because they thought it must return. but market is king. And I know, 90% of traders lost their money in uptrend of Dowjones and other stock indices by 2017. Because all of them sold Dowjones at 20000 resistance. Unfortunately, it broke this resistance and reached to 26700. It’s power of trend.
To avoid losing money in Forex market, be friend with trends
Don’t use highest leverage
The second vital reason for losing in Forex market is using highest leverage. Leverage is an outstanding feature that Forex and CFD market has it. For example, you have 1,000$ in your trading account, and you can trade 100,000$. Because broker give you credit to trade and make money. In your first trade, you can buy 100 ounce of gold. Each ounce is 1,300$, it’s more than 100 times of your balance.
It has an unbelievable potential of income and profit. If it increases 10$, you can earn 1,000$. 100$ return in your first trade, but if it decreases, you lose all of your money. However, it’s wonderful. But please manage your volume. Some trader’s lose their money, because they use highest leverage in one position. It’s like a bet. It’s not reasonable. If you use highest leverage and achieve money in several trades, be certain that one day you lose all of your money in a trend.
Manage your Risk and diversify your account in Forex market
In forex market, currency pairs correlate with each other. For example, when EUR USD is increased, USD JPY is decreased. WHY? Because USD maybe weaken. You have to know about the effect of each currency on another, effect of each commodity to another currency and .. For example, If you buy 1 lot of gold, and sell 1 lot Dow jones , it means you buy 2 lots of Gold.
The correlation between gold and Dow jones is not -100%, but it’s almost -70%, It means when Dow Jones goes up, Gold goes down in 70% of times. It’s so vital that you manage your risk by diversification. Sometimes I see a ridiculous trading account that’s really amateur, They buy gold, silver, oil, and sell Dow jones, S&P500, Nasdaq. It’s like a bomb. Because they invest all of their money in one basket. As a trader, we have to know correlation and effect of each asset on another asset.
Control your Greed and emotions
If you have a trader friend, you can ask him, What’s your opinion about gold direction? 90% of loser traders speak about opinions without any doubt, like it’s an inspiration. He tell you “ I believe that Gold will goes up to 1330, then it will be diminished to 1280. I can see the potential of this movement in depth of market.” You ask: Why? He tell you: I feel it!!!
All loser traders rely on their emotions, when market goes up, they can’t control their greed, when market fell down, they can’t control their emotions. They are always loser.
I remember I had a friend who has worked more than 5 years in Forex market. And they haven’t achieved 1 cent in Forex market. He was really talkative. When he arrived you, he spoke about outstanding potential of uptrend in USD JPY, downtrend in Dow Jones, the price of Gold at 30 min later, and some rare opinion that you don’t heard from the greatest hero.
He always wanted to predict directions and get huge income. But he lost. Because market is not our friend. Market is market. We have be its friend and be rational. Without any unrealized hope.
it’s not professional to focus on each pip in forex market
One of the most preposterous reason for losing money in Forex market is delusion of getting each pip in forex market. In the primary stage of Forex journey, traders think they can get each pip in Forex market. For example, they want to trade more than 100 times and get all of market. After several times that they understand it’s impossible. They try to make money in minutes and seconds.
They focus on short term direction of assets, without any attention to long term trends. They just get money now, but if they trade in long term and choose easier way, they will become successful after some months. Otherwise they lose all of their money. Because they involve in the smallest movement of each price. And they desire to get money from this movement and fluctuation. At least they lose their money in one trade. Because they don’t have any long term plan.
To avoid losing in Forex market, focus on long term results.
In trends, don’t predict top or bottom
We wrote about the power of trend in Forex market and we advised not to trade against trend in first phrase. But another issue about trend is top and bottom predictions. Trader get used to predict top and bottom. and then, they trade on their predictions. Why? Because they think they are right.
A successful trader doesn’t predict market. They analyze market and trade on trends. Sometimes I read some Forex forums and answer trader’s question. It’s bizarre that some traders want to change trends and recognize bottom and top in asset’s price. I really don’t understand. But it’s the one of the most important reason that some Forex traders lose their money in Forex market.
Admit you be wrong
Last year, one of my friends opened a trading account and deposited 20,000$. After 2 weeks, he made 20,000$ profit and his balance was 40,000$. Price of Dow Jones was 24,500, and he bought 5 lots of Dow jones. Tomorrow of that day, Dow jones fell down to 24000. They were losing 20000$, but he could manage it. Market was against him, but instead of planning and finding a solution. He hopped. I told him” you should close your position. Because it’s a strong downtrend.” But he didn’t admit.
Dow Jones fell down more and he lost all of his money. Why? Why this Forex trader lost all of his money?
1. He used highest leverage without risk management.
2. He didn’t admit his mistake.
If you don’t admit your mistake, market will prove you that your are in mistake. We must learn from your mistakes, and recognize your failures. If you trade against trend of market, don’t pray. Just close it and trade on trend of market.
To sum up, in Forex market we must not make profit by our money, we just protect our money in first step. Then , we can get rich and make money. If you do these lessons in your trading, undoubtedly you will not you lose your money.
Just keep going.