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The 10 Most Common Reasons Why Beginners in Forex Trading Make Losses

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According to many statistics, the success rate of beginners in Forex trading is unfortunately rather low. Why this is so and how you can easily avoid the biggest mistakes in Forex trading, we show you here.

Why exactly do most traders make losses when trading Forex?

Although this trend is improving over time, it is already too late for many beginners in Forex trading. Many traders give up trading after some losses because they think that forex trading is just not right for them. This does not necessarily have to be the case. Below we describe the most common mistakes made by beginners in trading Forex (via mt4 trading system etc) and ways to avoid them.

Error #1 – Missing Experience

As with any other method, Forex trading is where you learn new things over time and gain important experience over time, but learning to trade Forex differs from learning to play a new instrument in that you don’t risk your fortune learning the differences between the major and minor chords. However, the learning effect of forex trading through trial-and-error on a live account is relatively modest and therefore not a good condition to become a good forex trader.

Most Forex brokers offer free demo versions of their trading platform where you can trade under real conditions and test trading strategies without risking your real capital.

On demo accounts you can see how markets react to economic influences, news, political developments or chart patterns without having to use real capital. However, if you really want to learn from trading on demo accounts, you have to take it absolutely seriously and act as if the play money is your real capital. This means, for example, not entering the market with 10 lots just because you have 50,000 on your demo account. Otherwise you won’t get much out of the demo trade. Take the opportunity to familiarize yourself with the trade on demo accounts and only go live when you feel confident enough to do so.

Error #2 – Inappropriate Expectations

First of all, you must forget that with Forex trading you will become a millionaire overnight, as some dubious Forex signalers suggest. Surely there are people who have become rich with forex trading in a short period of time. However, this is usually associated with luck and/or a very high risk. There are also people who get rich by selling houses or cars. Either way, in both cases you don’t usually get rich overnight, but it takes years to gain enough experience and skills to be successful in your profession. This is no different in Forex trading.

If you as a trader manage not to lose your entire deposit within the first few months, as is unfortunately the case with many traders, you will most likely be able to learn what it takes to be a successful forex trader.

In other words:

Don’t quit your job yet. It will take some time for you to learn what it takes to successfully participate in Forex trading.

Error #3 – Lack of a Solid Trading Strategy

Besides the often too high expectations regarding the risks and time it takes to succeed in Forex trading, the most common mistake beginners make is to trade without a specific Forex trading strategy. In everyday trading there are 2 aspects of a plan. First, an overall trading goal and second, a plan for each trade you enter.

The overall goal should include the following:

  • Determining the markets you want to trade
  • Define the time horizon in which you want to trade the markets.
  • Determining the position sizes you want to trade (money/risk management)

In addition, your overall target should include a realistic return that you would like to generate over a defined period of time. In addition to your overall target, your plan should also include exit strategies for each trade you make. The exit strategy determines the upper and lower limits, i.e. the entries and exits of each trade. These exit strategies are also called order management.

In other words:

For each trade, you must define where you want to close the position and take your profits (take-profit order), or where you want to close the position to limit your losses (stop-loss order).

More information about stop-loss and take-profit orders will be available later.

forex chart


Error #4 – Lack of Discipline

A plan only makes sense if you stick to it. Although this is certainly one of the most difficult points, it is also one of the most important if you intend to succeed in forex trading. For example, if you enter a trade and the market goes against you, it is only human to question your trading decision. If your position is in profit and your take-profit mark is reached, it is easy to be tempted not to close the position due to the expectation of even higher profits (i.e. FOMO) despite the pre-defined mark. On the other hand, if the trade runs against the trader and the fixed stop-loss mark is reached, one hopes that the turning point will come immediately and let the position run back into profit. Here, too, one is tempted not to close the position according to plan and lets the loss continue.

Now please ask yourself the following:

Does one of the two scenarios make sense ? Before you entered the trade, you had a plan. Based on this plan, you set the markers for stop loss and take profit. Have market conditions changed so much since the opening of the trade that you throw your complete rules overboard and go to war without a plan? Or are your decisions here based on emotions in Forex trading rather than a thorough analysis?

That’s why it’s so important to have a plan and discipline to stick to it! A plan and discipline allow them not to let emotions, which inevitably arise when trading Forex with real capital, flow into their trading decisions.

This does not mean that a trading plan cannot be changed or reconsidered. On the contrary. It is even advisable to check their overall targets every few months or more frequently if necessary. Of course, it may be necessary to adjust or even discard your strategy because, for example, market conditions have changed. But this should be the exception rather than the rule.

It can happen that in times of extreme movements in the market no plan or strategy brings positive results. In these phases, the best strategy is simply not to trade until you develop a good plan for these market phases, or the situation has returned to normal. Never fall into the “I need to trade today” trap. You can’t and don’t have to be in the market at all times. Sometimes the best plan is simply to stay in cash and don’t trade.

Error #5 – Failure to Follow Stop Loss and Take Profit Brands

If you open a trade by market order, leave it open and give no further instructions to close the order (stop loss or take profit), you are playing with the total value of your account. Therefore, you should ALWAYS work with stop-loss orders on all open positions to protect your capital.

For example, if you have a long position in EUR/USD, you can place a stop-loss order on the position that will automatically sell your position when the price falls below the level you have defined. In this way, you can accurately determine the risk that you are willing to take on any trade, even if you are not on the computer.

Take-profit orders work similar to stop-loss orders. With a take-profit order, you can set the price at which your position will automatically be sold to secure the profits you make.

In other words:

You only need to set a stop-loss marker for each trade to limit your risk in that trade and a take-profit marker to take your profits. Once this has been done, your broker will automatically close the position on one of the two brands without any action on your part.

Error #6 – Leverage or Position That is Too Large

Depending on your experience, a big leverage can be a powerful tool to increase your profits. However, since the leverage works in both directions, it can also mean the extinction of your account. Therefore, you should be fully aware of the effect of the leverage before trading in a Real Money account. Risk a maximum of 1% or less of your total capital per trade. No more. The less experience you have and the bigger your positions are on your total capital, the more likely it is that you will throw your plan overboard due to emotions and obliterate your account due to mistakes. Even small but increasing profits lead you to success in the long run.


Error #7 – Too many open positions at the same time

Pilots of fighter jets call this situation “helmet fire”. It refers to a situation in which too much happens around you to be able to react quickly enough. In the cockpit of a fighter jet this can cost you your life. This can destroy your account in Forex trading. So trade as few positions as possible at the same time to keep the overview and react fast enough.

Error #8 – Losing positions held too long

One of the things that distinguishes experienced forex traders from beginners is the ability to determine which loss position is unlikely to make a profit. Unlike beginners who hope that the trade will still go up, disciplined traders close such positions much faster and thus limit their losses much more effectively.

This is another reason why setting stop-loss and take-profit levels is so important. If you set a stop loss mark as soon as you enter the trade, you protect your capital and don’t have to keep a constant eye on the trade. When the stop-loss order is reached and executed, you only lose what you were willing to risk from the start and protect most of your account. With the remaining capital, you can now open new orders that will hopefully produce better results.

Sometimes you just have to learn the hard way. You pay it, learn from it, and move on.

Error #9 – Mind the spread

The spread – i.e. the difference between the bid and ask price – is an important factor in being able to trade profitably in forex trading. The spread influences the profitability of each trade. The less spread you pay, the faster and higher your position in profit. You should be aware that the spread is variable for many brokers and can be widened to different degrees depending on the different phases of the market. For example, the spread is usually widened before the publication of news such as labour market figures, interest rate decisions, or outside market hours where liquidity is lower. Sometimes the spread can mean the difference between a profitable and an unprofitable trade.

However, this does not mean that the CFD broker with the lowest spreads is automatically the best for you. Some brokers advertise with low spreads, but only make them available to their clients in certain situations or at certain times. Please refer to the Forex Broker Comparison for experience and ratings on Forex brokers.

Error #10 – Focused on big profit and not money management

In other words, greed. This error is simply explained. The most important factor in Forex trading is the protection of your own capital. This is the only way you can be successful with Forex trading in the long run. This is a simple calculation game. You have to limit your losses and maximize your profits. Even with a hit rate of 50%, you can succeed if you limit your losses and your profits are greater than your losses. To ensure this, disciplined money management is essential.

Good money management follows the rules described above.

Greed here is logically counterproductive and lets you throw all the rules overboard and will inevitably lead to the bankruptcy of your account in the long run.

Caveat emptor. Risk management first, profits second. Only trade the money you can afford to lose.

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For learning modules in trading, stop losses and position sizing, checkout our #3M: Money Management Modules. For other investment options and overall financial literacy, download our book #10Steps to a Richer Life.

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