We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Bullish
Wall Street
Bullish
Gold
Mixed
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • Heads Up:🇯🇵 BoJ Quarterly Outlook Report due at 03:00 GMT (15min) https://www.dailyfx.com/economic-calendar#2020-07-15
  • Heads Up:🇯🇵 BoJ Interest Rate Decision due at 03:00 GMT (15min) Expected: -0.1% Previous: -0.1% https://www.dailyfx.com/economic-calendar#2020-07-15
  • Japanese candlesticks are a popular charting technique used by many traders, and the shooting star candle is no exception. Learn about the shooting star candlestick and how to trade it here: https://t.co/OjTZOQEytM https://t.co/BWTj74xdGl
  • Commodities Update: As of 02:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 0.68% Silver: 0.28% Gold: -0.00% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/KLaO6iawft
  • Forex Update: As of 02:00, these are your best and worst performers based on the London trading schedule: 🇦🇺AUD: 0.41% 🇳🇿NZD: 0.39% 🇬🇧GBP: 0.22% 🇪🇺EUR: 0.08% 🇯🇵JPY: -0.01% 🇨🇭CHF: -0.04% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/XJ4YXmLkHx
  • RT @DanielGMoss: #Silver Price Eyes Fresh 2020 Highs on $USD Weakness https://www.dailyfx.com/forex/market_alert/2020/07/15/Silver-Prices-May-Trek-Higher-on-Weakening-US-Dollar-and-Stimulus-Hopes.html
  • If you missed this week's session on IG Client Sentiment, check out the full recording on YouTube here - https://t.co/uVdyQTHnpn
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.82%, while traders in US 500 are at opposite extremes with 76.46%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/ZW0P70iNI9
  • China reaffirms vow to sanction US officials over Hong Kong -BBG
  • $USD hegemony is at risk thanks to changes in the global economy and the long-term consequences of the US-China trade war. Get your market update from @CVecchioFX here:https://t.co/5GO9UrvO4y https://t.co/3x4BbsYUTg
Top Reasons Why Forex Traders Fail

Top Reasons Why Forex Traders Fail

2014-08-15 19:00:00
Rob Pasche, Forex Trading Instructor
Share:

Talking Points:

  • Traders fail by risking too much per trade
  • Traders fail by not adapting to market conditions
  • Traders fail by using a negative Risk:Reward ratio

Many people from all walks of life give Forex a shot, but most people that attempt it lose money. Have you ever wondered why that is? At DailyFX, it is our job to assist people in reaching their goals and make them the best traders they can be. So in today's article, we are going to look at some of the top reasons why most Forex traders fail, and how we can improve our chances of profitability.

Trading Too Big

One of the major selling points of the Forex market is the large amount of leverage that is available. In the United States, traders can trade up to 50:1 leverage. In the UK, traders can trade up to 200:1 leverage. And in some parts of the world, traders can use as high as 400:1 leverage! Talk about risky... But many traders cannot help themselves and want to trade big. The problem is using high amounts of leverage reduces the chance that we will be profitable in the long run.

In my previous article, 3 Things I Wish I Knew When I Started Trading Forex, I explain how leverage can actually cause an otherwise profitable strategy to lose money. This occurs because some traders risk their entire account on 1 or 2 trades where a stroke of bad luck can completely wipe them out. The solution is to try to use less than 10x effective leverage, and try not to risk more than 2% of you account on any individual trade. That way, if your strategy has an edge, you should see a profit in your account in the long run without a blow up.

Not Adapting to Market Conditions

Often overlooked, market conditions play a huge role as to whether or not our strategies will be successful. Many traders might find a strategy that makes money some of the time but then loses money the rest of the time. A lot of times these changes in our "luck" has to do with how the market conditions has changed.

It's important for us to Change Strategies When Market Conditions Change. So during times of low volatility when a currency pair is moving sideways, it would make sense to trade a range strategy. If we tried to apply a trend based strategy during that same low-volatility period of time, it'd probably produce poor results. But if we used that same trend strategy when volatility was higher and a currency pair was consistently moving upward or downward, our results would likely be much better.

Learn Forex: Volatility Decreasing Over Time, Great for Range Strategies

Top Reasons Why Forex Traders Fail

The chart above shows volatility over the last year and a half. Because volatility has been dropping, I've seen trend trading systems become less profitable and range bound systems perform much better.

Risking More Than We Can Earn Per Trade

The 3rd reason why many Forex traders fail is that they use a negative Risk:Reward ratio. Meaning, they (on average) risk more money per trade than they attempt to earn. This point is actually one of my potential tweaks that can Improve Your Trading Strategy in Two Minutes or Less.

When traders set their stop losses far away and set their profit targets close, they put a lot of pressure on their strategy's win rate to turn a profit. For example, if I always set my stop at 30 pips and my limit at 10 pips, I will need to have at least a 75% win rate to break even. Imagine winning 3 out of every 4 trades and still not making any money.

But if we set a positive Risk:Reward ratio, we can flip these percentages around. Let's say we use a strategy that has a 30 pip limit and a 15 pip stop. With this ratio, we only need a 33% win rate to break even. If our win rate turns out to be higher than 33%, we will be turning a profit.

Understand that the closer our stop loss is in relation to our profit target, our win rate will go down. But our win rate does not need to be near as high to make money.

In Conclusion

Hopefully these three examples of why many Forex traders fail will help you not become just another statistic. With the right tools, knowledge, and mindset, anything is possible. If you would like to test some of these tips risk-free, download a Free Forex Demo account today with free charts and real-time pricing data.

Good trading!

---Written by Rob Pasche

Start your Forex trading on the right foot with the Forex Fast-Track Webinar Series. This 4-part, live webinar course is the disciplined Traders’ Fast-Track to the Forex Market. Topics include:

  • Using FXCM’s award-winning trading platform
  • Calculating Leverage and reducing risk
  • Trading with a simple (yet effective) trading strategy
  • Maintaining for Forex account and enrolling in on-going education

This course is completely free, so sign up or watch on-demand today.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.