Everyone wants to make money in forex. So why find out the 3 ways to lose money in forex you ask? Simple because if you can identify yourself with any of the below, it is best you do something right way for the love of your money!
You have no technical or fundamental views. If the currency pair goes up, good. If the currency pair goes down, great. As long as your forex trading position is in the same direction!
Studies have shown that clueless trading wipes out margin account fast and leads to other poor forex trading habits such as over trading. It is important to spend more time understanding the charts and the economies. Formulate a conclusion on why you think a particular currency pair will move in a particular way. Even if you are wrong, learn from it and do better the next time.
Perhaps you do have a take on how a currency pair may possibly move in a particular direction. Now you need to have the patience to wait for an appropriate execution of the trade. Going into a position too early may result in unexpected consequences. You may be buying into the currency pair too high or too low. Closing a trade too early due to panic or eagerness to lock in profit will also hamper with your forex trading performance. Starting new trades too often (over trading) is no good too as you will be exposing yourself constantly to the risks of the forex market.
If you wonder why sometimes automated forex trading systems EA ( Expert Advisers ) may beat the majority of retail forex traders, this is one of the key reason. EAs are programs and take action based on a set of rules. No emotions, no impatience.
No Proper Money Management
This is probably a very common reason why forex margin accounts blow up. Long time readers of the website will know that i had 3 margin calls before. OUCH!
A high risk of 20% per trade.
$1000 > 1 losing trade > $800 > 1 losing trade > $640 > 1 losing trade > $512
Just 3 losing trades would have wiped out almost half your margin account.
A proper money management approach of 2% per trade.
$1000 > 1 losing trade > $980 > 1 losing trade > $960.40 > 1 losing trade > $941.19
3 losing trades would have wiped out only 5.88% of your margin account, leaving plenty to spare for your forex journey of learning.
It is common to lose 3 trades in a row in forex.
The Bottom Line
Forex traders may sometimes have an inadequate understanding on what sustainable forex trading means. This often leads to a premature end with a loss of their money. It is important for one to take responsibility to minimize the possibility of such an outcome.
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