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

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 them 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. But this does not necessarily have to be the case. Below we describe the most common mistakes made by beginners in Forex trading and ways to avoid them.

Error no. 1 – Lack of experience

Lack of experience in Forex TradingForex trading, like any other form of trading, is a process of learning new things over time and gaining important experience over time, but it is different from learning to play a new instrument in that you don’t risk your fortune by learning the differences between major and minor chords. However, the learning effect of trying and error on a live account is relatively modest and therefore not a good prerequisite for becoming 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 having to risk your real capital.

On demo accounts you can see how the markets react to economic influences, news, political developments or chart patterns without having to invest real capital. However, if you really want to learn from trading on demo accounts, you need to take trading on them absolutely seriously and act as if the play money is your own real capital. This means, for example, not going into the market with 10 lots just because you have 50,000 in your demo account. Otherwise you will not be able to get much benefit from demo trading. Use the opportunity to familiarize yourself with trading on demo accounts and only go live when you feel confident enough to do so.

Error #2 – Inappropriate expectations

too high expectations for tradingFirst of all, you have to forget that with Forex trading you will become a millionaire overnight, as some dubious Forex signalmen suggest. Surely there are people who have become rich in a short time with Forex trading. But this is usually associated with luck and/or an enormously high risk. There are also people who become rich by selling houses or cars. Either way, you don’t get rich overnight in either case, but need years to gain enough experience and skills to be successful in your profession. This is no different with Forex trading.

If as a trader you 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 just yet. It will take you some time to learn what it takes to be a successful Forex trader.

Error #3 – Lack of a solid trading strategy

No Right Trading StrategyBesides the often too high expectations in terms of risks and time it takes to be successful in Forex trading, the most common mistake beginners make is to trade without a concrete Forex trading strategy. In everyday trading there are 2 aspects of a plan. One is an overall goal for trading and the second is a plan for every trade you make.

The overall goal should include the following:

  • Determine the markets you want to trade
  • Determine the time horizon in which you want to trade the markets
  • Determination of the position sizes you wish to trade (money/risk management)
  • In addition, your overall goal should include a realistic return that you would like to achieve in a defined period of time. In addition to your overall goal, your plan should also include exit strategies for each trade you make. The exit strategy defines the upper and lower limits, i.e. the entries and exits of each trade. These exit strategies are also known as 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 is available later.

Error #4 – Lack of discipline

Lack of disciplineA 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 be successful in Forex trading. For example, if you make a trade and the market moves against you, it is only human that you question your trading decision. When your position runs into profit and your take-profit mark is reached, you are easily tempted not to close your position due to the expectation of even higher profits despite the pre-defined mark. On the other hand, if the trade goes against the trader and the defined stop-loss mark is reached, one hopes that the turning point will come immediately, which will make the position go back into profit. Again, one is tempted not to close the position as planned and lets the loss continue.

Now please ask yourself the following question:

  • Do either of the two scenarios make sense? Before you made the trade, you had a plan. Based on this plan, you set the Stop Loss and Take Profit levels. Have market conditions changed so much since you opened the trade that you have thrown all your rules overboard and gone to war without a plan? Or are your decisions here based more on emotions in Forex trading than on sound analysis?

This is exactly why the plan and the discipline to stick to it is so important! A plan and discipline allows you to avoid the emotions that inevitably arise when trading real capital in Forex, and not to let them influence your trading decisions.

This is not to say that a trading plan cannot be changed or reconsidered. On the contrary. In fact, it is advisable to review your overall goals for effectiveness every few months or more often 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 is quite possible that in times of extreme movements in the market, no plan or strategy can produce positive results. In these phases, the best strategy is to simply not act until a good plan for these market phases has been developed or the situation has returned to normal. Never fall into the “I must act today” trap. You cannot and need not be in the market at all times. Sometimes the best plan is to do nothing.

Error #5 – The failure to follow stop-loss and take-profit brands

Not following Stop Loss or Take Profit marksWhen you open a trade by Market Order, leaving it open and not giving any 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 use Stop Loss Orders on all open positions to protect your capital.

For example, if you hold a long position in EUR/USD, you can place a Stop Loss Order on the position, which will automatically sell your position as soon as the price falls below the level you define. In this way, you can precisely define the risk that you are willing to take on any trade, even when you are away from your computer.

Take Profit orders work similarly to Stop Loss orders. With a Take Profit Order, you can specify at what price your position will be automatically sold to secure the profits made.

In other words:

For each trade, you only need to set a stop-loss mark to limit your risk on the trade and a take-profit mark to take the profits. Once this is done, your broker will automatically close the position without any action on your part on either of the two marks.

Error #6 – Too much leverage or too large positions

Too much leverage in Forex tradingDependent on your experience, a large amount of leverage can be a powerful tool to increase your profits. However, since the leverage works in both directions, it can also mean the cancellation of your account. Therefore, you should be fully aware of the effect of the leverage before trading on 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 larger your positions on your total capital, the greater the likelihood that you will throw your plan overboard due to emotions and wipe out your account through bad trades. Even small but increasing profits lead you to long-term success.

Error no. 7 – Too many open positions at the same time

Too many positions open at the same timePilots of fighter jets call this situation “helmet fire”. It describes a situation where too much is happening around you to be able to react quickly enough. In the cockpit of a fighter jet this can cost you your life. In Forex trading, destroy your account. Therefore, trade as few positions as possible at the same time to keep an overview and be able to react quickly enough.

Error no. 8 – Hold loss positions too long

Holding Loss Positions for Too LongOne of the things that distinguishes experienced Forex traders from beginners is the ability to determine which loss position is unlikely to be profitable. Unlike beginners, who hope and hope that the trade will go into profit after all, disciplined traders close such positions much faster and thus limit their loss much more effectively.

This is another reason why setting stop-loss and take-profit marks is so important. By setting a stop-loss marker as soon as you enter the trade, you protect your capital and don’t have to constantly monitor the trade. When the stop-loss order is reached and executed, you have only lost the capital that you were willing to risk from the beginning and you have protected most of your account. With the remaining capital you can now open new orders again, hopefully with better results.

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

Error #9 – Note the spread

Spread too highThe spread – the difference between the bid and ask price is an important factor for profitable trading in Forex trading. The spread influences the profitability of each trade. The less spread you pay, the faster and the higher your position will be in profit. You should be aware that the spread is variable with many brokers and can be widened differently depending on the different market phases. 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 therefore 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 one for you. Some brokers advertise low spreads but only make them available to their clients in certain situations or at certain times. Please see the Forex broker experience and reviews in our Forex broker comparison.

Error #10 – Only eyes for big profits and not for money management (greed)

Money management and greed in Forex tradingThis mistake is easily explained. The most important factor in Forex trading is to protect your own capital. Only in this way can you be successful in the long run with Forex trading. This is a simple calculation game. You must limit your losses and maximize your profits. Even with a 50% hit rate, you can be successful 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.

Logically, greed is absolutely counterproductive here and lets you throw all the rules overboard and will inevitably lead to the bankruptcy of your account in the long run.


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