15 March, AtoZForex, London – Why do I lose when trading? Now that I've got your attention, you should know that this article is focused more about you. So why do you and 95% of Forex traders lose? Why most Forex traders fail? The following 5 steps should help you to troubleshoot your trading and find the answer to your question.
1- Are you really following your plan?
“Plan your trade and trade your plan,” as they say. But are you following your plan and strategy? Even if some traders analyse the market over a weekend, they tend to forget their analysis when the time comes to trade. Even worse, what could be an absurd entry during a weekend when the market is closed or an evening when the market is calm, could be seen as a perfect opportunity just because you might feel as if you're missing out on the market.
To fix the problem, start a trading journal. Analyse the bigger picture from fundamental and technical perceptive over a weekend and don’t start your trading day without reminding yourself of your analysis. Meanwhile, at the end of a trading day, note what was wrong and right, and set the trades for the next day. Lastly, make sure to follow Daily life Forex analysis every morning to ensure you’re on the same page with the market professionals.
2- What is your strategy?
Profitable strategy + profitable strategy does not necessarily equal to a profitable strategy. We have countless number of profitable strategies and ways how to have an edge over the market. Yet, more often than not, traders try to cheat and take the “best bits” out of several strategies and put them into one. Would you bake a better pie by only selecting the tasteful ingredients, but ignore its fundamental baking blocs, like flour or eggs?
Make it simple. Don’t overcomplicate your trading strategy and focus on the main criteria. Only then, when you’ll be consistently winning, albeit a small fraction, try to add more variables.
3- Where are your emotions?
What emotions do you feel when you trade? If you have answered none, skip to the next point. Otherwise, keep on reading. It is no surprise that professional traders often say that trading is 70% emotion and only 30% skill. If you can’t control yourself when you trade and often go into a spiral of emotions, whatever you do – stop risking any more of your equity.
Scale down your entry size to a minimum and learn to control your emotions. Try to avoid direct market entries and instead use stop and limit orders for the trades that you have analysed the prior evening. Moreover, close the terminal on your trading platform. If your trade has triggered, leave it be and don’t ask how is he doing? More importantly, trade to be a good trader, not to make money.
Why do I lose when trading?
4- Do you have an edge over the market?
Having talked about the use of a simple strategy, do you have an edge over the market? Meaning, is your strategy’s profitability above 50%. This relates back to the trading journal.
Note that when you write a trading journal and analyse the market over the weekend and at the end of a trading day, you already increase your success factor above 50% by following the bigger picture.
Now, after strictly trading your plan for couple of months, all that remains is to analyse your closed positions which could be easily done by accessing the trade history on your trading platform. If you know that you followed your strategy and trading plan but still loose, don’t be discourages. Some strategies work best at different market seasons or volatility levels. Either way, it would be a high time to search for a new strategy.
5- How good is your MM?
How good is your set money management? If you haven’t set it or don’t even know what it is – come closer to the screen! We could divide MM into two parts: for an entry and for a whole trading week.
How much do you risk to win? If your reward risk ratio is below 1, consider to change your SL and TP levels. General risk/reward ratios range from 1:1 to 1:3 with 1:1.5 as the most optimum one. Moreover, how much equity do you risk per entry? If your goal is to be a consistent trader, make sure you risk 1 to 2 percent, 3% would be pushing it, to win 2 to 5%.
Lastly, are you not over-trading? Make sure you have set a weekly goal and drawdown levels. In Forex it’s very easy to turn your weeks’ work down in days. As a rule of thumb, use a weekly drawdown level of 5% of your equity, while the weekly goal could be set at 7.5%.
Final remarks
In conclusion, these 5 steps are just few among many different ways of how to ensure that your dreams are dot deviating by too much from the reality and should help troubleshoot your trading so that you wouldn't need to ask any more "Why most Forex traders fail?"
Think we missed something? Let us know in the comments section below