5 Reasons Why Most Day Traders Fail
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5 Reasons Why Most Day Traders Fail
Forex trading carries risk, like all other forms of investing. However, there is an alarming statistic that shadows the forex trading industry and its history. There is no official figure, but various sources claim that anywhere between 70% and 90% of forex traders lose money.
The downside of forex trading being so easily accessible is that people who are not educated, experienced or prepared, can and do trade forex. Unfortunately, these are the people who lose their investments, and it happens very quickly.
Before entering the world of Forex, it is advisable to learnt from the most successful Forex players and their quotes.
Day trading forex is most certainly risky, especially for people who did not take the time to study, make a trading strategy or have a risk management system. Driving a car is dangerous, which is why we need to get a driving license before we are legally permitted to drive vehicles on the road with other people. There is no such requirement in the forex market.
Being unprepared is one of the reasons that most forex day traders fail, but there are many more mistakes that continue to be repeated by new traders despite how well documented they are.
Here are five key reasons why most day traders fail.
#1 Because they have unrealistically high expectations
The internet and more specifically, social media are filled with many self-proclaimed forex gurus. Depressingly, an overwhelming majority of these forex influencers are ingenuine and are unlikely to know the first thing about financial markets.
These imposters are paid a commission for convincing inexperienced traders they can earn an insane fortune by trading forex. Sadly, the majority of these new traders are set up for failure because they are filled with unrealistically high expectations before they start.
The sentiment of overnight success and an easy path to financial freedom lingers in the minds of new traders, and nothing could be further from the truth.
#2: Because they think day trading is an easy way to make money
Once you become experienced as a day trader, forex trading can be effortless. It’s only easy because you gain knowledge, experience and instincts, which makes it easier to take trading decisions.
Because it’s so easy to open a trading account and deposit funds to start day trading, many traders begin before they have the knowledge to day trade safely and successfully.
It takes a lot of effort to study and master skills like reading charts, technical analysis, fundamental analysis, controlling your emotions, sticking to risk management principles and finding the right trading style to fit your personality.
#3 Because they try too many strategies
There are hundreds of techniques to identify where to buy and sell, and when to open and close trades. New traders enter a Pandora’s box of possible trading strategies and generally don’t know where to start, so they pick at random.
When one strategy has a couple of losing trades consecutively, they often move to another strategy. There are multiple problems with this approach; the main one is that a few losing trades is not enough data to conclude that the system has failed. The reason the trades are unprofitable could be due to unusual market conditions the trader didn’t prepare for or just bad risk management.
New traders should always try to understand why a particular strategy failed before discarding it.
#4 Because they trade too often and too much
Too much of a good thing can be harmful. This statement is especially true when it comes to day trading. Many new traders wrongly believe they need to be trading to make money. The correct mindset is that being in a trade is a liability and is a risk of losing money.
Overtrading is a common bad habit displayed by new traders. They either trade because they have a compulsion to trade or they trade with orders which are too large for their account balance just because they believe they found a great opportunity which is worth breaking their own rules for.
#5 They follow unreliable sources of information
There are far too many unreliable sources of forex day trading information on the internet. As a new trader, it can be hard to verify what is a reliable source for news, education and guidance. Just like they say about investments, don’t put all your eggs into one basket. The same is valid about where you get your information.
Never rely on a single source. Always do as much research as possible and determine for yourself what to believe and what not to believe. One place you can always count on for reliable forex education is from the Scope Markets daily webinars, hosted by experienced traders with a lot to offer new forex traders.
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