Why so many retail traders fail in Forex
Did you know that most retail traders never reach consistency in their trading? Are you aware that most retail traders lose money in the long run?
If you didn’t know that, now you know.
There must be a reason why so many people never reach success in their trading. Our team of traders has been trading for close to a decade.
They have seen many traders come and go in their careers. Our traders started as normal retail traders.
Today they are successful money managers. But the success they have didn’t come overnight.
They had to work hard for it. In a recent session they shared their thoughts on why so many traders fail in Forex.
In this article, we’ll discuss some of the most common reasons why so many traders fail in Forex.
The topics we’ll discuss are:
- Junk in and Junk out training
- Why marketing is your enemy in Forex
- Most beginners dismiss the Fundamentals and only focus on the Technicals
- Emotions are much more important than you think
- Why your goals can be a stumbling block to your trading
- Not making use of the tools available in the FX industry
Junk in and junk out training
The biggest reason for failure is bad Forex education.
This is a point that we’ve shared many times with students. We cannot stress how important it is to get proper Forex training.
Lots of traders think they will be able to trade successfully by watching a few YouTube videos. Or by reading a couple of free articles on the internet.
This is very naive. Trading is just like any other professional career out there.
You cannot become a successful lawyer or doctor or trader if you don’t get professional training. Would you trust an accountant that taught himself on the internet?
Would you trust a lawyer to represent you if they just watched a couple of YouTube videos?
No one would be so naive. However, it seems like people think this is somehow different for Forex trading.
But, let me tell you that it’s not. Our traders have spent tens of thousands of dollars on Forex education over the years.
They would not have been able to trade the way they do if they didn’t learn from professionals.
By this we don’t mean the educators that only teach Technical systems and strategies. By professionals we mean real traders that have actually managed big capital.
In contrast, if you rely on free sources to become a better trader, you’ll never make it.
It’s about junk in and junk out at the end of day. If you rely on free junk education on the internet, you’re going to produce junk results.
Sorry if that isn’t what you wanted to hear, but it’s the truth. Sugar coating it won’t do anybody any good.
Why marketing is your enemy in Forex
There are so many scammers in the FX industry.
You only have to browse Instagram or Facebook for a couple of minutes to see them. They’re usually flashing their fake fancy cars and watches.
It’s really shocking that people actually still fall for that nonsense. These scammers are not real traders, they are marketers.
Moreover, they rely on fancy marketing ploys to trick people into believing them.
Due to these types of lies many people start trading with the wrong mindset. Sadly, most beginners think that trading is a way to get rich quick.
That is a blatant lie and cannot be further from the truth!
Trading is NOT easy and it’s NOT a get rich quick scheme!
Until you get that point, you’ll never make it as a trader. If you have a gambling mentality, you’ll always struggle in trading.
So, the bottom-line is don’t believe the scammers when they lie to you.
Also, make sure that you have the right expectations about trading. Don’t think you’re going to quit your day-job in a couple of months.
Learning how to trade successfully takes time. It takes hard work and commitment.
Don’t expect that you’re going to be the next Warren Buffet either. Some of the smartest minds in the trading world still finds trading challenging.
The thing that you need to remember is that trading is a zero-sum game. Thus, every time someone wins there is someone who loses.
Veteran traders usually mop the floor with inexperienced newbies. That is another reason why training with professionals is so important.
Most beginners dismiss the Fundamentals and only focus on the Technicals
Our traders see this all the time. Majority of Forex education available is purely based on Technical Analysis.
Very few Forex trainers even know what market Fundamentals are. This is shocking in our opinion.
The Fundamentals should be the very first thing you learn as a beginner.
Don’t get us wrong, we are not saying that you don’t need Technical Analysis. And we are not saying that Price Action is not important.
What we are saying is that the Technicals should be the last thing you look at.
Our traders never take trades just because the charts say so. We never use Technical indicators to show us when or where to trade.
Thinking that an indicator-based trading system will work in the long run is foolish and naive.
The problem with indicators is that they promote bad methodologies. Traders are caught in a cycle of trying to find the perfect indicator with the perfect settings.
But, that perfect technical indicator or system you’re looking for doesn’t exist. And even if one did exist it would cost millions of dollars.
Furthermore, it won’t be for sale for $99 on some horrible designed website. Just think about it logically.
Real traders who manage large amounts of capital don’t rely on pipe dreams like that. They rely on macroeconomics to show them were to allocate their trades.
Our traders use the Fundamentals to show them which pairs to trade. And then they simply use the Technicals to find good entry and exit locations.
That is a much healthier and more consistent way to trade. But you need to be willing to put in the time to learn.
Emotions are much more important than you might think
Do you know that some investment banks have in-house psychologists? Why do you think that would be necessary?
It’s necessary because emotions are one of the biggest stumbling blocks to traders. If banks employ psychologists to help their traders how important is emotions?
New traders fail to recognize the importance of emotional intelligence. Don’t expect to navigate the uncertainty of the markets with uncontrolled emotions.
After risk management, emotional management is a critical factor for success. If you don’t control your emotions, they will control you.
We’ve seen so many beginners that were great at analyzing the markets but failed due to their emotions. All the skills in the world won’t help you if you can’t master trading psychology.
A big problem is that beginners don’t fully realize the uncertainty in the markets. Additionally, there is no such thing as a guaranteed win in trading.
At any given moment, there are multiple variables which can affect your trades. Anything from economic data, to politics, to central banks to natural disasters.
Recognizing that you cannot control the outcome of the market is an important step. Also, traders need to accept that they won’t be right all the time.
If you have a problem with your ego, you’ll run into problems in your trading. Being able to accept that you’re wrong and close a losing position can be difficult.
Luckily, there are a few wonderful books available to help traders in this area of their trading.
Below is a list of the ones that we’ve found to be most helpful:
- Market Mind Games by Denise Shull
- TraderMind by Steve Ward
- The Hour Between Dog and Wolf by John Coates
Why your goals can be a stumbling block to your trading
Having goals can be a healthy and helpful motivator. This can be true for almost all parts of our lives.
However, goals can also be very demotivating. Having the wrong goals can really screw with your progress.
Most retail traders primarily trade part-time with the goal of trading full-time. Lots of them set goals for when they want to quit their day jobs and trade full-time.
Now, there is nothing wrong with having a goal to trade full-time. But most retails traders will never reach that point in their trading.
They don’t realize how much capital they would actually need to trade full-time. Some traders incorrectly assume that they’ll make upwards of 10% or 30% or even more than 50% per month.
This is a very unrealistic and dangerous assumption!
Did you know that the best hedge fund traders in the world don’t even make that in a year? Having a goal of making 10% per month is very naive.
Sorry to burst your bubble. Professional traders have much more modest and achievable goals.
Most professionals would be happy with an average return of between 1% and 3% per month. However, they don’t make that every month, some months they lose money.
So, how much capital would you need to make a salary from just 1% to 3% per month.
This might be a good time for a quick and practical example.
Let’s assume for a moment that you currently have a salary of $2000 per month. And let’s also assume that you can average 1% growth per month.
You would need a trading account of $200,000 just to get the same salary. And what about the months you lose 1% or 2% or more?
I’m guessing a lot of readers didn’t think about it that way.
Not making use of the tools available in the FX industry
We’re always surprised about how little retail traders know about Forex trading tools.
Most traders cannot be blamed for this because they have not been taught the right things. This is not surprising if you consider that most of these tools are used in Fundamental Analysis.
There are some very helpful trading tools available in the industry.
Below are examples of some of these tools:
- Live market analysis sites
- Real-time news feeds
- Financial markets research suites
The most popular example of things like this is the infamous Bloomberg terminal. However, at $2k a month it’s far outside the reach of most retail traders.
Most investment banks and hedge funds provide their traders with news terminals. A lot of traders doubt whether tools like this is helpful to trading.
But if these tools were not helpful why would institutions pay such large amounts for it? They are willing to pay because it’s worth it.
Having access to real-time financial news allows traders to get into trades a lot faster. Many times, these news feeds announce the news long before normal news platforms.
This gives traders a unique advantage of the rest of the markets. But don’t worry if $2k per month is too expensive for you.
There are great free and less expensive tools available that are good enough. Some examples are sites like ForexLive and research platforms like Reuters Xenith.
If you ever want help on how to use these tools reach out to our team. They will gladly assist you with any questions you might have.
In this article, we’ve looked at a few of the common reasons why so many retail traders fail in Forex.
If you’ve been struggling to find consistency in your trading don’t worry. You are not alone.
Majority of traders are struggling with the exact same thing. The good news is that there is a way to reach consistency in trading.
Start by making sure you have received proper education. The type that taught you the both the Fundamentals and Technical analysis.
Stop relying on those indicators and start learning about market Fundamentals. Learn to keep those emotions in check.
We hope this article has been helpful and insightful.
If you guys have any questions or comments drop them into the comment section below.