Forex Education: Why Retail Traders Fail

Forex Education: Why Retail Traders Fail

by Harold Hsu

There are many reasons why Forex traders often wipe out their accounts. In fact, there are so many factors that cause Forex traders to lose money, that only 10% of all traders are consistently profitable.

Almost all of these loss-causing factors, however, can be generally narrowed down to 4 basic reasons:

1. Not understanding what the Forex market is about

Many retail traders make the mistake of treating the currency markets the same way they treat other financial markets. I knew of a well-performing stock trader that lost more than $50,000 because he traded Forex the same way he traded stocks.

Even though the trading charts used in the stock and currency markets are similar (or even identical), the underlying natures of both markets are vastly different. To be able to trade profitably in the Forex market, you’ll have to first understand its characteristics and nature: don’t think that Forex trading is the same as other forms of trading!

2. Not understanding your position in the Forex market

There are many players in the Forex market, and each type of trader has different strengths and weaknesses. Many losing traders don’t realize that the trading strategies of one type of trader won’t work for the other types. For example, the trading strategies used by institutional traders will fail miserably for retail traders. This is because the strategies used by institutional traders are based on their strengths and weaknesses, which are very different from that of retail traders.

3. Not understanding the effects of greed, fear, impatience and pride on traders

This point is self-explanatory. Instead of using this knowledge as a tool to trade well, losing traders often fall into the habit of suffering from these emotional effects instead.

4. Listening to bad trading advice

It’s easy to find Forex trading information and advice on the internet today.

Unfortunately, most of this advice is provided by people who aren’t profitable traders themselves. While their advice is generally well-intentioned, the fact is that much of it is pure hogwash and cannot be practically implemented into any sustainable trading strategy. Be careful about where you learn about Forex trading from.