Losses and profit are two integral components of trading Forex. We all know that there are no win-
win strategies, as well as there are no traders who close 100% positively. Let us consider the nature of losing money in Forex: why traders suffer losses and how to avoid Forex risk, or at least try to minimize them as much as possible.
Practice shows that most newcomers to the market make the same mistakes that lead to losses. Here is a brief list of erroneous actions: taking excessive risks; not using Stop Loss; not having trading strategy; too much activity; low time frames.
For example, almost all experienced traders will say that they lost money trading because of thirst for activity. Indeed, a beginner trader is in danger – the thirst to enter the position as soon as possible and try to play in the market. This may happen either because of inexperience and desire to try your hand as soon as possible, or fear of missing some trading opportunity. And in the end, what kind of investment is this if you are not investing anywhere? The money must work, and it lies on your brokerage account without any movement! Just take for granted that the investment process consists not only of being in long and short positions but also in being out of the market until, for a variety of reasons, you decide that the idea is good enough for you to put your money in it.
There are hundreds of different ways to make money trading — but everyone forgets all the different ways that you can lose money. Just like understanding risk and reward, traders have to know how to make money in trading, as well as how to lose money.
Here’s what you need to remember:
Lack of system. If you trade at random sooner or later you will lose all your capital. In general, no man has ever built anything good without a plan.
The lack of an algorithm. If you have a wonderful system, but it’s only in your head, you will lose. You need an algorithm – a clear, step-by-step plan, consisting of simple and concrete instructions – what to do, in what situation, as well as in what sequence. Only then you have a chance to stay in trading.
Not using Stop Losses. There are even no comments here. Very soon you will be kicked out of the market. It depends on luck and self-control. Either way, the more you earn first, the more you will lose later.
Lack of money management. Many traders do not know what it is at all. Money Management is a big part of success in trading, no professional trader works without it. The choice of position size, when to increase the volume, when to reduce it, what lot to trade. By the way, some methods of money management can increase the profitability of the system several times.
Closing a trade before profit is reached. Many people close a profitable trade manually a few points before the order. By doing so many times, you deprive yourself of dozens of percent of profit, it is like paying a double spread. Thus, you break the statistics, that is, you get the number of times you make a mistake – you trade without the system!
You don’t keep statistics. Statistics are the basis for your system. Only with statistics, you can see where you make a mistake, where you earn, at what time it is better to trade, and when – do not go near your computer at all. Statistics – is your karma, if you want – fully shows what you are doing, what you will do.
To constantly make a profit and not to lose the whole deposit, a trader should keep in mind several important rules and factors. The first of them is Money Management. To ensure the profitability of trading, a trader must learn how to properly use the available funds, place orders and keep the lot security. If everything is done correctly, even a few losing trades will not lead a trader to collapse.
Forex psychology is also of great importance, as emotions play an important role in any activity. Only a psychologically and emotionally balanced trader can objectively assess the market condition, make and close positions on time. Only correct planning and the ability to hold down your impulses will ensure constantly high profits. If a trader constantly experiences greed, fear and makes a lot of thoughtless decisions, he will not be able to work in the market for a long time. Fear and greed are the main negative psychological factors, which should not be typical for a Forex trader if he wants to make good money.
It is necessary to use Forex strategies, which perfectly fit the trader’s trading style, correspond to internal qualities, and easy-to-use. For some traders, long-term strategies are relevant, for others – short-term, some prefer indicator strategies.
Till a trader does not choose a perfect Forex strategy, he can use a huge number of different means and methods of trading, but it is unlikely to provide consistency, stability and high income. Professional traders have 2, maximum 5 strategies in their arsenal, which they have well studied, time checked and tested. Only in this case, they will be able to provide a stable high income.
