You’ve heard the whole thing about how 90 – 95% of traders lose money, and only 5 – 10% are profitable. That’s great and all (or not great), but why is this the case? In this article, we’ll outline 3 reasons why YOU will NEVER make any money in Forex.
If you can train yourself to be disciplined and avoid these 3 things, with some guidance and a little luck, you can join the 5 – 10% of profitable traders that are able to create a steady source of income from trading.
Don’t think it’s extremely hard to become part of the 5 – 10%. It’s just extremely easy to become part of the 90 – 95%.
So let’s jump start to it.
Three reasons why you’ll never make any money trading Forex.
1. The Forex Cycle of Doom
You have a trading strategy that you either found online, developed yourself, or bought and have been using for a while. For the first few weeks or months it has been profitable, but then you start to see losses. You panic. You decide it’s time to adjust and optimize your strategy. It looks like your adjustments worked and you’re back to making profits. A few days later your trades are back in the red, and you’re seeing red. You continue to adjust. You win for a bit, then lose for abit. Then you adjust again. It’s a never ending cycle. You have entered the Forex Cycle of Doom.
What’s the Solution? Backtest, backtest, and you got it.. more backtesting. Backtest every strategy, then backtest it again. Each strategy should be backtested in various market conditions. All this backtesting might be tedious, but what’s what you’ll need to do to really prove you have a winning strategy.
2. Unrealistic Expectations
Your expectations are too unrealistic. You were either misguided, mislead or deceived into thinking your investment of $1,000 will turn into $50,000 by the end of the month. What this type of the mentality does is causes forex traders to lose all sense of risk management. They see a trade or signal from a forex signal service and they leverage a third of their account. They open a lot size that is too big for their account. Next thing you know, your trade didn’t go as planned an you’re holding a huge drawdown and your account is about to margin out. What should have been a small 2% loss just split your account in half like a hot knife through butter.
Solution: Practice good risk management and have realistic goals. You should aim for 5% per week. For a $1000 account, that is $50-a week. Don’t be obsessed with hitting that specific number, but on average you should aim for $50 a week for an account that size. If you’re interested in flipping $1,000 into $3,000, visit your local casino.
3. Not Trading With Enough Capital
Either you’re not trading with enough capital, or your capital is not in alignment with your needs. This is partly related to the previous point. If you expect to be a day trader and support your family with a $2,000 trading account, I would tell you that you’re out of your mind. If you are expecting to finance a car, put food on the table, pay your rent, your bills, and other expenses with an account that small, you are in a heap of trouble. We’ve come across traders who have opened many $1,000 or $3,000 accounts and expect those accounts to be their main source of income. This just isn’t realistic.
If you are relying on your trading account to be your main source of income, you have to be ready to invest at least $10,000 and make sure you have a winning strategy. Based on the target of 5% per week ($500), this will bring in $2,000 a month if you hit your targets.
Solution: Adjust your initial investment size accordingly based on your needs. If you are expecting your Forex trading account to pay all your bills and expenses, be ready to invest enough money upfront to do this. If you are just looking to grow a $1,000 account to pay for something like a vacation or expenses for food, then that is a totally different, and it might be a good starting point too.
These are the 3 main reasons why you will never be profitable in trading Forex. If you can avoid these 3 things, you just might end up joining the 5-10% of profitable traders. Obviously there are other factors that may affect how profitable you can be, but with a winning trading strategy, good risk management, and realistic expectations, you have a much higher chances than the trader that just found out about Forex trading on Instagram through a 19 year old forex mentor posting photos of his Lamborghini that he rented for a day (yup, shots fired).