I believe you must have heard the forex axiom that says 95% of forex traders lose their money in the forex market and I also believe that those who have lost their money in this lucrative business are the one that goes about yelling that forex trading is a scam.
There are individuals who have or had flush more than one forex trading account down the drain (blown forex trading accounts) These categories of people do have the persistent attribute but they keep on doing the same thing over and over again while expecting a different result.
I remember when I started trading, I was very fortunate that I didn’t blow any of my trading accounts. Assuming I did I would have been among those 95% who are likely to go on-line ranting, that forex trading is a scam.
In a real life application, when one keep doing a particular thing without any positive results. It is advisable to go back and cross check the steps and efforts involved- it maybe, one is either applying too much effort for the wrong thing or applying little or no effort for the right thing.
I went through all the mistakes I made while I was learning how to get my hands around forex trading and I compiled a list of things that newbie and most existing forex traders are guilty of that keeps killing their trading account.
Below are some of my findings:
Having High Expectation
When I started trading forex, I heard testimonies (results) of forex traders that were doing great in forex trading. About how they are making it big in forex, when I heard this I got so excited that I started imagining the things I could buy with the money gotten from trading career and how I would acquire all my heart’s desires.
This same thing happens to most people out there who want or are trading forex. They start day dreaming and develop this high expectation mentality thinking that forex trading is a get rich quick scheme. They start imagining themselves swimming in money, buying luxury cars, houses and traveling around the world.
Am sorry to bust your bubble, but the truth is that’s forex Trading is NOT a way to earn $1000 from a $100 deposit in a space of three days or to make so much money that you can slap your boss and quit your day job. Most people you see that are full-time traders all started from somewhere and grew the little they have with the right knowledge, to where they are now.
Fake Forex Trading Educators
When was the last time you saw an online advert promising you profits without loss or a $1000 profit from just a deposit of $100? These people know that a novice is not interested in the hard work needed to be successful but only interested in the reward and results as such. They (educators) use that greed to lure these forex armatures to sign up for their trading courses or to buy their trading software.
These fake forex trading educator are one of the reasons why “traders do not treat forex trading like a business”. It’s so sad, because the trading course they sell to you might just be a compilation of various cheap articles one can just find on the internet. Being profitable on the forex market doesn’t come from these educators who parade themselves on Facebook and twitter but from the trader’s psychology –from your mind.
What do you do when you are making profit or loss? How do you make your decisions when you have 3 consecutive losses? How do close your positions when there are in loss? –these are the properties that make you a good forex traders and business man.
Just like Colin Powell said “there is no secret to success. It is the result of preparation, hard work and learning from failures”.
I advise traders to strive to become one of the best businessman/woman in this multi-trillion industry
Over trading and news trading are the paths of least resistance to blow your trading account. This is one of the habit forex traders are fond off (over trading). Most traders believe that profit is made from the quantity of trade you are able to pull off in a day than the trade that went in your favour and this result to scalping.
That is to say, they believe so much in entering into the market and exiting almost immediately with just a little profit rather than to open a position and allow it to move for a while before closing it. What if in the process of trading like the formal, a high impact news come ups and sweep all your profits out? You have just lost weeks of profit gathering.
Most people don’t know or have an idea that they over trade. One of the best ways to know if you over trade is to go to your trading history in the terminal check how many times a day you trade a certain pair and the direction either buy or sell, if you see that you trade a particular pair more than 5 times a day then you are over trading and you need to reduce it to be on the save side.
News period is the best time for scalpers to either blow their account, lost part of their initial deposit or escape to die (blow their trading account) some other time in the market.
Being emotional doesn’t only happen when you’re with someone you love but when you’re trading the market you love too. Traders become emotional while trading which is very bad. Imagining a CEO or a business owner being emotional or bias when running his organization there is a high chance that the company will go bankrupt soon than latter.
Forex trading which is equivalent to owning a business should not be treated with emotions. Let’s look at some of these emotional traits that kill traders account.
- Fear – Fear to lose part of your profit or initial deposit money leads to losing everything in your broker account. Fear gives most forex traders the wrong impression that they cannot lose without a stop loss. This ideology is very wrong, but what happens when price move far away from your entry price and lead to margin call which is equivalent to a blown account.
- Greed – Have you seen a scalper trading with a lot size of 1 lot or more on a $100 account, that’s my forex definition of being greedy. Greed comes into play when a trader makes 2 or more consecutive profits there is this feeling that that gives us the mindset or believe that we are invincible and nothing can harm us in the market. So they increase the lot size to take all the profit which the market can offer to them and most times the market take back everything from their trading account.
Note that the market will always be there irrespective of the season or country you are in, I tell my friends that in forex trading, you trade for your account to survive till tomorrow, while you secure the capital in your account you constantly make profit that’s how the big boys trade forex.
No Money Management
Remember when I said that I didn’t blow my account but was able to lose part of my initial deposit, this was because I applied money management in all my trades.
Money management is so important that most traders neglect it, money management keeps you in a trade for a lot longer period of time time compare to someone who do not apply money management.
Before a trader should start to trade, there are some critical points that need to be taken into consideration. Such as:
- Amount of money one is comfortable to loose– Every trader should have a predefined amount of money to lose if a trade should go against them, this is extremely important because it also help increase the win-loss ratio.
- Lot size– using random lot size to trade is dangerous. Most people don’t care to know that this can ruin their account, imagine you trading with a lot size of 0.01 with a win-loss ratio of 1:2 and you made a profit and later increase it to 0.02 with the same ratio which resulted to a losing trade the amount of money one will lose might be greater than the profit made.
- Placement of stops- understands there are key levels in the market such as support and resistance. Stops should be trade a few pips above those areas.
In summary, traders also lose money without the proper knowledge; these people just play an assumption game on the market (blind trading). One needs to get the market insight and a fundamental knowledge of how the market works in general.
ALSO READ: How to Ride the News in Forex Trading
There is no harm in having a high expectation from the market; instead of it being “high” it should be an expectation of what you need from market within a time frame such as how many percentage of profit one needs to make monthly or yearly from forex.
When starting to trade or when having a losing trade the desire to revenge trade is usually high remember that if you opt in and decide to revenge trade you might even lose more than you initially lost, have a trading plan and follow all the rules written down. Having a trading plan will help to reduce over trading and emotions.
Once in a while, we become jealous of our friends when they show us their trading history. They might be earning quite a lot of money but look clearly at the drawdown, lot size and leverage of their account. Are they willing to sacrifice their entire account for just a few pips that should be the question every trader should be asking?
I would love to hear from you, do comment below to tell me how you feel about the reasons why forex traders blow their account.