Why do novice forex traders lose money? Realising it’s not a get-rich scheme is the first and foremost thing for the beginner trader. But plenty of pitfalls await the unwary. Here’s our take on five of the most common reasons a beginner trader will lose money.

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Lack of strategy

 

A common failing among traders is to go in blindly without a strategy or plan. It doesn’t need to be tremendously complex – in fact the simpler plans often work best – but a plan is required.

Without a plan, results are random, lessons hard to learn and failure or success dependent on nothing more than luck. With a plan in place you can assess why trades failed and why others won; and attempt to replicate patterns for the future.

Trade too big

 

Another favourite for the novice forex trader is to trade too big, too soon. It’s tempting to punt $100 a point from the start but you can quickly get stopped out and/or face the dreaded margin call. It’s also not sensible to trade beyond your own risk comfort zone. When you’re out of your depth your emotions can take over far too quickly, clouding your judgement and making decision-making harder. A cool head is required in trading and playing for high stakes is not for everyone.

Emotional and lacking discipline

 

The previous point is only one aspect of the emotion v discipline battle – there is a broader problem with traders lacking the discipline to execute their plans. However good your strategy or system, if you lack the discipline to follow it through to the end, it won’t count for much and losses can be expected. Emotional traders chase results and try to find trends when they don’t really exist.

Fear of letting a winning trade run

 

Fear of letting a winning trade run its course is probably one of the biggest problems for any trader, let alone novices. Big winners are crucial to turning an overall profit. Similarly, you need to be prepared to admit when you’re wrong and close out a losing trade before it eats you.

You will win some trades and lose others. The task is to let the winners run and cut the losers in their tracks. Sounds easy, but volatile price action can make this a lot harder than it appears. It’s easy to get stopped out of a trade only to see it turn back in your favour. Such occurrences are annoying but you have to stick to your guns. So you got stopped out, the point is you stuck to your plan. Once you start moving stops in a losing trade, you’re taking risks you probably didn’t intend to take. All this comes back to emotions and being disciplined.

Not using the right tools

 

Finally, one reason for not making money trading forex is ignorance of the platform and tools available to you. For example, many novices are unsure about even simply tools such as limit orders, trailing stops and chart tools. Getting to grips with the basics of how to use your platform is a really important first step. For beginners, demo accounts are therefore a really good option.