Question: Reasons traders are leaving the forex market (and how you can avoid the same fate!)
Question: Reasons traders are leaving the forex market (and how you can avoid the same fate!)
Answer
If you've ever looked at forex trading statistics, you've probably noticed that the results look bleak. If not, check out some current stats we've listed below:
80% of day traders leave the market within the first two years.
90% of traders lose money.
These statistics might shatter the illusion that forex trading is the answer, but that doesn't mean you shouldn't trade! You might be wondering what the point is if only 10% of traders never lose money. Well, most traders lose at some point - maybe just a few dollars, or more, but that's normal. What matters is that you have more winning trades than losing trades. However, you might be wondering why so many traders give up if forex trading is so important. We will try to explain some of the main reasons traders give up below, so that you can avoid falling victim to these common problems.
Reason #1: They Start With Unrealistic Expectations
Some people get into trading for the wrong reasons. These traders hear about another person's success and decide they want a piece of the pie. Others think trading is a way to get rich quick. Trading is profitable, but it takes hard work and determination. Moreover, it takes time. This time depends on the size of your initial investment, your strategy and a whole host of other factors, but the lesson to be learned remains the same. You should only start trading if you are willing to put in the time to learn knowing that it might take some time before realizing big profits, especially with a small investment.
Reason #2: They use too much leverage
Leverage is interesting because it allows traders to increase their buying power. Unfortunately, over-indebtedness can turn against you. Many novice traders turn to leverage without being fully aware of the risks. This often includes those who do not have a large up-front investment. Once these traders empty their accounts, they are usually scared of the loss and never fund their accounts again, thus ending their trading career. The best thing to do is not to use too much leverage until you are more familiar with trading and are well aware of the risks. Even then, many professionals recommend using a leverage of 1:
Reason #3: They take too many risks
Risk management is essential for success if you decide to trade in the forex market. Regardless of your trading skill level, not taking risk management measures is one of the biggest mistakes you can make. Setting up a stop loss and reasonable lot sizes are good examples of ways to limit your losses. Many professionals recommend only risking 1% of your account balance on a single trade. If you risk too much or don't have loss-limiting measures in place, you risk blowing up your account, as many others have done.
Reason #4: They are guided by emotions
Emotion plays a bigger role in trading decisions than many realize. Anxiety can lead to paralysis of analysis, which results in the inability to make a decision or in late decisions when it was necessary to act quickly. Emotions such as greed or excitement can cause the opposite, i.e. you don't stop trading when you have to and you risk too much. Traders who fail to recognize these emotions and their effects often fall victim to them. If you want to avoid them, research the psychology of trading to be more aware of the problem and work on self-discipline.
Reason #5: They don't have a trading plan
It's impossible to predict what the market will do, but a trading plan can helpinformed. Your trading plan or strategy should consider the best times to enter and exit trades, risk management, and other factors. An example of a common strategy called "scalping" involves making many trades quickly and profiting from small price changes. Day traders open multiple trades throughout the day and close them before the end of the trading day. Swing traders do the opposite by allowing their trades to remain open for days or even weeks. Traders who don't have a plan rarely do well in real world conditions. This is another way for traders to quickly clear their account balance and quit.
Reason #6: They give up too soon
Some traders get off to an unfortunate start. Maybe they didn't receive proper training before opening a trading account, didn't have a good plan to follow, used too much leverage, or for some other reason. This does not mean that this person is a bad trader, only that he must find the source of the problem. Keeping a journal is one way to do this, but many traders don't get there because they get discouraged and convince themselves that they just aren't good at trading. If this is happening to you, take a step back and look at the bigger picture. It can be disheartening to lose your initial investment, but take it as a lesson rather than a sign to give up trading for good.
In summary
Statistics on the number of traders leaving the forex market may not seem promising, but there are several reasons why traders leave the forex market that can be avoided. Here is a brief summary of the most common reasons traders leave the forex market: