7 "Bullet-Proof" Ways to Lose Money in Forex
1) Don't have a trading plan.
There is an old saying, plan your trade and trade your plan. There really is no way around it. It is a truism. Without a trading plan, or method, you are basically throwing darts and hoping it lands on a profitable pair. 95% of retail Forex Traders lose money in the market, and while that number is quantitative, I'd be interested to find out how many of those people don't have or follow a good trading plan or method.
2) Risk too much money on a single trade.
One of the fastest ways to wipe out your trading account is to risk too much money on a single trade. Lets think about this for a moment. Assume you have a $10,000 trading account. You place a trade that puts $8,000 of that at risk, and that one trade goes bad. You lose it all. Now you have $2,000 remaining in your account, and it will take you a lot of winning trades to make up that previous loss. If you then risk the remaining $2,000 on a bad trade, poof, your account is gone. One or two bad trades is all it takes to wipe out your account if you risk too much at once. Now, had you only risked 2% each trade, two bad trades would have left you with a balance of $9,604. It would potentially only take a single good trade to recover from those losses.
3) Trade against the trend.
There are many traders that do this, and sometimes they are even successful. The concept is to buy when the market is moving down, hopefully to catch the very bottom just before/as it reverses. The problem is, it is very difficult to judge just when that happens. You might be one of the lucky few that actually catches the peak before a reversal. But chances are the market will continue to trend against you, putting you in negative territory. This means you will either take a loss, or have to hold onto the position until it (hopefully) returns to the profit zone. With luck, the price will turn in your favor before reaching a point that drains your account.
4) Don't use stop losses.
Unless you have a limitless account value, or perhaps you are trading some strategy that does not include the use of stop losses, this is another way to lose money trading Forex. Why? Don't stop losses close your position for a loss? Isn't that losing money? Of course it is. But the tip here is that you potentially lose much LESS than without a stop loss. Assume you are trading that 2% limit per position. The price goes against you, but you fail to place a stop loss. The price continues to move against you and passes your 2% limit. And keeps going. Before you know it, your account is half of what it was. Sure, you can hang onto the position until your account is wiped out and the broker automatically closes your position. Maybe it will reverse, and you won't have to take the loss. Maybe. It is much better to take the small 2% loss and move on to another potentially profitable trade than to fight the loss and miss out on all the profitable trades you could be making.
5) Don't educate yourself.
Don't believe all the hype about Trading Forex. It can be profitable, and with education, dedication, and successful trading it can help you financially a great deal. But unless you start with a fortune, you won't become an overnight millionaire. Many people lose money trading Forex because they really have no idea what they are doing. They don't take the time or spend the money to educate themselves about Forex, or how to trade it successfully. Could you imagine a NASA engineer successfully building a new spacecraft having never studied on how to do it? It would look, and work, like the cardboard boxes turned spaceships my kids play in. Constant education and learning is necessary to be successful trading Forex. It is by no means a "get rich quick" scheme that you can do with no knowledge or time invested. So invest in yourself and your future with some Forex Education.
6) Listen to your broker.
Brokers are there for one reason, and one reason only. To place trades that you choose to make, and to make money doing it. A broker does not have your best interests at heart. And many brokers (especially online brokers where you place trades electronically without ever talking with a human) aren't even trained in the Forex market. They are trained to place orders, and usually have no better idea what the forex market is going to do than an educated trader. Brokers make their money whether you make a profit or not. Win or lose, they get their cut, so all they want you to do is place trades. As many and as often as possible. The more trades you make, the more money they make, and the less you make. Also, make sure you choose a reliable broker. There are some brokers that are actual scams. They take your money, pretend to place your trades, and you'll never see one cent of your account. Be sure you only deposit your hard earned money with and find a reliable Forex broker.
7) Use a Forex Robot or Automated Trading System
One of the latest crazes are these robots or automated trading systems. You install or set up this robot to do all your trading for you, even while you sleep. Each one of them claims amazing profits and returns and all you have to do it buy it, install it, and turn it on. Here is a simple question for you... Do you really think something that is "guaranteed" to turn $500 into $50,000 in 3 months is really only going to cost you $97.00? Think about it. Why would somebody sell this if it could make them that kind of money? Bottom line is that there are no free rides. Robots have several inherent flaws, including, but by no means limited to, they have no heart. They can't feel the market. And they are "reactionary", which means they are based on past trends and lagging indicators, and any little news event or unforeseen turn of the market is invisible to them. This, among other things, causes their downfall. They may work a little, for a little while, but will ultimately wipe out your account.
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Good trading and be smart out there,
Mark K.
