The 5 most common reasons for traders' losses!

The forex market is undoubtedly the largest financial market in the world, with an average daily trading volume exceeding $5 trillion.

As the forex market becomes more open and globally competitive, forex investment has gained recognition among an increasing number of investors.

With more and more investors joining the ranks of forex trading, it cannot be denied that there are individuals who have become overnight millionaires through forex trading. However, what we mostly hear are countless stories of traders losing everything in the forex market.

In reality, there are many reasons for these outcomes. Many traders dive into trading without actually understanding the forex market.

A staggering fact is that over 95% of new investors lose their entire capital within the first six months, even though many of them view forex trading as a shortcut to quick wealth.

So what are the most common reasons that lead to losses for forex traders？

Weak risk awareness

This is a major reason why many traders experience losses. In forex investment, risks are omnipresent. If one only focuses on how to make money without considering the risks, it's similar to someone catching snakes solely for the purpose of selling them without thinking about what to do if they get bitten by a snake. Regardless of how many snakes they catch initially, if they get bitten once, it will all be in vain. Forex investment follows the same principle.

Having risk awareness is a crucial cognition that every investor should possess. Successful traders quantify and analyze risks, truly understand and accept them. Before entering a trade, they calculate the ratio of potential profit to loss for the invested capital and make a decision based on that. They have a risk awareness that sets them apart from others, allowing them to survive in the forex market consistently and earn the deserved returns while safeguarding their ultimate interests.

Not setting stop-loss orders

Many people fear losses and fail to set stop-loss orders, which ultimately leads to increasing losses and even margin calls. When your trades start to incur losses, you may initially feel indifferent. However, as the losses accumulate, you might find yourself like most others, hoping that the trades will eventually turn around, either by shifting from floating losses to floating gains or by reducing the losses. You may continue to add to your positions to lower your average entry price, gradually adjusting your stop-loss levels until you no longer have enough funds to sustain your positions. It is only after experiencing a margin call that you realize you have been constantly battling against the entire market. Perhaps there were a few lucky instances where holding on to losing trades brought substantial profits, but there will always be that one time when you lose everything.

Therefore, it is essential to set proper stop-loss orders in forex trading. If you enter a trade without setting a stop-loss, especially during the late stage of a consolidation period, a margin call can occur if the subsequent major market trend moves against your position.

Lack of patience

Due to the desire for overnight wealth, many investors expect prices to immediately move in their favor, preferably with significant momentum, to fulfill their dreams of sudden riches. This impatience often leads to a lack of patience. However, the probability of such scenarios occurring is minimal. In most cases, once you enter the market, it seems to act in opposition to your expectations, moving in the opposite direction.

Furthermore, some investors constantly monitor their accounts after entering trades, observing the fluctuations in profits and losses. This not only wastes time but also increases investors' anxiety. The more anxious they become, the more prone they are to making mistakes in their trading decisions, ultimately leading to losses.

Lack of patience is a major enemy of investors when it comes to making profits. Without patience, investors are prone to trading at the wrong times, ultimately leading to losses.

Using high leverage

Many investors hope to multiply their profits through high leverage, but they fail to consider that high leverage is a double-edged sword. When used correctly, it can amplify investors' returns. However, in the absence of favorable factors such as trading skills, high leverage can also magnify losses, quickly depleting investors' funds.

Overtrading

Overtrading is the root of all evil in any trading market. It is associated with all the unfavorable investment habits, such as losses, frequent stop-losses, excessive trading, distorted greedy mentality, focus solely on making big profits, and inability to see risks. In investment, overtrading is driven by investors' greed, always seeking profits beyond their capabilities and without proper assurance. It is crucial to be mindful of trading in appropriate volumes and avoid overtrading. After all, in the investment market, nobody can predict future events with certainty, and significant fluctuations in account equity can occur with even slight changes in exchange rates. This increases the risk and is not favorable for investments. Therefore, it is important to trade in appropriate volumes, avoid being excessively persistent, as the outcome may not be favorable.