Why People Lose Money Trading Forex
When you lack the knowledge you will lose money in forex
Forex trading remains the easiest and the quickest way of generating an income or making money. Though it's a business that is not free of risk like any other investments. How you manage risks determines how long and profitable you remain in the game.
In my early days when I didn't have much knowledge about trading forex, I invested $200 and I ignorantly turned it to $1000 in less than two weeks. I did this while I was working a day job and it was such an incredible experience for me at that time.
Making money in Forex can be fast and easy, depending on market conditions but also losing money is inevitable. Forex is a game of financial institutional betting on the movement of price to go up or to go down.
Forex is a financial institutional gambling and when you've had the taste of the money and how fast it can come, you can get addicted. Greed steps in, you may find yourself taking big risks in the hope of making a million dollars in one day. This is the point traders fail and lose capital plus profit.
Let's look at the reason people lose money in forex:
Lack Of Forex Education
Like I said earlier about how I turned $200 to $1000 in less than two weeks without knowing what I was doing, I also lost the entire money in one day because I didn't know to have the knowledge then of what was happening in the market.
I made that money because the market was moving in a range or was consolidating (I didn't know that then). The day I lost it all, the market made a breakout and kept moving up. I kept opening sell positions with the hope the market will retrace and I would make some bloody cash but it never did! I blew an entire $1000 account in one day due to a lack of knowledge in trading. I made money ignorantly and also lost money ignorantly, what an irony.
So if you're interested in trading forex, take your time and get a little forex education first. Try babypips.com it's one of the best sites out there to help beginners have good knowledge about forex trading.
Trading With Large Position Size
When you trade with a large position size with a relatively small account, you can make money real fast and turn that small account into a big one. But it's very risky, you can also wipe your entire account or take big losses when the trade goes against you. Most times, the market is supposed to go down for instance and you are very sure of it.
You now open a trade with a big position size of 0.10 lot with an account of $100. Instead of the price to go down, it will go up first and your account will be in the red. It may extend in the opposite direction before coming way down. So if you lose if you used a stop-loss or your account may get wiped out if you didn't. If you had opened with 0.01 lot size and the price went the other way round you will have nothing to be afraid of.
Trading with big position size can make you money fast but can get you killed if the trade goes in the opposite direction. That's why it is advisable when trading to always keep your risk small so you can sleep well at night.
Selling at Support And Buying At Resistance
I made this mistake so much in my trading days and it cost me a lot. When price makes a sharp move up, it is tempting to jumping and make a quick buck of which you can. But if you don't know what Support and Resistance are you can get into the trouble of a Pullback.
When the price is going up fast, you open a buy other make a quick buck and exit. You see it's still going up and you open another and bam! The price pulls back and you are in a loss. Why, because anytime the price goes up it must hit a major resistant zone and pull back.
The same goes when the price goes down and it a support zone. If you sell there, you risk the price pulling back on you and going up.
Trading In Choppy Markets
What's a Choppy market? This is when the price doesn't seem to have any direction. This is the time not to trade. If you trade in these types of market conditions, you stand a high risk of running made and losing your entire profit plus capital. It's one of the most difficult market situations to trade. It's best not to trade at all and keep your money.
In a Choppy market situation, a trader thinks that the price is going up and he enters a buy order only to see the price goes up a little and sharply goes down. If the trader is scared and doesn't want to lose, he may decide to quickly close the position at a loss only to see that the price starts going up again.. If the trader gets mad and enters another buy other, it will pull back again!
Trading Choppy markets can make one go nuts! So please if you don't want to lose the money you must first recognize them, and stay the fuck out.