Do 95% of Forx Traders Lose?
It is speculated the as may as 90% or 95% of forex traders are unable to succeed in the market. This forex myth has plagued many forums and alleged market professionals but one must wonder the origins of such data. After researching the subject we concluded that this figure originated from a survey that was conducted in the early 90’s on the futures market (retail) where 90% of traders were unable to profit.
For some reason this figure leaked into the Foreign Exchange market and is wrongly presented as a solid fact. US regulations force US brokers to present the total of profitable traders vs. traders that have lost in the market. It appears that approximately 30% of traders (US brokers) are able to profit in the forex market.
It is currently impossible to differentiate between traders that use algorithms or trading signals services but we can tell the ‘95% lose figure’ has been over-exaggerated.
The exact number of traders that profit or lose in the forex market is quite irrelevant as it does not contribute to one’s success in the market. Based on our experience in the leading capital markets we will explore what may be the obstacles that are preventing many traders from succeeding in the market.
Can Anyone Trade?
Many perceive that if you set your mind into things and you are truly committed you are bound to succeed. Unfortunately, trading is not a profession that can be conquered by studying and researching alone, otherwise we would have seen a greater percentage of successful traders. We will explore some of the qualities we believe successful traders posses.
Many traders tend to panic when the market nears their stop loss orders or when their accumulated profit drops in their open positions. Seeing the market several pips form your stop or watching your profit on open trades drop from +60 pips to +14 pips may certainly trigger an emotional response form the majority of traders.
If you experience difficulties in eliminating such emotions, which are perfectly normal, trading may not be suitable for you. Such emotions may eventually lead to enlarging the stop loss order, which automatically increases your exposure to the market and possibly cutting trades ahead of time with minimal profit that dents is more than likely dent the conservative risk management that is used by forex traders.
Cold decision-making is required and we believe it is something you either possess or you don’t. It is extremely difficult to tame such emotions and we suspect the majority fail in doing so. To conclude, extensive research and studying the markets may not necessarily reflect in your trading performance if you lack the ability to make cold decisions.
Forex Trading: The Capital
Many traders still believe trading can their life upside down by just predicting whether the price will trend higher or lower. The ‘simplicity’ of trading encourages traders to invest capital that is beyond their ability to lose. As the traders cannot afford to lose this capital they invested the psychological pressure is enhanced and is well-reflected when losses are incurred.
The trader takes upon himself or herself greater risks in order to reclaim the lost capital (which is something you never do). In light of the psychological pressure the trader’s decision-making is affected, which in most occasions lead to tremendous losses.
The invested capital must be an amount one can afford to lose and will not be missed if it is erased by the market regardless of the type of risk management that is used. We believe the majority of traders do not accept losses in the market, which is one the main reasons why traders are unable to succeed in the market.
Traders must be more than willing to accept losses as an undivided part of trading. Traders must also acknowledge that losses can be consecutive, 7 trades in a row for example. When this is achieved trading will be come less stressful, which may improve the decision making in the market.
As we document all our trade alerts with the chart we used to derive the trade alert and in-depth technical/fundamental commentary you may note that since May 2014 we experienced on month were losses were incurred. The reason for that is also knowing when to sit on the fence (on hold) when the market conditions change.
A great example of this was seen in January 2015 where we only released a single trade alert in EURCHF and earned +328 pips (approx.). A deep market experience is required in order to know when to sit on the fence until the market conditions stabilize, which are essential for the success of the trading strategy that is used.
Memory is the Key
Some of you may wonder how having a good memory may improve one’s trading performance in the forex market. It is important to study how the currency pairs react to economic figures and key market evens in real time. Watching the prices and how they form technical patterns may assist you in the future.
Remembering how the market reacted to certain events or the buying/selling pressure that technical patterns triggered may serve you as well. It may improve your ability to recognize technical patterns and how to interpret outside market events into predicting the market price.
Algorithms and Trading Signals
Algorithms, commonly known as Expert Advisors (EA’s) in the MetaTrader4 (MT4) may solve the above but comes with a fairly moderate risk. Blank trading signals where an just an entry, stop and take profit is provided without the logic behind the trading signals may keep the trader in the dark and prevent him or her from acting on his or her own accord in the market.
You may read ‘How the Smartest are Being Outsmarted’ article where we expand on automated trading and trading signals providers.
This is why we at ddmarkets take the time to clarify the reason behind our decisions, which may assist the trader in determining the leverage for the trade and perhaps dismiss certain strategies if there are disagreements with our projections. We encourage traders to act on their own accord and further understand the market from our trading strategies.
To conclude, your character plays a significant role in trading, which is of course not limited to the Forex market. We hope you found this article useful. Join us to benefit from our current and future market research.