For many individuals, the Forex industry has become a nightmare. The statistics are clear about that. The average trader of Forex loses money, a highly discouraging fact considering the amount of enthusiasm they usually bring to it. This situation is worse than you might think. And it might also shock you to know that despite all the pomp that graces it, Forex trading, in many quarters, is now synonymous to financial loss, or something close to it.
Understanding Why Forex Traders Lose
But why is that so? Of course, for precautionary reasons, you deserve to know. Even if you do not have control over those reasons, there is this respite that knowledge brings. And, with your knowledge, if you make efforts, at least, you could end up being able to better manage those negative factors within your control that have been affecting your performance and that of so many other traders. After all, all that we can influence our success is what is within our control.
Why Do So Many Forex Traders Lose
Unsurprisingly, the most critical reason so many Forex traders lose is a psychological one. To put it well, human psychology is the major reason why financial trading is so difficult. According to this study, the majority of trades are successful, yet most traders lose. Largely, those losses are attributed to major currency moves in the opposite of the direction that traders anticipate. In the research, over 40 million real trades were analyzed to find why Forex traders lose, what can be done about, and the appropriate way to trade.
The results of the research were as interesting as surprising. First, over 50% of the studied trades across the different Forex pairs were closed out at gains. In fact, for example, traders won at least 61% of all the trades involving the EUR that they placed. A very impressive performance, isn’t it? Those findings only beg for one question: if those traders were right at least 50% of the time, why were they still losing money?
Well, from the same study, the answer to that question was also proposed. And it is no less interesting than that question itself which prompted it. Despite closing out at again 50% of the time, those traders lost money because they lost more on their losing trades and made far less on their winning ones. That is, they won more in trades, but far less in pips. In fact, on the EURUSD pair, for example, traders lost 70% more on their losing trades than they made on their wins. What a sad thing!
So, if we extrapolate beyond the analyzed 43 million trades, the problem becomes obvious: traders do not cut their losses short and they do not allow their winners to run. That is exactly why so many of them lose. The good news, however, is that there is something that can be done about it.
Forex Trading Signals to the Rescue
Cut your losses short, let your winners run. For anyone, that is the sensible thing to do. But why do so many Forex traders, as smart and learned as they are, fail to do exactly most times? Why do their average losses outweigh their gains? There is a reason for that, but the inherent cause of that reason is why it is so hard a problem to solve. It is the psychological tendency of humans to be far more hurt by their losses than to be pleasured by their gains.
That is, most traders that are failing are doing so because of the psychological tendency to hang on to their losing trades, even when they are losing, simply because the pains that they will get if they close them at a loss cannot be outweighed by the pleasure that they will similarly get on their winning trades. For so many traders, losing is simply more painful than winning. For most of them, the two are not equivalent in any way. That is a psychological problem. Hence, the solution has to be a logical one.
That means that for most struggling Forex traders, results can be improved if only they could take a purely rational approach to the market. A dollar lost is not greater than a dollar gained. It would take far more effort to ramp up an account after it is wiped out. That is exactly why you should, on every trade you make, seek a bigger reward than the risk you take. To do that, you need to trade with a balanced risk-reward ratio.
However, since psychological bottlenecks make that difficult to do for the majority of Forex traders, the use of the Forex trading signal can help.
Achieving a Balanced Risk-Reward Ratio with Forex Trading Signals
Forex trading signals can help you achieve a balanced reward-risk ratio which would correspondingly help you avoid the biggest mistake most Forex traders make. For you to know how that is possible with them, you should know how they are devised in the first place. The difference Forex trading signals make stems from the expertise and the carefulness that go into generating them.
For example, many expert human analysts and traders devote their time to analyzing changes in macroeconomic factors and on charts to find high-probability trading opportunities. These individuals create Forex signals that achieve a balanced risk-reward ratio because they always include the following standard details for each trade they prescribe:
- Pair to be traded,
- Exact order type to be made,
- Entry Price
- Take Profit, and
- Stop Loss.
1000pipBuilder is such a signal service. By helping you eliminate all the psychological barriers between you and Forex trading success, they can launch you into that Forex glory that you rightly deserve. So, subscribe to their signals.