The truth about Forex Trading (and why most people lose)

Forex trading has become very popular in the Spanish-speaking world in recent years. The aggressive advertising of many brokers show it as the definitive solution to achieve financial independence. For their part, influencers present it on social networks as a way to achieve a high standard of living in a short time.

Thus, thousands of Spanish citizens and those of Latin American countries throw themselves into the activity thinking that it is going to be the solution to their financial problems or in search of a job that will make them rich, dedicating only a few hours a week.

But the reality ends up being very different. Broker data shows that more than 75% of private individuals who trade lose money. Some go further and say that 90% of people who start in this activity lose 90% of their capital in their first 90 days.

So does this mean that there is no way to win at trading? Absolutely. These statistics show that the majority lose and it is usually because they make basic mistakes. If you avoid doing what the majority does, you have a good chance of achieving better results than them.

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Here are the most common mistakes that are usually made. Do your best to avoid them and you will be one step ahead of that losing majority.

Lack of knowledge and practice

Trading is an activity like any other. It requires a period of training in which the basic concepts are acquired, another of practice and another of improvement. Profitable traders have gone through all three stages and it has taken time.

Imagine that you take your first driving lesson today. Do you think you could become a professional motorsport driver and make a living from it in a few weeks? Well, this is the biggest mistake that private traders make. They discover the activity, read a book or take a course and believe that from then on it will all be about making money. They take risks that are too high for their level of knowledge. Or they directly make bad decisions because they lack experience.

If you are going to start trading, accept that it will take you a long time to master the activity. Educate yourself well, prepare yourself mentally in advance and start trading with very little money. At first you will lose, but you will gain experience and knowledge. As time goes by and you gain experience, you will see that the results arrive and you will be able to increase the amounts with which you invest. Never think that you already know everything and stay in a state of constant learning. Regularly read articles about forex and currencies in Spanish. It will be of great help to you on your way.

unrealistic expectations

Unprepared traders approach the markets thinking of making a lot of money in a short time or multiplying their initial capital several times. Seeing that their profits do not reach the limits that had been set, they risk more to qualify for greater benefits. Sooner or later they end up suffering some loss that is too high that affects them financially or emotionally and they leave the activity.

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In the same way that you must accept that it will take time to start making profits, you must keep in mind that these will be a small amount compared to the amounts invested. To live from trading it is necessary to have a very high capital and a lot of experience. Most private investors should settle for a return on their savings that avoids devaluation due to inflation.

Chasing the price, euphoria and fear of being left out

Experienced traders look for assets that have gone down a lot in price and that no one seems to be paying attention to. These are the ones that can be revalued and give them benefits.

By contrast, those who have just started move with what others say and do. If the news reports that the price of oil is rising because of the Ukraine war, they buy oil. If they say that Bitcoin has made all-time highs, they buy Bitcoin. So over and over again.

The problem is that when this news reaches the masses it is because the best is probably over. The asset in question is usually on the verge of a period of stabilization or a change in price direction. Uninformed traders buy and end up losing money.

To aspire to be profitable in this activity, it is important to know how to analyze the markets for yourself and not trust what the masses say. The best time to buy an asset is usually when no one wants it and the worst is when everyone is euphoric and won’t stop talking about it.

not accept losses

In trading, sometimes you win and sometimes you lose. It’s intrinsic to the business and many of the best in the business lose about half of the trades they get into. The key is that those losses are lower than the gains. This results in long-term benefits.

Experienced traders have no problem admitting they were wrong and closing losing trades quickly. Thus, they avoid greater evils and conserve their capital to continue operating.

On the other hand, those who do not have as much experience are not able to bear the fact of being wrong. They leave their positions open and hope that the price will turn around sooner or later and they will be able to close the trade without losing. Most of the time this causes them an even greater loss.

Fear of losing what has been gained

Unprepared traders get nervous when they see the price going in their favor. Instead of taking advantage of the situation and letting their profits run, they begin to think that the asset could be turned over and that would make them lose the virtual profits that they have carried so far. In most cases, they close their positions with a small profit when they could have made a much larger one. It is common that this small profit is not enough to cover the losses of your negative trades.

On the opposite side are traders who know how to take advantage of good trades and days when things come their way. When the price moves in their favor, they place their stop loss at breakeven and let the price move. In the worst case, your trade will be closed with no profit or loss. At best, they will adjust the stop several times as the price moves up and close the position with a high profit that could be the entire month’s profit.

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The same can be applied to the total duration of the sessions. An uninformed trader may call it a day after a few positive trades, for fear of ending the day at zero or in the red. Instead, the good trader will prolong the session if he sees that his system is performing better than usual that day.

Not having a plan (or not having enough discipline to follow it)

Before sitting down to launch operations in your favorite market, you must have a clear strategy and action plan. You must know exactly what your entry and exit signals are and where you are going to place your stop loss and take profit. You cannot sit in front of the computer and improvise, because the results are usually disastrous.

Many first-time traders try hard to design and study a trading plan, but as soon as they sit in front of the screens, they are unable to follow it. In some cases, they lose patience because the entry signal they expect does not appear, in others they start skipping conditions and do not enter or exit when they should. Even if they have a profitable strategy, they do not make a profit because they do not apply it correctly.

It is common for many newbies to come to the market eager to start opening and closing trades. When they spend some time doing nothing, they start to get bored and operate completely ignoring your plan.

The best traders operate a bit like robots. They know exactly what signals they are looking for and ignore the rest of the scenarios. If that means they’re not going to do anything for the entire session because the conditions aren’t right, they’re not worried at all.

Do a little of everything instead of specializing

In trading, each market has its own peculiarities and it is necessary to study them thoroughly. Experienced traders often specialize in a number of specific assets and very specific strategies. Instead of trying to “shoot everything that moves” they wait patiently for a specific situation to play out and exploit it. Over time, and as certain situations are mastered, more assets and more strategies can be added.

Losing traders often do the exact opposite. They are afraid of missing out on opportunities and enter everything they can. This means that they never get to gain in-depth knowledge of any market or any strategy, which prevents them from advancing in their careers. At the same time, by getting into situations they haven’t studied enough and don’t master, they often end up losing more than they gain.

The tendency to change plans and try different things is usually more pronounced at times when you lose more. If a strategy was working well and there are a few sessions where no results are achieved, impatient traders start making changes that get them nowhere.

Not taking notes to assess your actual performance

Keeping a detailed journal with the information of each of your trades will allow you to analyze them after each session. This way you will be able to detect if your strategy does not give the expected results or if it is you who is not following the plan. At the same time, it allows you to know exactly if you are losing or winning and by how much.

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All serious traders keep a journal that allows them to analyze their actual performance and shows their progression over time. Instead, losing traders believe that all work is limited to the time they are in the market. They tend to overestimate their results and do not know exactly how their strategies are performing.

Lack of emotional control

To be a good trader, two characteristics are essential: nerves of steel and a resilient personality. In many cases, you will find that you have done what you should and, even so, you have ended up losing money. It does not mean that you have done anything wrong, but trading is a matter of statistics. Sometimes you will have to go through losing streaks and there is no way to avoid them.

Serious traders take these periods philosophically and go ahead trying not to let it affect them. Others are not able to do it and lose their temper. They start to ignore your plan, get angry and trade aggressively trying to “get revenge” on the market. Needless to say, this never ends well.

Be honest with yourself and analyze how you feel during your session. If your emotions are running high or if you’re starting to jump in and out of trades with no sense or control, it’s a good idea to take a break. The markets are going to be there tomorrow, next week and next month.

In summary

As you have just seen, most people who approach trading lose because they make serious mistakes that are easy to avoid with the right mindset. In many cases it is not just one, but several are chained and this makes their results worse exponentially. Keep these tips in mind and you will be closer to becoming a profitable trader:

  • Train, practice and be patient. Accept that the results usually take time to arrive
  • Set realistic goals for your capital and your level of knowledge
  • Do not get carried away by the news or the opinions of others when investing
  • Accept that sometimes you lose and close your losing trades as soon as possible
  • When the price moves in your favor, adjust the stop loss and let the profit run
  • Create a trading plan, execute it to the letter and do not improvise
  • Specialize in a few assets and strategies and don’t introduce more into your trading plan until you master them completely.
  • Keep an updated journal with all your operations and review it frequently
  • If you notice that you are starting to take what is happening in the markets personally, take a break.

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