Reasons Why Forex Traders Lose Money: 15 Deadly Mistakes

There are many reasons why forex traders lose money, meanwhile, many of these mistakes that forex traders make are avoidable.

For example, I just got a message from a trader who crashed $5000 because he wanted to double his money as fast as possible. This forex trader abandoned a working strategy built into my profit forex robot and used what I would refer to as an aggressive setting.

And that is why I am writing this article; I get messages from forex traders about their hefty losses every time.

How can you minimize your losses and prevent losing all your funds to forex trading?

I have revealed 11 mistake patterns that I have noticed over the years. If you can avoid these mistakes, your losses will be minimal, and you will likely be in profits.

1. Greed – Most Forex Traders Are Greedy

Some years ago, my younger brother had just completed his forex trading training with me. I shared all my experiences with him and why I decided to take things slow and steady.

He would start with $100 and was well grounded in fundamental analysis.

To my surprise, Steve did not contact me for the next few days. We were at the same university; I was waiting to hear how he was doing.

After five days, steve broke the news. He lost all the $100 in his first trade. How? He abandoned everything I had taught him for greed.

He approached forex trading like gambling, with no stop-loss, high take-profit and the most elevated lot size anyone could ever use on a $100 capital.

I laughed hard. It was his last $100. and that was my final forex trading class with him. So I told him to quit forex trading. 

If you are like steve and you think you can just get lucky with one or two trades or you cannot respect the process, then you should quit.

Just like steve and many other traders, sometimes, the problem is not the need for a profitable trading strategy but greed!!.

Greed is the top most common reason why forex traders lose money. If you can reduce your greed to the bare minimum, you will be on the path to profits.

2. Use of Untested Forex Robots

Another reason why forex traders lose money is that many use untested forex expert advisors with undocumented results or strategies.

There are many forex robots on the internet, google.com and search for the term; “best forex robots”.

You will find many websites with different kinds of forex robots and automated systems with claims of sustainable profits.

Most of these Forex expert advisors are created with the sole purpose of enriching the creators and not the end users.

To prevent this, consider the following before buying any forex trading system on the internet;

• Is there a live account proof for this forex system where I can see the previous and current performance?
• Please do not fall for screenshots, as they are sometimes manipulated to deceive you
• Do proper research about the creator of any forex trading system you want to buy as regards the name of the creator and their experience in forex trading
• If you purchase any forex trading expert advisor, you should backtest on a demo account and verify results before using it on your live account.
• Try to understand the underlying strategy of a forex robot or expert advisor.

3. Unrealistic expectations

Traders with unrealistic expectations about how much money they can make from forex trading are often disappointed and discouraged when their results do not meet their expectations.

I always tell forex traders not to over-expect. For example, I have always advised investors to look at %20-100% ROI per year rather than monthly.

Forex trading is not a get-rich-quick scheme. Keeping your expectations low will prevent you from greedy Trading.

4. Sleep

For example, suppose a trader lives in a timezone significantly different from the forex market’s operating hours. In that case, they may have to stay up late or wake up early to trade actively, and this can disrupt their normal sleep cycle, leading to fatigue and reduced cognitive function during trading hours.

Fatigue can affect a trader’s decision-making abilities, leading to poor judgment and impulsive trading decisions. 

In forex trading, split-second decisions can significantly affect profit and loss. For example, a tired trader may miss important signals or overlook critical market information, leading to missed opportunities or losses.

Additionally, if a trader is not getting adequate rest, their stress levels can increase, leading to anxiety and emotional Trading. Emotional Trading can cloud a trader’s judgment, leading to poor decision-making, and can cause them to act impulsively or inconsistently with their trading strategy.

Sleep is crucial for a trader’s health and trading performance. A lack of sleep can negatively impact a trader’s decision-making, emotional stability, and cognitive function, leading to poor trading performance and losses.

5. Lack of Adequate Trading Knowledge

Many traders need proper education and experience to enter the forex market, leading to poor decision-making, a lack of understanding of market dynamics, and overall poor performance.

Another mistake Forex traders make is not doing enough research and analysis regarding markets, strategies, and their own trades. Beginners may jump into the market without a clear strategy, meaning they lack the knowledge needed to succeed in the market.

 Even experienced Forex traders must regularly research and analyze their trades and markets to stay on top of trends and capitalize on opportunities. 

Therefore, traders must use reliable sources of information, such as reputable websites or books written by professionals, to better understand markets before making any trades.

6. Putting Too Much Trust in Indicators Without Considering Their Short Commings

There are many popular indicators that forex traders use to predict price movement and forex directions.

For example, many forex traders consider MACD a trend-detection indicator and RSI predicts reversals; changes in trends.

While indicators can provide valuable insights into the market’s direction, they are not infallible and can sometimes provide false signals or misleading information.

Because indicators Lag!!. They use the past to predict the future based on preset mathematical formulas.

Forex traders who rely solely on indicators to make trading decisions without considering their limitations risk making poor decisions that can lead to significant losses. 

For example, an indicator may give a buy signal when the market is already overbought or a sell signal when the market is oversold. If the trader blindly follows the indicator, they may enter or exit trades at the wrong time, resulting in losses.

7. Stupid Faith

This is one of the reasons why many swing traders lose money to forex trading.

Swing trading is a type of trading strategy that involves holding positions for a few days to weeks.

One time, I met a forex trader who was praying that the market would move in a particular direction for a few days so that he could profit from it.

Though funny, it has happened to many of us. The currency market is highly volatile and unpredictable.

Put your faith aside and cut your losses while you can.

8. Picking the Wrong Forex Broker

Can a forex broker cause a forex trader to lose money? Yes, it happens.

Take, for example, my experience with a broker. I would profit from a news release whose movement I have accurately predicted.

My broker then delayed my pending order, so I could not meet the trade. They also increased the spread fee, making it more challenging to record a profit at that time.

There are also claims on the internet of scam forex brokers who run away with money deposited by forex traders.

If you want to reduce your risk of losing money to forex traders, start by selecting a regulated and trustworthy forex broker.

9. Following Untested Trading Signals

Relying solely on untested signals can cause traders to neglect to develop their own trading strategy. 

Traders who do not have a solid strategy in place are more susceptible to impulsive and emotional trading decisions.

Unreliable signals can lead to inconsistent trading performance. However, traders who rely on these signals may experience significant gains one day only to suffer significant losses the next.

10. Not Having A Plan or Trading Strategy

A fundamental mistake Forex traders make is not having a plan due to a lack of knowledge or discipline. Having a strategy and sticking to it are the most crucial elements when trading the Forex market. 

Without a trading plan in place, emotions tend to take over, influencing decisions that may result in losses rather than profits. 

If you do have a trading plan, make sure to stick to it! Stay committed to it, no matter how desirable the result might appear.

11. Unavoidable Price Movement

Like the example in the image above where the GBPUSD pair was impacted to move many pips within a few minutes, unavoidable price movements are an inherent risk in forex trading. 

For example, Unavoidable price movements can be triggered by unexpected economic events, such as interest rate changes or political instability.

Brexit referendum in June 2016: The GBP/USD pair fell by over 9% in a single day following the UK’s decision to leave the European Union.

The global financial crisis in 2008: The USD/JPY pair dropped by over 3,000 pips in the weeks following the collapse of Lehman Brothers in September 2008.

These events can cause sudden price movements that can lead to significant losses for traders who are caught off guard.

Traders who use stop-loss orders to limit their losses may be affected by unavoidable price movements that trigger their stop-loss orders. This can result in closing out trades at a loss, even if the trader’s analysis was correct in the long term.

Traders should be aware of these risks and have a solid risk management plan to help minimize potential losses.

12. Undercapitalization

Traders who are undercapitalized often take on a higher risk to try to generate larger profits. This can lead to significant losses if trades do not go as expected.

Undercapitalized traders may not have sufficient margin to hold trades through periods of volatility or unexpected market movements. This can lead to forced liquidation of trades at unfavourable prices, resulting in losses.

It is the reason why I suggest $10,000 trading capital as a minimum. Traders should ensure they have adequate capital to cover potential losses and avoid taking on unnecessary risks.

13. Over Trading

Traders who trade excessively or impulsively can quickly burn through their trading capital.

For example, Each trade in forex trading incurs transaction costs, such as spreads and commissions. Overtrading can lead to an increase in these costs, which can eat into profits and increase losses.

Overtrading can lead to an increase in risk exposure, where traders may take on positions that are larger than their account balance or exceed their risk tolerance. This can result in significant losses if trades do not go as expected.

14. Risking Too Much Capital per Trade.

Trading with too much leverage or risking too much capital per trade is a common mistake. 

Amateur traders tend to overtrade and take too many unnecessary risks. It is essential to remember that no matter how confident you are in your trades, the market can go against you at any time. 

To mitigate this risk, traders should pre-determine their risk levels and avoid trading large amounts of capital on a single trade. Risk management is an essential part of trading Forex successfully, and it shouldn’t be taken lightly.

15. Doubling Down After Losses

Another common mistake that beginners make when trading forex is doubling down in the hope of recovering some of their losses.

If a trader takes a risk and loses, the temptation to “double down” can be hard to resist, but it often only leads to more losses.

Instead, traders should focus on setting stop-losses and profit targets so they can exit any trade that has reached either one while taking responsibility for their mistakes.

Summary – Top Biggest Reasons Why Forex Traders Lose Money

A summary of the top reasons why forex traders lose money is listed below;

1. Greed
2. Use of Untested Forex Robots
3. Overexpecting
4. Sleep
5. Lack of Adequate trading knowledge
6. Trusting Indicators
7. Stupid Faith
8. Picking the Wrong Forex Broker
9. Following Untested Signals
10. Not Having A Plan or Trading Strategy
11. Unavoidable Price Movement
12. Undercapitalization
13. Over Trading
14. Risking Too Much Capital per Trade
15. Doubling Down After Losses