Even though they use the most detailed charts, mechanical tools for trading, various indicators, and devices for elemental analysis, foreign traders also known as forex traders do lose their investments time-to-time. Even the most well-known and expert investors have in their days suffered loss and heavy blows. Experts are of the opinion that like winning, losing is a systemic- requirement of the process of trading.
An array of variables come into play and affect the task, such as decision- making skills, pressure from peers, mental aspirations and aspects, unsuitable trade terminals, and for some even superstitions. Following are the most- recognized reasons for trade loss.
Inadequate Risk Management
A very high skilled trader could be a victim of poor management actions. Traders who get caught up in the investment- profit and re-investment chain and do not prioritize the safety of their profit are more likely to incur losses. With less capital to invest, the chances of making a profit also go down. Setting up stop- loss and take- profit if used at specific points in the process of making trades can result in the achievement of sufficient gains. Lot sizes are also to be focused upon, and if they are in reasonable comparison to the account capital, then it is good news.
Management of risks is vital in a market, be it volatile or not.
Emotions if kept at bay while trading is the way to go, but human is rarely away from them. Greed for more profits, jealousy from a colleague, desperation, and at times over-confidence. Traders hold on to their positions, with specific tactics and techniques applied that reap in similar patterns, but if they don’t get on before the currency pair turns, they stand to lose all that they might have earned. Currencies are fluid and move frequently. To wait for the last second can be a grave risk.
Apart from greed, the most prominent emotion is a fear that needs to be tackled. When suffering from a series of losses, many traders make the mistake of stepping out from potential profit-earning investment and in turn lose good opportunities.
On the other hand are the ‘know-it-all’ traders. A string of wins makes the person overconfident. Mistakes, like life, are a part of trading, and owning up to them is the best option. Not learning from the mistakes result in failures, and thus losses.
Trading Tops or Bottoms
Beginners tend to spread their investments and add on to bad trades. Too much focus on turning points, place trades, currencies, in a hope to establish a pattern is common. But this, in turn, poses the risk of exposure to negative account balances. Aggressive decision-making makes a recipe for disaster, for instance choosing a bottom while a downtrend is not always fruitful, as, experts traders would do so once the market starts correcting in an upward direction. To think that beating the market to prove a point is a common habit among traders.
Like any acquired skill, trading as a profession is mastered with practices, work, and learning that expands over the years. Keeping a log or journal of the moves, investments and otherwise might come in handy. This would act as a record of decision that has been made and hence will help to repeat the good tactics and eliminate the bad ones.