How not to lose money trading Forex

Having money is important in this day and age. Money helps you live better, improve the lives of your family and friends, have access to modern technology, travel and feel free.

We all want to make a lot of money when we start trading currencies. Sadly, we quickly realize that making money in the financial markets is not as easy as it looks. Most traders lose money and blow up their accounts. On the upside, there can be found many individuals who have mastered the art of trading. We can learn how to manage our trades and keep our balance safe when drawdowns are occurring. Forget about the profits, if you can manage to not lose money when you are learning how to trade, you’ll be able to grow your account later on.

Experienced traders call the first blown up accounts a trading tuition. There can be a lot to learn from your mistakes in life. In trading, this simple truth is even more important. While learning from your mistakes is brilliant, learning from other traders’ mistakes is even better. As it can save a lot of money and accelerate the learning curve.

Losing is the part of the trading process

Before we dive deeper to understand what are some of the ways to keep ourselves from losing money, it’s important to realize what trading actually is. Trading is like running a business. It’s risky. There are days when the business does well and days when everything goes wrong. In trading, losing is part of the process. The key is to survive the losses and let good days generate account growth.

Why most traders lose and how to avoid making the same mistakes

There are many ways to make money in the market. However, all of them are very hard to utilize due to fierce competition. Most traders lose money because not everyone is good at trading. It takes time, resources, and energy to master the skills and develop trading strategies that can fit your personality.

The number one reason why most traders lose money is because they want to make money fast. Greed is the biggest enemy in trading. It makes investors overtrade, open larger positions, use high leverage and enter low quality trading setups.

The second reason why traders lose money is that they do not know what they are doing. Forex is packed with useful information. Novice traders have a lot to learn about how prices are created, how currencies are correlated, how fundamentals give direction to the markets, and how technicals are moving the price.

In addition, another big mistake is trading a system that doesn’t fit your personality. Some people make up their minds quickly, for them, high-frequency trading might be more suitable than for people who need more time. Traders who find it difficult to deal with the losing trades, position trading will be more suitable. Being more selective and conducting fewer trades can produce a much better win to lose ratio.

Furthermore, many traders gamble with their money. They learn nothing from their own mistakes and go from failure to failure until the funds are dried up. After a losing trade, it’s very difficult to focus on your next one. The next trade should be backed by reasons and not by a desire to get back what you’ve lost. Revenge trading ruins many accounts. For instance, revenge traders who lose 5% of their balance, risk 10% on their next trade to cover the losses and make some profit. After losing the second trade, they risk one-third of their account to cover for the 15% lost. Soon the results are devastating. In trading, there are winning trades and losing trades. What’s more, they are clustered together. It happens quite often that traders get 10-15 losing trades in a row and 10-15 winning trades in a row. Betting everything on your next trade to cover for the previous losses is the dumbest thing that you can do. Keeping the initial 5% loss is way better than risking the entire account altogether.

What makes some traders consistently profitable and what to learn from them

Now let’s see what makes the winners on top of the food chain chain and what can we learn from them. The biggest lesson is that the winners come in all shapes and sizes. You can find successful fundamental traders, technical traders, day traders, swing traders, high frequency traders, news traders, and more. They all are very different from one another. However, the major similarity all successful traders share is their hard working personality. We all start the trading journey because we think that it’s an easy way to make money, however, all the people that make a lot of money in this endeavor are hardworking individuals. And no wonder, trading is highly competitive.

Consistently profitable traders understand that trading is about probabilities. They always look for an edge in their trading systems and utilize strict risk management to let that edge produce steady income. Professional trades never make any single trade two significant by increasing the position size.

Consistent traders have rules and limits set upon themselves. For instance, one limit might be to stop trading if losses reach 200 USD for that particular session. Or if the drawdown period wipes out 5-10% of the balance, they stop trading for a couple of weeks. Another rule might be to never risk more than 1 or 2 percent per trade. Or to never enter a trade where risk to reward ratio is less than 1:2.

Successful traders do not entrust their results to fate. Thus they avoid trading before the news or if they trade the news, it’s a part of their well-tested strategy.

Ways to protect our accounts from losing money

There are a couple of ways that can help us protect our accounts. The first and foremost is to start thinking in terms of percentages and not in terms of how much money we are risking per trade. Ideally each trade should not be too significant to shift our focus from executing the trade flawlessly. When you risk 1% of your account per trade you can never blow up your account. For instance, let’s say your starting capital was 1000 USD and you risked 1% on the first trade. In terms of dollars that 1% equals 10 USD. Now, let’s imagine that your balance changed to 500 USD. 1% of 500 USD equals 5 USD. As you can see, the risks decrease when the balance decreases. This approach will not give you sharp rises and falls in account balance but it can give you stability. Professional traders understand the importance of gradual growth with low risks. The reason behind this is that investors invest money in predictable funds. It’s much easier to attract and manage other people’s money when you have a history of gradual account growth with a low risk.

Preparation

Another important topic is preparation. Trading needs a proper infrastructure. You need a place where you can analyze the markets and concentrate on your trading. Large desktop screens can give you a better experience when conducting any type of market analysis. It’s important to have a sensible trading balance so that you do not become bored easily and start over trading to double your funds overnight. The goal should be to trade properly and not to make money. When you trade properly, meaning select the best setups and manage risks, the money will follow. Keep in mind that you should only risk the amount of money you can afford to lose.

Demo trading

Demo trading is a brilliant way to prepare for trading profitably without risking actual money. Demo trading can help you create and develop trading strategies, to test and backtest them and learn more about brokers, trading platforms and trading instruments.

Choose a right broker and proper currency pairs for trading

It’s important to choose a broker that offers you access to various asset markets, good educational material and highly trusted trading platforms.

When selecting currency pairs for trading, keep in mind that major pairs are the most liquid and therefore offer the best market spreads. Exotic pairs such as USD/SEK, USD/TRY, and USD/BRL have high volatility and high spreads. Trading exotic currency pairs without a deep understanding of how they work might result in losses. Most novice traders choose major and minor pairs due to low fees, high liquidity and wide accessibility to the information regarding central bank decisions, unemployment data, etc.

Avoid scammers

Trading live is not the only place where you can lose money. There are many scammers selling useless trading algorithms, fake trading signals and low quality classes. Whoever promises you that one trade can make you rich, is most likely a scammer. Trading works best when you reinvest your profits and use the power of compounding to increase your funds dramatically. Compounding your results takes time but it’s a tested and true way to make more money.

Usually scammers create fake accounts to give themselves fake reviews and recommend themselves to novice traders. Generally the story tells you that Mr. or Mrs. trading guru has made traders rich by providing them great signals and they give you the guru’s contact information. In case you decide to trade using signals, carefully select signal providers and be wary of fake reviews.

Leverage and position size

Leverage enables traders to trade using borrowed funds from their broker. For example, when choosing a 100:1 leverage, your deposit gains a 100 times purchasing power.

Choosing a high leverage and increasing your position size can increase your rewards. However, they can just as easily increase your risks. And as we have already mentioned earlier, managing your risks are essential in reducing the probability of losing money.

The main takeaways

To sum everything up, losing is a part of the trading process. And successful traders manage to let their winning trades cover the losses and result in account growth. Most traders lose money because they fail to manage risks, select and trade trading strategies that best fit their personalities. On the other hand, traders that profit from trading currency pairs on a consistent basis understand the importance of growing a trading account gradually with more predictability and low risk. Such results attract investors and help traders transition from retail to institutional trading. Proper preparation, demo trading, choosing the right broker and instruments can help you trade profitably. In addition, you should choose leverage and position size wisely since leverage is a double edged sword and can increase your risks just as easily as your potential rewards.

FAQs on how not to lose money trading Forex

Why do I lose every forex trade?

Each trading setup has its own probability of success. Some setups offer super low win rates but huge risk to reward ratios, so that when the winning trade occurs, it compensates for the many losing ones. If you keep losing, you might be trading low probability setups or be trading without the proper understanding of how to find the best opportunities and manage your trades.

How do you avoid losing in trading?

The best way to avoid losing money in trading is to stop trading. In this business, losing is a part of the game. The key to success is to have winning trades that compensate for losses and gradually grow your account. To avoid losing and gradually increase your account you need a trading system that gives you an edge, you need to learn how to manage your emotions to let that edge present itself and you need to manage your risks.

What to do if I do not like losing money in trading?

You are certainly not the only person that doesn’t like losing money. Yet, losing and winning are two integral parts of trading. The key to success is to find the trading system that best fits your personality. Many traders that hate facing the losing trades choose trading systems that produce highly probable setups. As a result, when you become more selective in terms of which setup to trade, there will be less trading opportunities for you. However, a high winning rate can balance that shortcoming.