I've figured out why so many people lose money in Forex

You may believe that it isn't probable, but the reality is that it is indeed probable. Why so? Only because the market trades within a loop. People continue to assume that higher tf is much more probable to predict then lower tf, but if that was indeed the case, the masses would be in profit instead of bag holding as they typically are.

Ok then if it is probable you would have a bunch of people make money and then make bigger and bigger bets until making money is no longer probable. The market does NOT trade within a loop, why would you think that? The masses (i.e. retailers) do NOT trade high TF, that's why 95%+ Forex traders lose money. Big traders trade high TF and continue to make billions off Forex. Get a clue.

I continue to massively struggle on the daily charts, I am actually only demo trading the daily charts because I find it next to impossible, however I am a good trader at scalping. There's a misconception that to be profitable you have to trade the long time charts, so many people switch to daily charts and say it's great but that's only because they're taking 1 trade a week so they are just losing 1-2%. They'll still lose their money, just much slower and it will take them a lot longer to realise they can't trade..

Got to say the OP is way off with his analysis. With Stop losses placed, leverage stops having any effect. Leverage is in effect a vehicle to allow you to buy into a trade for less the more leverage you have. Yes, if you keep your SL unentered, you risk your account being blown and a lot of money to pay over that, but - there is no difference between leverage of 1:100 and 1:3000 if i have a sl of 10 pips, and a lot size of 0.01.

Either way, if my Sl is hit, i lose $1. leverage has played no part, other than that my margin is reduced more in the 1:100, and my overall macro risk is decreased.

Forex is absolutely like gambling though.

If you have a plan that put the odds in your favour, you will win more often than not. Yes you will have some losers, but correct MM means that your account will not be descimated when you have a run of 3 or 4 losing trades, but likewise, you will gain more when you have a run sequence of 3 or 4 trades. This is not like gambling, because your upside is unlimited (unlike gambling) your risk stays the same (like gambling).

If you use correct MM, you can throw darts at a board and come out pretty much B/E (you can account for commission and spread within this).

however as soon as you put a couple of S/R lines in, and start respecting them, your win percentage will go straight up... and this will turn you into a winning trader.

The NUMBER ONE reason for traders losing money, is ignoring what the market is telling you. Full stop. S/R lines will change the loser into a winner. Respect them, and it is easy to win money in this game.

The SECOND reason traders fail, is that once they enter a trade, they exit early (for masses of different reasons). Basically, my trading has been transformed by letting trades run to full TP (Below or above S/R lines depending on short or longs) or full SL (Below or above S/R depending on short or longs).

This is even more key when you are running at risk reward of 1:2. If you exit early, you are not running to that R:R. That will skew your results, and you will kick yourself everytime, it turns out a winner.

Let me give you an example of the last 4 days trading of mine:

24 trades taken
4 losers - 2 went to full SL (risk 1%) 1 closed out early due to incorrect SL, so i re-entered and the trade went to TP, and one was due to a news event here i closed out at a small loss - like about 5 pips.

the two that went to full SL, one was a bad entry, and one was a news event that went to SL and then straight to TP...

Out of the winners, 14 went to TP. Of the remaining 6 trades, 5 went to full TP after i had closed out (for varying reasons) and 1 went to what i should have had as my TP, but i put it a couple of pips to high, so it hit B/E, and closed out.

That equates to 250 pips, and should have been closer to 300/320 pips.

That is the margin of error closing out early.

As traders, we are happier to let things go to SL because, hey, you know that is the market... But when it comes to TP, we look and say, it is going to turn at any moment, so better lock in my profits...

Number 3 - Keep a journal, and be honest with yourself... if you close because you got scared, put it in there. If you closed out early, put it in there. 2 of my trades have a woke up and closed the trades.... literally i woke up, looked at my open trades and thought i better close out as they have not hit their TP and lock in the profit (a couple of pips on both)... an hour later both had gone through the TP price...

Psychology is oft written about, and the authors go into great depth about it, and look at 100's of different things.

My Psychology book is different.... well i dont have one, but if i did it would be rubbish, because, it would only say. Be sure to enter the trade right (ie no complicated system, and check S/R levels). Turn the charts off. For every time you look at the chart, or 'to see how the trade is going' you have to flagulate yourself 10 time the amount of pips you are down, or 20 pips the amount of pips you are up.

Why? Becuase you are more liekly to close a trade in profit, than a trade in debit....!!!

My win ratio is 83%. That is not gambling, it is not luck, it is proved over the long term... winner after winner after winner, a loser, winner, ,w,w,w,l,w,w, etc....

Oh and that is just for my short term trades, not my long term trades on the dailys!

If you are worried that LEVERAGE is the reason you will lose money... then you have not traded, and you will not be successful, as it is totally the wrong thing to look at!

The ONLY reasons that traders lose money (after they have discovered 'edges') are that they have personal weaknesses.

Read Trading In The Zone.

That's it. Everything in life can be simple. We like to overcomplicate stuff.

Smiler

Well said. Some people like "replace" seem to believe that Humans are robots, and constantly do the same thing over and over again. He is also very pessimistic which rubs people like me the wrong way, because I rather share information, and build conversations on it. The market does indeed trade in loops, because no matter what TF you look at, you always seem the same patterns. If the market doesn't trade in loops, then why are the daily highs and lows ALMOST always at daily pivots. Have a look at? Big banks make "billions" and lose "billions" as they hold trades and base their information on insider information or simple guesses. The reality is the big banks scalp the market, if they didn't we wouldn't see the constant spikes, and the accumulation at pre-determined prices (daily pivots).

I agree with your statement. I have seen here on forexfactory, trade explorers, which have been able to run up to 500% and then crash on one trade. It isn't the system, but the actual trader who isn't sticking to the bail out plan. Instead they say things like "It HAS TO COME BACK" or "its a stop loss" and when the trade does come back to them, they believe more in their bias, then in the actual trade. That then carries over to the next trade, until eventually the trade doesn't come back.

The classic response by someone who rather be "Stand-offish" compared to trying to find out why the person believes so, prior to saying that it isn't true.

There is a BIG difference between having a leverage of 1:100 and 1:3000. The equity in your account will be wiped out with 1:3000. Why would you even mention trading with 0.01 lots?


That's not true. If your SL is hit, you lose $1 and you lost the spread and commissions on a trade with slightly negative ROI. You're ignoring obvious costs associated with trading.

Your upside is limited, you just don't know where that limit is. It doesn't matter if you have a plan, you cannot put the odds in your favor because you're trading random white noise and having to pay comission and spread each time you play. It's like having a plan to consistently win baccarat, which is impossible.

You're putting lines on a random chart. It doesn't matter what kind of lines you put, it'll still be pointless and a waste of time.

Traders should try hold their position for at least a couple of months, if not years. Otherwise it's basically random white noise being traded. What exactly is your definition of too early and how did you come to that conclusion?

There you go, blaming loses on the fact that you're scared. Then if you lose because you didn't get out, you put in the journal that you were too greedy. Blaming emotions and anything else rather than the real culprit which is Forex trading.

If you have a win ratio of 83%, then you should have a billion dollars by now. Why would you bother trading with 0.01 lots? Maybe it's because your gains are on average only 20% the size of your losses?

"I think I've figured out why so many people lose money in Forex. I think that there are three main factors involved.
They would be commissions, leverage, and volatility."

Nope. The majority of traders lose because it's not a level playing field. Big banks run the fx market, small-fry retail traders don't stand a chance.
Forex is the essence of a rigged market.

Read more on leverage and how it is used and how it affects the required margin before writing another stupid thing...

+1 to your comment. 3000:1 leverage doesn't wipe your account. Why? If you have 10,000 usd and you have 3000:1 leverage and you only open up an order of .01 lots not even 200 pip loss would wipe out your account. Higher leverage gives you the ability to use LESS margin to open a desired lot size, compared to any lower leverage with same equity and same lot.

So if you have 2000usd and you are using 30:1 leverage, it will require 100x more funds to open a .01 lot size order compared to having a 3000:1 leverage account trying to open the same lot size.

Wow, where to start with this?

First of all HAVE YOU EVER OPENED A TRADE UP IN YOUR LIFE???? That refers to either on Demo or in Live, PLEASE tell me you have not traded live... Your basic grasp of how leverage works and its relation to lot size is quite simply scary if you have traded live.

To address your comments though:


There is a BIG difference between having a leverage of 1:100 and 1:3000. The equity in your account will be wiped out with 1:3000. Why would you even mention trading with 0.01 lots?

First off, I would like you to do a little experiment... open 3 accounts on demo. Fund each with 1 million dollars - PLAY MONEY mind, you. I want to spell it out so you don't make a big error here!

Open 1 at 1:1 leverage, open 1 at 1:50 leverage, and open one at the highest leverage you possibly can (mine only goes up to 1:500 leverage for instance).

Ope 1 trade on each platform on the USDCAD for 0.01 lots set TP for 10 pips, and SL for 10 pips.

Wait until they close.

You will find that (lets forget about the cost of the trade for one little moment, we will come back to it in a second). That for EACH of the trades you would have closed out with c. $1 profit, or $1 loss

Yes there is cost of trading, however if you were to have a TP/SL of 100, the cost of the trade (spread is what i use) is tiny compared to the value gained.

And with a 1:1 Risk reward, you would need to win approx. 52% of your trades to break even - WITH the cost of the trade included. Considering how my trading is closer to 80-85%, this is not really a problem, which is why i ignore the cost of the trade... It is so tiny, and i absorb it in my trades in any case....

You will see that LEVERAGE bears nothing on wiping out of an account whatsoever. The profit and loss of the trade is EXACTLY the same.

Leverage as used in a margin account, only gives you the ability to open more or less trades.

It is the COST of the trade, which is why on a 1:50 account you can open less trades simultaneously than you can on 1:500 account.

Why did i mention 0.01 lots... Because it was an example, replace with 0.1 lots, 0.35 lots, 1 lot, 20 lots, makes no difference, the profit and loss would be the same across ALL types of leveraged accounts.

HOWEVER

If you can not see the importance of lot size in relation to the abmount of leverage, then you have completely missed the point about leverage.

For instance on a 1:50 account, this means for every $1 you have, you can control $50 dollars (hence the 1:50)

At the same time, a 1:3000 account would mean that for every $1 you have, you can control $3000 dollars (hence the 1:3000)

Yes the chances of blowing your account if you use no MM is greater on the 3000 leveraged account.

However, if you use basic MM, and use risk of 1%, on a $1000 account, you will risk $10 on both - (if you have a stop loss of 100 pips on the USDJPY for instance, this would equate to a lot size of.... you guessed it.... 0.01 lots... thats why i used it for easy example purposes) , so the chance of going bust using CORRECT MM is Nill on both accounts.

Yes you could open 100 simultaneous trades on the 1:3000 account, but why would you?

In short, Leverage has 0.01% of being the reason you lose money on a leveraged account.

Your upside is limited, you just don't know where that limit is. It doesn't matter if you have a plan, you cannot put the odds in your favor because you're trading random white noise and having to pay comission and spread each time you play. It's like having a plan to consistently win baccarat, which is impossible.

Erm, why is it that I am consistently profitable? Over the long term? I trade on the 1 hr, 4hr, and daily... not the long term. If it is random white noise, why do the SAME profit creating patterns occur time, and time, and time and time again? Chaos theory, and the mathematics that support chaos theory dispel the myth that randomness is random. Within randomness there is order, and that is why I (would hesitate to say you....) can be profitable. I can see where S/R lines and 9/10 these are hit (or missed) by single digit pips... Why do they get respected EVERY TIME? Let's say it is white noise, why is it that some people are consistently profitable, and why is is that you are not.... maybe your belief is the thing that is stopping you from being profitable?

You're putting lines on a random chart. It doesn't matter what kind of lines you put, it'll still be pointless and a waste of time.

Really? It matters to me, because that is where i build my risk.. If you play the correct MM game, you should be limiting your risk correct? Why is it then, there are so many losing people in Forex, are they using the same lines as me? They must not be, because my lines work. The TP gets hit, the SL gets hit, either way, I am profitable... Why not listen to a profitable trader, than whining because you are not... If you think that Forex is soooo random, why are you wasting your time here?

Traders should try hold their position for at least a couple of months, if not years. Otherwise it's basically random white noise being traded. What exactly is your definition of too early and how did you come to that conclusion?

Says the person who is not profitable? I AM profitable, and i use the 1 hr time frames, and hold on average about 6 hours... my definition of too early is 2 parts, because it depends on the trader. I trade by TP and SL only. Either gets hit, or i stay in the trade (except for news events where i will get out either with the current profit or loss as this can skew the trade as to why i got in it). The second one si where you have a defined set of rules, for instance an MA cross, or a conflicting signal.. etc. Getting out because you get a feeling, is getting out too early. Getting out unless your predefined rules stipulate that you should get out is getting out too early.

As i say, my predefined rules are simply, news events, or it hits TP or SL. FULL STOP.

There you go, blaming loses on the fact that you're scared. Then if you lose because you didn't get out, you put in the journal that you were too greedy. Blaming emotions and anything else rather than the real culprit which is Forex trading.

Can i suggest that you read what i wrote here (and while you are at it, you can read up on leverage and how it affects a margin account!). I said if you get out becuase you felt scared, you right it down. NOWHERE did i state that this is the reason for losses. In actual fact, most people would get out of a trade scared is when they are in PROFIT. More people are more scared not banking profits than going to a full Stop loss. They can handle a losing trade, they feel worse about not banking in those couple of pips due to a feeling, or the wind smells funny. Whatever.

What i was saying, is that using a journal, and writing down WHY you exited will help you become a BETTER trader. At no point did i mention winning, losing, profit, loss. In MY EXPERIENCE, i used to close trades down before they hit tp/sl. Most of the ones i closed down in profit, went to full TP. by noting down ALL my trades and the reason the trade closed, either SL, TP, manually closed because of XXXXXXX... what ever reason, showed me where i could gain more money. Predominantly it was because i got scared and closed down after it had almost hit Tp, retraced and went slightly back into profit. Keeping a journal is showing you where you can improve.


If you have a win ratio of 83%, then you should have a billion dollars by now. Why would you bother trading with 0.01 lots? Maybe it's because your gains are on average only 20% the size of your losses?

Who said i trade 0.01 lots??? I didnt.... you made an assumption, based only on that fact that i had mentioned it earlier??

And actually my Risk Reward is 2:1. So for every $10 i win on a trade, i would risk $20. This means to break even, i need a 66% win ratio. However, i could trade half of my account on each trade, but do you know what, 1 cluster of losers, and your account is gone.

I risk 2% of my account. Anymore than this and you are gambling.

I could risk 5%, some people advocate this, but I don't.

But on top of that, regarldess of the win percentage, it is the amount of money you put in your account at the end of the day/week/month/year.

I woudl be happy with a 10% win if it led me to be profitable.

The reason i quote the 83% is because a) it shows that my rules are consistent, b) it shows that the so called 'randomness' can be ordered, and c) i prefer to have a large win percentage as pyschologically speaking, i prefer to win more than i lose trade wise. however, all that is nonsense unless you have a black account balance, the same way that pips are arbitrary.


In short, your beliefs are holding you back. You don't know what you are talking about, and you evidently do not have a system, a plan, a journal etc, and I can only assume you have never opened a trade in your life, the bizzare notions of the leverage is just staggering.

Most people lose in Forex is because they don't know what is going on. Randomness? The market makers move the market in the same way everyday over and over and over again. Your job is to figure out what is going on and how to get on the right side of the order flow more than not. You can be net profitable most of the time and yes you can make a living trading.

The cost of commissions and fees in a necessary cost of doing business. Every business has fees and expenses.
Leverage is how you can make profits faster if you are skilled at trading.
Volatility is what expert traders look for. They want the big moves.

Focus your efforts on studying market structure and technical analysis, Dow theory, order flow, auction market theory. What winners do, what losers do, develop your own personal trading style and plan using the best ideas of successful traders.

Study successful traders and learn all there is to know about trading. Watch every You Tube video you can. Attend webinars. Read books. And finally and most importantly NEVER ever give up your journey to successful trading no matter what. Use every loss as a learning experience to figure out what you did wrong and to correct it. Make small advances. One day everything will start to come together like a jigsaw puzzle and when you start trading with confidence your results improve dramatically.

So true..... good to see that there are still some sane people around.
Thank you very much.

Sadly this is evermore true... The algos go to war with each other every day.... the shrapnel cuts the throats of flesh as it bounces off the metal warriors

by the time youve drawn a line they've opened and closed 1000 trades

But its not a scam because its purely legal. Just like our great western capitalist system. As those who are sleeping pretty tonight will tell you.

"its just the game"


https://m.youtube.com/watch?v=b8m9zhNAgKs

Thread starter has it all wrong . Leverage is suppose to be advantage , imagine buying 1 lot of eur/usd for only $211.72 at 1:500 , as of leverage 1:1 you need $105,860 . Some people here keep saying big leverage is bad i just don't get it , have they done their math ? from this fact is clearly an advantage. Now all the aspiring trader need to figure out is how to gain pips from the market and to get that pips how much drawndown you suffer. As of commission i think is less than 2 pip if include spread which i think is pretty fair as they given us an access to the market .

Managing money is super hard. People just can't handle money. The bankers know that simple fact, cause we have allowed them to take care our money. It is a statistic. On the top of that, even those who can handle money, still cannot trade the markets well.

Do you know what happens with the lottery winners 20 years after their big win?

Everything said in post 1 is super correct and absolutely right. Those who sound smart, while criticizing the OP, like dkrock for example, are trying to hide the naked reality brought to you by the OP... Emotions? Everything in Life is emotions based for us humans. So, do what or do nothing? Emotions my ass...

Old thread.. and dkrock was correct then and still stands correct now! Someone been looking at forex for 5 mins and says aha I've figured it out, its like me looking at physics book for a day and saying I am going to build a rocket ship tomorrow! I've seen the numbers they use, I did the logic, I'm sure I'm fairly accurate. Forex is not gambling, and its not easy. Its not something you calculate. What I've learned over many years of doing this.. At the end its experience like anything else in life.. You learn to ride it, you learn the ins and the out.. and no matter how many people will come and argue till they are blue in the face, the reality won't be changed for what it is, no matter how logically, we try to wrap around minds around it.

Old or new tread, it does shows the first trap, where most get caught and unable to escape it...

Leverage is bankers best weapon. It is a long topic to explain.

They offer you an UNFAIR DEAL. They know people cant handle money by default, therefore they even give us MORE MONEY. It is a simple stake they DO KNOW they will win, because of statistics.

Forex is a game of big money. Big money for us, the small people. I have come to the conclusion I would need 10 mil under 1:100 leverage just to feel happy with the income. If leverage is 1:1, then I would need at least 100 mil, maybe even 200 mil as a minimum amount to trade.

The rookie puts 10k under 1:100. Now he has a million to trade. The room for a mistake is still 10k! The trader has to make it, while the DD he will be facing has to be lower than 0.5% (5k) or he is dead! The max DD allowed is 1%. Are you guys super stupid or what?

There is no banker in the world who can handle that kind of capital/DD conditions, which are offered to us for trading. They ask you for the impossible for the average John Thomas! When you add the fact people cant handle money... Their "risk" is just zero! No emotions here. We have not even gone there yet!

I know from a pro trader the max DD allowed is 11%. Once reached, they plug him out of the market. And for us? The max DD allowed is 1% or below...

Only this alone filters all traders and only the uber smart with the best systems can eventually survive in these INSANE conditions... dkrock's emotions might be there, but they are a result of the super stressful and unfavorable conditions we are all in.

Do you have an idea how many players are in NBA? And how many players are trying to make it up to there in the World? It is exactly the same thing. That is the risk the bankers take by allowing us to trade high leverage... We speak of 0.00001% risk.

Bankers are all Fannys, if you can get what I mean?