A recent analysis of trader performance on forex has shown that many traders lose more money trading. This isn’t the kind of news a new trader wants to hear. If you are a new trader you may be asking how can the largest platform for trading currencies have so many losing traders? For an answer to that question a more in depth look at the numbers is necessary.
A study of the fifteen most traded currency pairs shows that traders by and large make more winning trades than losing ones. In fact, over 50% of the trades made are gains. So just why are so many traders losing if there are more winning trades? It would only seem logical that if you are making more positive trades then you should be gaining rather than losing. As the report shows, that is not the case.
The answer to this conondrum is that the losses suffered are more than the gains made. The numbers are a bit stunning when one takes a close look at the report. The currency trading pair of USD/EUR saw traders having over a 60% profit margin, yet they were losing around 70% more than they gained. Heavy losses, indeed. So now you need to know why this is happening to the majority of traders.
The reason after looking at the numbers is that make traders are sticking too long with losing trades. This seems strange when you consider the mantra which many of us have been thought, which is if you see things getting bad cut your losses. Simple advice which you have heard or have been thought even if you are not in the field of trading stocks.
Why is it so hard to follow the simple advice?
A question that immediately comes to your mind when you look on from the outside. Why would anyone who sees that a pair is not going as hoped not quickly cut their losses? In fact, this is one of the first rules you see in any book on trading. The strange yet, simple answer is human nature. If you think this to be false then consider this, wouldn’t you rather wait for a possible windfall than lose something you have already gained? This is part of the thinking behind why traders lose more than they gain. They would rather stick with a stock and hope for it to turn around than stick with a profitable trade. Human nature for most of us causes us to fear losing what we have acquired so much that we pass up on making more profits.
Don’t make the same mistake
This is a mistake you should avoid making whether you are new to forex or a seasoned trader. If a trade is making a profit let it run, don’t be afraid of losing from what you have gained. On the other hand if soon after you have made a trade you see a losing trend, then cut your losses and do so quickly. It is better to cut your losses and to return to that trade at a later date.