Why Most Traders Lose Most/All of Their Money – Part I

Edit: We’ve decided to make this blog a part I and part II because of the volume it took to explain some of these concepts. We wanted to create a document that, like our other technical and indicator blogs, are actually useful to traders. Now, onto the good stuff!

We all lose money at some time in our trading careers. Like death and taxes, it’s inevitable. But, that’s okay. It’s part of the game. If anybody claims to have a 100% success rate, I’d be really suspicious and ask…no, demand to see their verified profit/loss statement with at least a year’s worth of data. If in fact, they have a perfect track record, then by all means…copy exactly what they are doing! We’ll address this a little further down the road.

Let Me Count The Ways

There are numerous reasons why traders lose money. Some are easy to overcome, some not so much. Some are so daft, that it begs to wonder why it even happens…but it does. Let’s take a look. Oh, and keep a mental checklist of what you might be “guilty” of. You may find it rather illuminating and even a little embarrassing!

How Many Losing Traders?

But first…how many traders are losing money.  A lot?  A little?  Research tells us anywhere between 70% and over 90%.  Some suspect that it may be 99%, or more (which is really disheartening).  In any event, even at 70%, that is a lot of traders who end up losing their accounts.

Oh, and a warning:


That means money to pay your bills, rent/mortgage, food, college funds, and so forth. This should never be considered gambling (we wrote a blog on that) by any stretch of the imagination. Trading is a business, and should be treated as such.

Alright, let’s dig in. By the way, these are in no specific order of importance, priority, or degree of sin.

Haven’t a Clue

Usually the first reason why traders fail is they don’t understand the market, the platform, how to use the charts, what the indicators are, how to place a trade, and so on. Not having a foundational understanding of what you’re doing is a tremendous disservice to a new trader. Never, ever, ever, EVER trade with live money right out of the gate. No matter what your friends suggest.

‘Mo Money

Not having enough *discretionary* funds to trade are a sure fire way to failing. It leads to other bad habits such as over leveraging, aggressive trading, over trading (frequency), and unrealistic expectations. Many think trading is easy money or a quick way to get out of debt.

With low trading capital, you will definitely find yourself emotionally charged with each move of the market, for and against you. Trade decisions, made emotionally, will often cause you to leap in and out of trades at the worst possible time. This in turn creates a spiraling effect which will quickly deplete your account down to zero.

Solution:  Demo (paper trade) until you are both proficient and have adequate funds to trade ($1000 minimum).  When you do trade live, start with nano, micro, or mini lots.  Trading is an endeavor which needs to be approached with fidelity.  No shortcuts.

On The Heels of Emotional Trading

We’ve written blogs on this in the psychology section, and VP put out a great book on this very subject, so we’ll not dive too deep here…just a mention to bring it to light.  The number one trader killer is GREED.  Trying to wring every last dollar out of a trade is a recipe for disaster.  Holding positions for too long can ultimately result in turning a winner into a loser.


Of course, this sets off a chain reaction, leading to other emotional land mines.  Having a proven algorithm takes most of this away.  You already know where you’re getting out of a trade before you get into it.  There are various approaches to this theory, but a great picture to keep in mind is this image below. 

Risk (Money Management)  

Without “MM”, you will not survive the Forex market for very long.  Even a skilled trader will ultimately be doomed to fail at some point without having an acceptable risk profile.  After trading psychology, money management takes a close second to successful trading, hands down.  Forget trading “by feel”.  It doesn’t work.  The market has no feelings for you, so you should have none for the market.

Reverse Into a Brick Wall

Picking tops and bottoms are a terrible (and dangerous)  way to trade.  This has also been called “reversal trading” to make it sound like a plausible strategy.  Some have equated it to trying to catch a falling knife, meaning that if price plunges, then it must reverse at a certain point.

Traders get in thinking they’ll ride it back up and what do you know…it keeps on falling.  Oops.  So they cost average down (add positions) thinking that it will eventually turn.  Double oops.  Currencies can go up or down THOUSANDS of pips.  Bragging about calling tops and bottoms means nothing to anybody but you, especially when you’re right one out of ten times.  Brag about something worthwhile, like how much money you made TREND trading.

Won’t You be My Neighbor

Trying to beat the market is never something you’ll ever be able to do.  Whether you see the market as your friend, or enemy, can only affect your ability to trade with a clear mind.  Instead, just join the market when your algorithm has identified a trend.  Never go into a trade with the mindset of “beating the market” as it will usually end in losses.


Alrighty then.  We’ve explored a few reasons why traders lose money and become part of the majority that just don’t make any real profit from it.  Can you break free from that group?  Absolutely.  It’s really not that difficult.  Trading in general (especially the NNFX way) takes many of the inherent losing reasons out of the equations.

There are virtually no subjective decisions.  Each of your actions is reduced to “yes” or “no” based on what you see on the chart…not what you imagine, deduce or hypothesize.  It doesn’t need to keep you up at night, either.  That’s the beauty of it.  And it’s definitely a thing of beauty…

More to Come

There’s a lot more to come.  If you haven’t signed up on our contacts page or subscribed to the YouTube channel, please consider doing so to receive notifications as we continue to publish helpful, relevant, and informative Forex related material to support your quest to becoming a better trader.

To become a more effective trader, consider taking our advanced course.  You can access the content description HERE, and the course, HERE.

Our only goal is to make you a better trader.

BTW – Any information communicated by Stonehill Forex Limited is solely for educational purposes. The information contained within the courses and on the website neither constitutes investment advice nor a general recommendation on investments. It is not intended to be and should not be interpreted as investment advice or a general recommendation on investment. Any person who places trades, orders or makes other types of trades and investments, etc. is responsible for their own investment decisions and does so at their own risk. It is recommended that any person taking investment decisions consults with an independent financial advisor. Stonehill Forex Limited training courses and blogs are for educational purposes only, not a financial advisory service, and does not give financial advice or make general recommendations on investment.