Why 90% of Traders Lose Money - And How to Avoid the Same Mistakes

An estimated 75% to 90% of retail traders lose money. I wouldn't be surprised if the reality is actually higher.

Trading successfully is a rare ability. I've been trading since 2011 and have only met a handful of profitable traders out of the thousands I have met.

Why do so many traders lose, and how can you be one of the few who actually succeed?

Why do so many traders lose?

Reason #1: Leverage

Leverage allows traders to make a lot of money very quickly. It also allows traders to lose a lot of money very quickly.

Forex and Gold Traders are typically over-leveraged. Some Forex and CFD brokers are now offering up to 1:1000 leverage! This is far too much. It's overkill. Either the trader is uneducated and doesn't understand leverage or its risks, or they're intentionally risking too much and treating the market like a casino.

Option trading is included in this. Options trading lets you make massive bets with a small amount of capital, which often leads to significant losses or blown trading accounts.

Lower leverage won't make you more profitable, but if retail traders had access to only, say, 1:50 leverage max, fewer accounts would blow, and fewer significant losses would occur.

Further Reading: The Ultimate Guide to Leverage

Reason #2: Strategy

Many losing traders are trading without a strategy. If they have one, it is often not complex enough to provide an edge. The KISS (keep it simple, stupid) principle has been taken to an extreme; many strategies are too simplistic to provide a trading edge.

You must have a trading strategy or system proven profitable. The system must be complex enough to make you money, but simple enough to follow. Trading engulfing candles, fair value gaps, or market open breakouts won't work. Trust me. If you're being told these "strategies" make money long-term, they're lying to you.

A real trading strategy layers multiple technical techniques. It will also include guidance on risk management, what to trade, when to trade, and when and where to close positions.

The best trading strategies combine technical and fundamental analysis.

Further Reading: The Ultimate Guide to Trading Strategies

Reason #3: Psychology

Negative trading emotions are the main reason why traders fail. Traders become fearful, greedy, or impatient. Following these emotions will always lead to long-term losses.

Many losing traders want unrealistic returns. They risk too much. They are greedy.

They are too scared to take the next trade or let their positions run, so they miss out on profits. They are fearful.

They don't want to wait for the next decent trading opportunity, so they take any opportunity. They are

impatient.

All traders, even successful traders, feel negative trading emotions. However, the main difference is that losing traders generally don't do anything to minimise their emotions, such as risking less (risk and emotions are positively correlated).

Further Reading: The Ultimate Guide to Beating Trading Emotions

Reason #4: Scams

Unfortunately, the trading industry is full of scams and scammers. You can't become profitable if you're a victim of a scam. If you have been scammed, my heart goes out to you.

Common scams include Forex educators who sell courses or trading groups that provide false trading signals that don't work long-term. These scammers promise significant returns and sell an unachievable lifestyle.

Another common scam is fake Forex brokers. These scammers take your money and leave you with a negative trading experience. You'll never get your money back, no matter how many times you try to withdraw.

The best way to avoid trading scams is to educate yourself and learn from a genuine trader.

Further Reading: Forex Scams Podcast

Summary

Despite the many reasons traders fail, the underlying reason is the same: a lack of real trading education. This is the key to successful trading.

Unfortunately, most retail traders educate themselves by watching, listening to, and reading content created by people who can't actually trade. It's no surprise that so many traders fail.

How to Avoid These Mistakes

Get a real trading education.

Learn from trader educators who have your best interests at heart. Choose educators who promote education, not a lifestyle. If possible, learn from someone who has a verified track record or experience as a professional trader. I suggest learning from an educator who doesn't just promote technical analysis but also understands and teaches fundamental analysis.

The ultimate test is whether the educator has a verified track record or third-party verified results. The proof is in the pudding; if they don't have it, ask yourself why. Testimonials or screenshots of account balances are not proof of performance.

Further Reading: My Forex Verified Results

Limit risk

Keep risk to a minimum. If you open an account with a well-regulated broker, you'll find that your maximum leverage is 1:30, which is ideal.

Use pre-determined stop losses and risk from 0.1% to 0.5% per trade. There is no need to risk any more.

Risk and trading emotions are good friends; they like each other's company. As risk increases, so do the emotional challenges of trading. Keeping risk low helps keep negative trading emotions low.

Further Reading: The Ultimate Guide to Risk Management

Trade with a genuine Forex broker

Avoid broker scams and enjoy a better trading experience by opening an account with a trustworthy broker.

The best thing you can do is to use a well-regulated broker. Ideally, registered and regulated in the UK, US, or Australia.

Suggested Forex and CFD Broker: IC Trading

Suggested Forex Broker: Darwinex

Suggested Spread Betting Broker: CMC Markets

Watch this content on YouTube: Why 90% of traders lose