Backtester, Economics, FX, Risk Management, Technical Analysis

Why do most forex traders lose money?

You can look at a chart sitting in a chair and see one thing. Then you can walk to the other side of the room and look at the chart and see something completely different. This is the complicated nature of forex trading. In FX, currency pairs fluctuate at rapid rates, and to not pay attention to the details is to miss opportunities.

In FX trading, there are three essential tools that investors must wield effectively to maximize their profits: staying consistent with their technical analysis, staying updated in global affairs, and disregarding their emotions in their trade executions. 

Why do most forex traders lose money?

There is one aspect of the majority of forex traders’ personalities that prevents maximum capital gains: consistency. The greatest asset a forex trader can have is staying consistent with the technical analysis and not becoming emotional when one currency weakens or strengthens randomly. As a forex trader, composure under times of stress and unexpected economic markers (such as GDP, inflation, interest rates, etc.) is crucial. Often, investors don’t internalize their past mistakes or negative outcomes; this prevents them from learning how certain economic indicators impact price behavior. And in forex, price behavior and market structure are essential in predicting currency changes. For example, an investor knows that at Price A, a negative outcome follows 75% of the time. By using technical analysis and general intuition, a savvy trader knows that he should not execute a trader at this price; however, in past experience, he profited by trading this currency at Price A. Because of this past positive experience, he is likely to do it again, even though the quantitative evidence suggests this is a poor investment. Thus, we arrive at the first piece of advice for FX trading: do not become emotional; rely on the numbers. 

How do politics impact forex traders?

The political atmosphere, especially American politics, plays a significant role in short-term decision-making in the forex market. In fact, the governing body and the President of America both influence the price behavior of other countries’ currencies. They also determine whether the US Dollar is in a buying or selling position. What determines this? Corporate taxes. Under the Trump administration, the corporate tax cut from 35% to 21% encouraged companies to be formed and run domestically. This encourages foreign investment, which creates a selling market. The corporate tax raises under the Biden administration encourages American corporations to move off-shore, which creates a buying market. Thus we arrive at the second piece of advice: follow politics, both in your country and internationally. You never know how a law or change in administration will affect various currencies.


Forex is profitable when investors trust the numbers, rely on technical analysis, follow patterns, learn from negative outcomes, and follow worldly events closely. Intuition can be helpful from time to time (but often fails), but oftentimes one can use mathematical models (such as the “candle” or “wick” model) to analyze patterns of price behavior. New technologies can analyze historical patterns in the forex market as well as extrapolate data from real-world events to provide investors with the best trading strategies. 

Forex traders must be locked into price movements and market structures as well as follow important monetary bodies, such as the Fed. Investors must stay consistent and internalize their positive, negative, and neutral outcomes from their past decisions. Only by being consistent, learning from your mistakes, staying updated with worldly events, and applying advanced models to currency prices can you ultimately activate your full potential as a forex trader.

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