Why Forex Traders Lose Money in Forex Industry

Percentage of traders that lose money is 95% based on research Contentworks and forex trading statistics. Some brokers have data information that 73%-85% of their clients do not lose money. It is true because there is always a big percentage of traders that are not profitable but are not losing traders as well. So, how many forex traders are profitable? In the retail industry around 5% and in prop companies around 80%.

In our article Can You Make Money Trading Forex? we explained problem with trader that lose money.

But what science says about retail traders?

In the article “Do individual currency traders make money” we can see that profitable traders exist in the currency market and daily traders as well. Risk-taking is problem number 1 for all retail traders (Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading )

Experts claim that 95% of the forex traders make losses due to which they quit forex trading. The DailyFX forex website found that though some forex traders are making a profit, new traders still find it difficult to be profitable. Some of the reasons why most Forex Traders Lose Money are discussed so that new forex traders can avoid making a loss.

Understanding the market

Many traders are making the mistake of thinking that they can beat the forex market and make a large profit with little capital. These traders may be very aggressive in trading, go against trends, and lose money. Instead, they should understand the market, and try to make money from well-defined trends.

Low capital

Usually, traders start forex trading to make quick money or get rid of debt. Forex marketers often encourage these traders to trade with high leverage and use larger sizes of lots to make larger returns, using small initial capital. In the short term, a forex trader may get the high returns he is looking for. However, since the risk is very high due to the higher leverage, and less capital, traders often become emotional, and time their trades at the worst possible time, making a loss. Hence forex traders should have at least $1000 before they start trading, else they are likely to make a loss.

Managing risk.

Like in life, risk management is important if a forex trader wishes to survive. Skilled traders can lose their capital if they do not manage risk. The trader should first focus on protecting his capital before trying to make a profit. Once the capital is depleted, the ability of the forex trader to make a profit will be reduced. A recommended risk management practice involves placing stop-loss orders after the forex trader has made a reasonable amount of profit. The lot sizes should be small compared to the capital in the account, and the trader should exit trades that are not viable.

Please read more about this table below in our article about trading risk and risk management:

Being greedy

Some forex traders want to make the maximum profit possible from every move in the market. Traders who wait for the last pip before the rate change reverses may hold their positions for too long and could lose the profitable trade. Hence the trader should be happy with a reasonable profit and not wait daily to maximize his profit. It is possible to make a profit trading forex daily, and so traders should not be very greedy

Trading indecisively

Traders often find that the trade they have chosen is not immediately profitable, so they close the trade, and reverse it, only to find that their market is moving in the opposite direction. The trader will regret his decision. It is important to choose a specific direction for a trade and be patient. Switching trades based on short term trends will result in depletion of the capital invested.

Predicting the top or bottom

Many new forex traders, try to predict the turning point for forex pairs, often going against the market trends. They may add more funds to the trade, and make a larger loss compared to what they predicted. Though it is not worth boasting about, it is safer to trade based on market trends. If traders wish to pick the bottom, they should choose the bottom of the uptrend. Similarly, if they wish to trade at a peak, they should trade when the market is moving up, not when it is moving down.

Refusing to accept mistakes

Though most people want to be right all the time, forex traders should accept that they made a mistake in the trade and continue to waste resources. This could deplete the balance in the forex account. It is always better to accept that the trade was a mistake, close it and look for the next opportunity to make a profit

Purchasing forex trading systems

There are many forex trading systems being advertised extensively online, which promise huge profits. Some traders make the mistake of investing money in these automated systems, and yet make losses. New forex traders should understand that there are no automated systems for making a profit trading in forex, each trader should develop his own method and strategy after spend time understanding the forex market…

Forex Market Business Hours For Traders

The first forex market to open is the Sydney market at 10 PM GMT and then the Tokyo market opens at 11 PM GMT and then the London market at 7 AM GMT and USA market at 12 PM GMT.

The Hours Of The Forex Market (Forex Market Open)

Region Open and Close Times
Sydney Open 10 PM GMT (summer) / 9 PM GMT (winter)
Sydney Close 7 AM GMT (summer) / 6 AM GMT (winter)
Tokyo Open 11 PM GMT (summer) / 11 PM GMT (winter)
Tokyo Close 8 AM GMT (summer) / 8 AM GMT (winter)
London Open 7 AM GMT (summer) / 8 AM GMT (winter)
London Close 4 PM GMT (summer) / 5 PM GMT (winter)
NY Open 12 PM GMT (summer) / 1 PM GMT (winter)
NY Close 9 PM GMT (summer) / 10 PM GMT (winter)

Forex business hours for trading greatly differ depending upon which market is up for discussion. However, the general consensus is that the forex market technically always open. The reason for this is because the market is always active somewhere in the world. Aside from holidays, the market is open 24 hours a day somewhere in the world. Every city has a different time zone, therefore each market operates on its own time and schedule. The reference time that is most commonly used is GMT. GMT stands for Greenwich Mean Time which is a good reference point for the forex market.

There are several cities that can be identified by their GMT opening and closing times. For example, New York will open at 1pm in Greenwich Mean Time and close at 10 pm in Greenwich Mean Time. Sydney will open at 10 pm in Greenwich Mean Time and close at 6 am in Greenwich Mean Time. Tokyo will open at 00 am in Greenwich Mean Time and close at 8 am in Greenwich Mean Time.

These are the basic references for GMT, as it is the default setting for identifying forex market times. New York, Sydney, and Tokyo are some of the most popular cities in the forex market. These cities conduct a large volume of forex trades. It is very important to use the same base time zone when comparing opening and closing times of markets around the world. For example, some websites will post the opening and closing times in EST. EST is the standard time zone of New York. It is very important for traders to pay close attention to the time zone as 9 am EST is different than 9 am GMT.

When it is past 5pm in New York City, it will be morning somewhere else in the world. This is why many traders consider the market to be open “24 hours a day.” However, each individual city is only open for 8 hours. This is the rule of forex markets. Confusion occurs when the opening and closing times are misinterpreted. Trading centers are always open at some locations in the world.

Many people also want to know if the market is open 5 days a week or 7 days a week. The answer to this is question is 5. Trading centers are open 5 days a week. However, with that being said it is very important to note that time differences can make it seem like the market is open more than 5 days a week depending upon which zone you are living in. Sunday evening will be Monday morning somewhere in the world. For this reason, it is very important to check the time in the market you plan to trade-in.

The benefit of the forex market is its endless options. You can trade at any time of the day or night, which allows traders flexibility and freedom. It is also important to note that trading spreads will be of top quality when the market is reaching a high volume.

Are You Ready to Hand Your Trading Over to a Forex Robot?

What is a trading robot or forex robot?

Forex robot or fx bot or forex bot is a trading script that automates the trading decisions on the currency trading platforms. The Forex Robot is a computer-based program and it is based on the set of Forex trading rules. It will help you to buy or sell the currency pair at any point in time.

In Metatrader forex robots we call Expert Advisors. They give you a signal in order to place trades and it can also manage the trade automatically. In this process, the trader does not need to take care of the entire trading process manually. Forex Autobot can trade alone or can be semi-automated – where trader can manage positions and robots only enter into a position.

Do Trading Robots Really Work? Of course, they do, but robots are not “holy grail” and they can not have high performance as you expect. In science research papers, the best robots can achieve 9%-12% gain per year with drawdown less than 8%.

If you think that there is link to the forex robot which can double your account – you will make a mistake. I believe in the quantitative analysis which allows traders to remove emotion from the investing process and focuses on statistics or probabilities over gut feelings. In my opinion using data mining, statistics, testing, creating models – is only way to create a good forex robot.

In my prop company quants creates a lot of “forex robots”, automated trading system.

What is an automated trading system?

This trading system is ruled by the automated process. This is a program that allows the traders in order to set the rules for entering and exiting trades. In this system, the computer has to perform all the trading system and you will just have to sit in front of the monitor in order to see the ups and downs.

There are so many people who do not have exact and enough knowledge about the trading system. They get involved and do not know how to handle this. So, for them, the automated trading system is the best option. This trading system is very much accessible and you will just need a computer with a proper internet connection. You should know one fact that you do not need to do a big investment in order to get started the whole procedure.

It is one kind of software and it can provide the Forex traders multiple amounts of trading services. This software indicates and guides their clients about a suitable time for buying and selling. They can also guide you throughout the process. You do not need to feel lonely in the vast area of the trading market. You can accustom yourself with the whole process.

They will show you the path and results after researching various trading strategies. They always provide the source codes and give you proper guidance as well. They also follow the unique mathematical algorithm.

Now when we know the theory, how quants create excellent robots? Our quants or quantitative researchers, read science research papers, test models, exchange knowledge from traders, test various systems and make results.

Can I show you some trading systems and a forex robot that actually works?

Yes, of course.

For example please read these papers:

Carry Trade Robots based on Currency Risk Premia can have up to 6% per year, Currency Momentum Strategies can have up to 6% (max drawdown 8%) gain, Currency Value Factor-based robots.

The best performance forex robots are robots based on Time series momentum where traders can trade in the same time bonds,equities, commodities, currencies and hedge positions and achive better performance up to 12% gain per year.

Important thing: Results of all these robots are realistic because they tested on large datasets, on the unseen datasets and not overfitted. Robots on the internet (a lot of trading expert advisors that do not have proven scientistic testing on unseen data) which a lot of programmers sell show indicative results and false unrealistic results. For example if we have 3 bullish years for some stock or currency pair and we create robot which will more buy than sell than when we test that robot it will show great performance. In live trading, it will be very bad.

Forex trading has various trading styles and strategies as well. in the market of Forex, there are so many experts and efficient traders who can guide you properly and each and every trader has different ways of strategies and working structures. The overall Forex feature is divided into two parts- one who wants to do trading through a manual trading system and others who want to do trading by utilizing automated trading system. Let focus on automated trading.

Now you generally have these questions- what is an automated trading system? Is this really profitable? What are the benefits and disadvantages of this trading system? Is this procedure totally safe or not? So, let’s proceed towards this article and get all the answers to these important questions.

How does the automated process work?

Step 1: the Trading idea
Either using experience or some basic idea or research paper, the quantitative traders test various ideas.

Step 2: Testing, backtesting or machine learning

In this step we try to optimize model, ad new rules, change rules, improve performance.

Step 3: Coding the final version of the robot

In this step, programmers will write rules in python or mql4 or mql5 or any programming language and finish the robot.

It is not important whether you are an experienced or a beginner and novice in this platform. The automated trading system will guide you throughout the process. They can give you expert advice and take real trading decisions on behalf of the traders.

There are the best trading programs that are computer-based. These programs are specially designed to research and analyze the overall market of trading. This particular software helps you to understand the key trading signals. This software also points out the fluctuation of currencies and transactions as well.

This software helps you to find profitable currency pairs. This software helps you to research well before placing trades on them. If you are planning to input your own strategy of trading then you need to strictly monitor the overall market.

The advantage and disadvantage of forex robot:

Forex Robot is a Forex trading software. It can automate trading decisions. It is very much modern financial strategically system. There are so many companies making and selling Forex Robots. But you will have to follow the strict rules and doing proper market research in order to avoid any kinds of scams and all. This is the only disadvantage of Forex Robots.

Forex Robots are developed and programmed by different and experienced programmers. They are responsible for coding different and various strategies into the fully automated system in order to open, close and manage the position in the Forex trading market. The Forex Robot will execute the trade on the basis of the signals provided by traders. This tool will help the trader to avoid panic attacks and making the perfect trading solutions as well.

The efficient trading robot uses its intelligence to manage the whole process. You can get the successful robots and their advanced strategies. These robots can manage system smartly. They will manage the risk successfully.

Now you have got a clear idea about what is an automated system and how does it work? The robots carefully and strategically execute the trading systems. You can get one time real data from the robots. So, from now, you can invest in the Forex market smartly and strategically and get enough profits from there.

This is the first article on this subject.
In the next articles, I will give you more details about robots, quantitative research, and case study ideas.

How To Choose A Lot Size For Ultimate Forex Trading

Lot size or position size you need to calculate based on your equity, risk and trade probability. You can read in detail our article about the postion size formula.

Best Techniques For Choosing A Lot Size In Forex Trading

Selecting a trading lot size to trade comes down to a few basic principals. A lot refers to the size of the trade when trading pairs within the forex market. There are different sizes of lots. With each size comes different levels of risk involved. Brokers will refer to lots by the 1,000 increments. The size of the lot has a direct effect on the amount of risk associated with a certain trade. There are many different ways to determine the type of lot that is best for your trade.

The most simple strategy is to calculate position size in lots is:

Strategy 1: Calculate the size of the lot based on equity

For example, you can set 1 mini lot per $5000 or 1 micro lot per $500 (the gold standard for new traders or lot size forex recommendation). So based on your equity you can calculate position size.

Strategy 2: Calculate position size using Kelly criteria or some other position size formula

You can calculate how to increase your position size based on your past performance. How many percents you can increase the current position size.

Position size = Winrate – ( 1- Winrate / Risk Reward Ratio)

The example you can read in our article about money management EA.

Last 50 trades :

26 trades were positive ( profitable ) with a total gain of 780 pips
24 trades were negative with a total loss of 600 pips

To get the Kelly ratio:

W = 26/50=0.52
R = (780/26)/ (600/24) =1.2
K% = W – [(1 – W) / R]
K% = 0.52- [(1 – 0.52) / 1.2]
K% = 12%
Goal is to compare various systems to see which system has the smallest risk.

A risk management calculator can prove to be helpful when trying to anticipate the risk associated. This also depends on your current assets from your trading account. The size of the lot will determine how much or how little the outcome of the trade affects your accounts. There are different levels of movement on the forex market such as 100 pips. If the trade is small, 100 pips of movement will not be a big deal. However, if the trade is large, 100 pips of movement can be significant. Throughout the course of a broker’s career, they will be able to experience larger lots and smaller lots.

Micro lot trades are a common type of lot that is used with beginners. These are known as the smallest possible lot that a trader can use on the forex market. There are many benefits to using a micro lot. Micro lots are equal to 1,000 units of the currency that you are currently using. For example, if EUR or USD is used, this number will be reflected by 1,000 units worth of the currency. Micro lots are a great option for keeping the level of risk low.

Mini lots are the next size up from micro-lots. Mini lots give traders an opportunity to experience more risk without a major loss. A mini lot is equal to 10,000 units. This is a significant difference compared to micro-lots, however not as large as a standard lot. Mini lots are a great middle-ground between micro and standard. It is important to note that the market can move 100 pips within an hour. This is a factor all traders should consider before deciding on any size of the lot. $2,000 is a good starting point when working with mini lots.

The next size of the lot is known as a standard lot. A standard lot uses 100,000 units for trading. The most common pip size for a standard lot is $10/pip. It is recommended to have approximately $25,000 when working with standard lots.

The majority of traders will be working with micro and mini lots. Few traders work with standard lots as a result of the status they hold. It is best to preserve capital in order to ensure longterm trading. There are many different analogies to help understand exactly how lot size works and how to select the best one, including comparing it to walking on a narrow bridge. The large the bridge, the more support you have.