"90% of Forex Traders Lose Money"

"90% of Forex Traders lose money" is an often quoted statistic in our industry. No one knows the exact number; but I would guess that less than 2.0% of all Forex traders can consistently pull money out of the market over a time horizon of 5+ years.

Why do traders fail? Retail forex trading is different than trading stocks. The reason is that you're buying and selling contracts. Include the spread and/or commission you pay on every trade and you have a zero-minus game. You need to average a 50% win rate + the spread + 1 unit in order to book a profit. Contrast that to trading or investing in equities. Stock prices increase in valve over a long time horizon due to growth and inflation. You need not look farther than historical charts of the Nasdaq, Dow Jones, and S&P 500 indices. Equity traders/investors on the buy side have the scales slightly tipped in their favor.

The reality is that 100% of forex traders fail at some point or another. What separates the successful traders from the rest of the crowd is their tenacity to wade through their initial failures and develop a profitable methodology and to finally be able to control their emotions.


Control
The first question you should ask yourself is, "if almost all forex traders fail, what difference(s) define me as a superior trader?" Most forex traders start out thinking that they can be "better" then other traders and are really just kidding themselves. A lot of forex traders are competitive individuals who have previously been successful at some kind of activity, be it business ventures, sports, chess, poker, etc. So be honest with yourself, what makes you think you'll be able to succeed where people more competitive and intelligent than yourself have failed? What's your superior edge?

While it's true that we trade against competitors (other market participants,) most traders fail to realize that trading is primarily an internal struggle. Trading successfully ultimately depends on whether or not you can control yourself. Think about prominent people in the news like CEOs and politicians who get embroiled in scandals due to a single moment of weakness after exhibiting a lifetime of discipline and control. It only takes one deviation from controlled behavior to severely damage or destroy your trading account. Patience and control are the two essential virtues that differentiate the majority of traders who fail between the 2.0% that succeed. Possessing these virtues is your edge.

Your Methodology
Successful traders have a system or a methodology. That is to say their approach to the market is consistent. The best traders use systematic approaches, going through mental and/or physical checklists before executing a trade. A profitable trading system or methodology is defined by an individual trader knowing that if they use good risk management techniques and maintain control of themselves, then that method of trading will make money. A trademark of unsuccessful traders is that they don't have an exact methodology, they don't know exactly what they're looking for. 


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