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Forex Trading Strategy: 11 Reasons Why They Fail, Although Most Work

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Table Of Contents

This post is also available in: Indonesia

Most Forex trading strategy approaches when applied correctly and refined to remove false signals, work! That’s right. Therefore, it’s accurate to say that executing a strategy incorrectly and acting on false signals leads to failure. Well, that’s also true.

Most traders reason that Forex trading’s success depends on investing in Forex courses that teach the best trading strategy. Similarly, they bank on using reviewed strategies that have generated profits for other users. Some traders solely rely on the signals provided by trading signal software. 

All these approaches may result in profits, but there is a high chance of failure. It’s possible to have all the technical skills and still lose. But you want to win, right? So, here are limitations that far exceed your technical skills and result in systems or strategies failing.

1. Not Aligning With the Nature of Financial Markets, Trading in Disillusionment

Financial markets are unnameable beasts. They are intricate, complex, and unpredictable. Recognizing that 80% to 90% of traders end up making losses is an excellent place to start. It’s vital to realize that the market is construed to render your strategy useless. 

Taking a pessimistic approach, while millions of traders adopt an optimistic view, sets you apart. Digging deeper to discover who the real players are, and what happens in the dark pools gives you an edge. 

Realizing that you’re trading against complex and high-speed algorithms is also essential. Markets, in a way, take from the masses and award the few. Winners are winners because others loose. 

best Forex trading strategy

2. Holding on to Losses & Closing Winning Positions Prematurely

The simple fact that you’re a human, not a machine, makes you vulnerable to a common trading flaw. The flaw entails holding on to losing positions for an extended time than necessary. We do this in the hope of being proven right after applying our strategy. 

Similarly, when a Forex strategy results in a win, there is a tendency to close the position prematurely to avoid the pain of losing profits. Small profits and big losses will ultimately decimate your account. 

3. Overtrading with Your Forex Trading Strategy 

If a strategy is a high producer of accurate signals, you should apply it as many times as possible, right? Well, you’ll be at risk of overtrading, which increases the risk of failing.

Practice discretion when applying even the best Forex trading strategy. Most beaten-down traders, in hindsight, wish they traded less often and discriminated trading opportunities better.

4. Learning a Strategy From an Unproven Mentor

As a novice trader, it’s impossible to avoid the lure of experts. You’ll encounter many experts, particularly if you want to become really great at trading. 

Now, the right mentor and coach can fast track your success journey. You can learn how to create a trading strategy under their mentorship. And the expert may use the same strategy and make profits, while you make losses using the same approach. 

What’s essential is going with a proven expert, and better yet, reach a point where you can design your strategy under their guidance. Generally, avoid following strategies blindly and a misinformed allegiance to any trader. 

5. Not Backtesting and Forward Testing

You have used a strategy that worked a few times before. But how does it fare when it’s tested against comprehensive historical trading data? Backtesting is crucial to improve the effectiveness of any trading system. It helps you develop robust rules.

Additionally, forward analysis (walk forward optimization) is key to determining the optimal parameters, such as the time period to apply the strategy. If this sounds complex, remember it contributes to the success or failure of a strategy, and it offers a technical approach to make better trades. 

6. Eagerness to Make Money, Which Contributes to a Lack of Patience

The eagerness to make money is detrimental. It causes you to rush into trades, and you will tend to ignore the rules set forth by your system. 

Yes, most trading strategies fail because their users don’t have the patience to stick with them. They grow arrogant about the basic rules and enter into the realm of guesswork. The best decision you can make is not having money dreams. 

7. Overlying on Indicators and Ignoring Price Action

Have you ever felt that you can finally generate profits if you learn the right Forex trading system or how to use a particular indicator? Indicators are not perfect because most are lagging indicators and only serve to confirm moves that have already occurred since they rely on past data. 

Leading indicators like the RSI are not right all the time. You should, in addition to using indicators, learn the fine art of price action trading, how to use support and resistance levels, and more.

Not Adapting Forex Strategies

8. Not Adapting Forex Strategies to Changing Market Conditions

Would you use a fork to scoop up soup? Similarly, there is no single strategy that will work in all market conditions. Some strategies perform well in ranging random markets, and others are great for strong uptrends or downtrends. 

Ensure that you understand the appropriate strategy for the current market condition. Similarly, some strategies may work well this year and fail in the next year. Forward-thinking traders update their methods and tools.

9. Trading With Insufficient Capital 

You can open a position, lose money, only to turn a profit tomorrow. Capital is key to keeping positions open. While brokers now allow you to get started with as little as $100, consider if it’s enough to open positions for sufficient periods and at the right volumes. 

10. Never Testing a Strategy With Real Money

The number one issue with trading in a demo environment is that your money is not on the line. Therefore, there is less emotional involvement, and managing emotions will be key when using real money

The best approach is testing out the strategy in a demo account. Once you’re successful, fund your account with small amounts before attempting full-on trading. 

11. Lacking Exposure to Good Trading Strategy Guides

Finally, you need exposure to trading strategies with established success rates. You can take a look at some of the best momentum trading strategy guides right now. Similarly, there are additional mistakes traders make, such as never having a plan. Check out Forex trading mistakes and how to avoid them.

This post is also available in: Indonesia

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Updated  October, 2020

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