The 90% rule – why 90% of retail traders are losing money?

The 90/90/90 is an infamous rule in forex trading. Statistically, about 90% of retail traders will lose 90% of the money in their account within 90 days. The number may seem like an exaggeration, but we cannot deny the fact that the majority of traders are losing money. We will be exploring a few main reasons that contribute to this high failure rate in forex trading.

To many, the forex market is a place for them to generate “fast” and “easy” money since trades can be executed 24/7 with a few simple clicks on their devices. Many take a leap of faith into the market without having the right knowledge and skill, hoping that they can make a killing in the market and achieve financial freedom. Not having the right expectations and respect towards the market is the first major pitfall.

The second pitfall to many amateur traders is the lack of proper risk management. The get-rich-quick mindset is deeply embedded in the mind of these traders. They tend to go all-in for a few trades and hoping that they can generate multiple folds of profit without considering the loss that can be potentially incurred (not setting stop-loss). They will soon realise that their accounts are blown in a short period of time, especially when one’s “revenge” mindset starts kicking in after a few consecutive losses.

Not having the right technical skill is another pitfall faced by traders. The ability to understand what the market is telling us through chart reading is akin to learning a foreign language. We do not simply assume that we can understand the language without putting in time to learn it. Many tend to trade the market blindly based on financial news or following others’ ideas without proper understanding. Not only will this deplete their account in no time, it is extremely frustrating to trade blindfolded only to get a shock when you see volatile market movements.

Thinking that one can learn on their own through the free resources on the Internet is a classic case of you-get-what-you-pay-for. There are awesome free online resources for trading, on YouTube or Google, BUT there are too many and usually scattered. It is like giving you all parts of a car without giving you the manual on how to assemble it, all the parts are of no use on its own. Moreover, some information might not even be true, and some contradicting. Eventually, it will only make an amateur trader more confused. There are some successful self-learned traders, but it would have taken them years to find the right trading strategy, not mentioning the amount of money that had been lost in the process of experimenting.

Having the right mindset, proper risk management and technical skills are the 3 main areas we need to be focusing on if we are serious about forex trading, knowing where and how to obtain them is equally important. So, before you start trading a live account, ask yourself: am I overly optimistic, do I have a proper risk management plan and sufficient technical skills to understand how the market moves?

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