I'll also toss my hat in with the posters who've said it's a psychological difference, not a system difference.
People say 'trend is your friend', 'always trade with stops' and such for a reason.. because it's to remind them when they break the rules and get hurt.
Some common reasons why new traders bust out:
Expecting too much while under-capitalized - anyone who thinks 300%+ a month is realistic is going to get destroyed eventually. Some find examples of people online who've managed to double an account a few months in a row, and think that's evidence enough that they'll do the same.. but they fail to consider how many others try to do the same and bust out. Or even worse, they might get a win streak and assume it's because of their own talent and expect it to continue forever (this false sense of confidence kills accounts all the time.)
Over-leveraged -Even systems with a positive expectancy have a random distribution of winners and losers. Good systems can have a hand full of losers in a row and still have a positive expectancy. If you're leveraged high enough so 3-5 losers in your account cuts you right down, you'll never last in the long run. Losers are going to happen, and a string of them is an eventuality.
Not accepting a loss - this could be hopeful thinking that the trade will eventually turn profitable (in which case you are no longer trading with a plan, but are subject to the will of the market, and the market does not care if you make money,) or it could be averaging down as it goes against you hoping for just enough of a pullback to get out at a small profit. The reality is, your trade is wrong the moment it stops doing what you expect or have planned to manage.. the only thing worse than being wrong, is staying wrong as it continues to hurt you. Plus, holding losers ties up your capital that you now can't use to trade better setups.
Not planning trades - Impulse or gut trading without any action plan or reason. Some traders, after many years of trading and screen time, might be able to 'gut' trade without double checking price levels or technical setups, but for a new trader this is death. Plan each trade as it fits your system and risk profile, if you don't have a system or understand what's appropriate for risk, you gotta take a step back and do that first before trading.
There are many more reasons.. these are just a few streaming from my thoughts as I look to kill a bit of time on my lunch break. heh...
People say 'trend is your friend', 'always trade with stops' and such for a reason.. because it's to remind them when they break the rules and get hurt.
Some common reasons why new traders bust out:
Expecting too much while under-capitalized - anyone who thinks 300%+ a month is realistic is going to get destroyed eventually. Some find examples of people online who've managed to double an account a few months in a row, and think that's evidence enough that they'll do the same.. but they fail to consider how many others try to do the same and bust out. Or even worse, they might get a win streak and assume it's because of their own talent and expect it to continue forever (this false sense of confidence kills accounts all the time.)
Over-leveraged -Even systems with a positive expectancy have a random distribution of winners and losers. Good systems can have a hand full of losers in a row and still have a positive expectancy. If you're leveraged high enough so 3-5 losers in your account cuts you right down, you'll never last in the long run. Losers are going to happen, and a string of them is an eventuality.
Not accepting a loss - this could be hopeful thinking that the trade will eventually turn profitable (in which case you are no longer trading with a plan, but are subject to the will of the market, and the market does not care if you make money,) or it could be averaging down as it goes against you hoping for just enough of a pullback to get out at a small profit. The reality is, your trade is wrong the moment it stops doing what you expect or have planned to manage.. the only thing worse than being wrong, is staying wrong as it continues to hurt you. Plus, holding losers ties up your capital that you now can't use to trade better setups.
Not planning trades - Impulse or gut trading without any action plan or reason. Some traders, after many years of trading and screen time, might be able to 'gut' trade without double checking price levels or technical setups, but for a new trader this is death. Plan each trade as it fits your system and risk profile, if you don't have a system or understand what's appropriate for risk, you gotta take a step back and do that first before trading.
There are many more reasons.. these are just a few streaming from my thoughts as I look to kill a bit of time on my lunch break. heh...
FXGears.com