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Attachments: The REAL reason why nearly every trader fails. Can you solve this trading dilemma?
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The REAL reason why nearly every trader fails. Can you solve this trading dilemma?

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  • Post #1
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  • First Post: Apr 19, 2010 10:53pm Apr 19, 2010 10:53pm
  •  finally
  • | Joined Aug 2009 | Status: Member | 155 Posts
After thinking long and hard about why nearly every trader fails, I think that I have found the answer.

The basic trading dilemma is this:

It is nearly impossible to make the math work.

Let me give you an illustration of why it is so hard to make the math add up trading:

I traded this method the whole day today and did well but there is a problem that all traders face regardless of their methods and it is this:

You never know how much profit the trade will give you.

You can know, for sure, your stop and entry but you just can not know how much profit the trade has in it

This is the main reason why nearly everyone loses money trading.

For instance, today on all my trades the entries were crystal clear and so was my stops- always set to 15 pips.

Being that you can never know how much the trade has in it, on many of my trades I wanted to take the profits before they disappeared, so on many trades I took 3 pips profit, 5 pips profit, and 10 pips profit.

Some of these trades went on to give bigger profits if I had stayed in the trade but some of them retraced and my profit would have disappeared if I had not exited with a quick profit.

So, what I am getting at is this:

The risk/reward ratios in trading are unfavorable because you can't be GUARANTEED that the trade will give a profit that is equal or more than your stop loss.

So, basically you are risking 15 pips(if you use a 15 pip stop) to make 3,6, 10 and sometimes 15 pips.

Today, I hit most of my trades but if my 15 pip stop got hit a few times, most of my profits would have disappeared.

Sooner or later, this will happen and all of those small profits will be given back by being stopped out a few times.

So, my question is this:

How, exactly, do you handle this problem?

Is it the case that many profits, that are smaller than 15 pips, in the end make up for getting stopped a couple of times?

In my opinion, this problem is the main dillema in trading and is the reason why nearly every trader, in the end, ends up losing all their money.

It is nearly impossible to make the math works (your profits add up to more than your losses) because it is impossible to INSURE that your profits will be bigger than your losses because you NEVER KNOW how much profit a trade has in it.

Can anyone one think of a way to solve this most basic trading dilemma?

Any and all ideas would be appreciated.

Thanks and Happy Trading
  • Post #2
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  • Apr 19, 2010 11:08pm Apr 19, 2010 11:08pm
  •  Deusomega
  • | Joined Apr 2009 | Status: Member | 682 Posts
Exits are the main determinant of whether one will profit or not.

Experience will be the only thing that helps you stay on the train longer.
 
 
  • Post #3
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  • Apr 19, 2010 11:14pm Apr 19, 2010 11:14pm
  •  Jcpfx
  • | Joined Apr 2010 | Status: Member | 496 Posts
Hey Finally,

I have struggled with this same issue for a long time now. One of the systems I am using I set SLs at 50 pips, but take most profits between 10-30 pips, I basically take fast profits quickly. If price isn't going anywhere fast I dump it, whether it's up or down, I also make sure to note the closest support and resistance levels.

Just my humble opinion.

Good luck,

JCP
 
 
  • Post #4
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  • Apr 19, 2010 11:16pm Apr 19, 2010 11:16pm
  •  Rob Mondave
  • | Joined Nov 2009 | Status: Member | 531 Posts
You can know how far the price is going, it's just a matter of experience. Some people claim they can predict the exact pip at which the price will turn, and I don't know if they can do that all of the time or just some of the time, but generally speaking you can point to an area where the price will go in its current trend.

Don't forget, the price is moved by human beings with a herd mentality.

Rob
 
 
  • Post #5
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  • Apr 19, 2010 11:18pm Apr 19, 2010 11:18pm
  •  Razzle
  • Joined Dec 2005 | Status: Member | 336 Posts
I can think of a few idea's but its probably much better if change your perspective and start to accept the reality that you'll have a distribution of gains and losses. Forcing the outcome of trades into an arbitary framework that you've constructed isnt particularly sensible.
 
 
  • Post #6
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  • Apr 19, 2010 11:22pm Apr 19, 2010 11:22pm
  •  finally
  • | Joined Aug 2009 | Status: Member | 155 Posts
Quoting Jcpfx
Disliked
Hey Finally,

I have struggled with this same issue for a long time now. One of the systems I am using I set SLs at 50 pips, but take most profits between 10-30 pips, I basically take fast profits quickly. If price isn't going anywhere fast I dump it, whether it's up or down, I also make sure to note the closest support and resistance levels.

Just my humble opinion.

Good luck,

JCP
Ignored
This is exactly what I do- I exit the trade when the price starts stalling and I think the move is over. Unfortunately, this doesn't solve the problem (I don't know if there is a solution) because if you take the quick profits and your stops are greater than your profits, eventually one's funds will be depleted UNLESS you have a set-up that is so good (80% plus) that those quick profits
will offset the bigger losses.

Perhaps this is the solution- finding a really high percentage winning set-up so the bigger losses will not dissipate all of your profits.
 
 
  • Post #7
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  • Apr 19, 2010 11:30pm Apr 19, 2010 11:30pm
  •  Jcpfx
  • | Joined Apr 2010 | Status: Member | 496 Posts
Quoting finally
Disliked
This is exactly what I do- I exit the trade when the price starts stalling and I think the move is over. Unfortunately, this doesn't solve the problem (I don't know if there is a solution) because if you take the quick profits and your stops are greater than your profits, eventually one's funds will be depleted UNLESS you have a set-up that is so good (80% plus) that those quick profits
will offset the bigger losses.

Perhaps this is the solution- finding a really high percentage winning set-up so the bigger losses will not dissipate all of your...
Ignored
Maybe it comes down the person, what suits your personality best? I get the feeling that this all comes down to being able to combine your own discretion with a good solid system, meaning you have to use your brain to make decisions without letting all the emotional factors take over. Being able to react after a purchase and incorporate all of the experience and knowledge you've accumulated over the years. Also, keep in mind that every trade is different and can't necessarily fall into the same parameters as the previous trade, discretion may need to be used.
 
 
  • Post #8
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  • Apr 19, 2010 11:38pm Apr 19, 2010 11:38pm
  •  2+2=4ex
  • Joined Mar 2009 | Status: Trader | 6,418 Posts
To the author of this article:

1) save this article you wrote

2) don't stop trading. Trade and/or study charts everyday for the next several years.

3) after those several years read this article again

I'm willing to bet you will think to yourself how naive and inexperienced you were.
 
 
  • Post #9
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  • Apr 19, 2010 11:42pm Apr 19, 2010 11:42pm
  •  finally
  • | Joined Aug 2009 | Status: Member | 155 Posts
Quoting 2+2=4ex
Disliked
To the author of this article:

1) save this article you wrote

2) don't stop trading. Trade and/or study charts everyday for the next several years.

3) after those several years read this article again

I'm willing to bet you will think to yourself how naive and inexperienced you were.
Ignored
That being said, do you have an answer for the question- smarty pants.
 
 
  • Post #10
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  • Apr 20, 2010 12:02am Apr 20, 2010 12:02am
  •  2+2=4ex
  • Joined Mar 2009 | Status: Trader | 6,418 Posts
Quoting finally
Disliked
That being said, do you have an answer for the question- smarty pants.
Ignored
Ah man, I didn't mean it like that. My apologies if it came across rude, I honestly didn't mean it that way. The reason I wrote that is because I figured you were a beginner by stating you were having a hard time determining when to take profit. I think you will find, as I have, that 99% of experienced traders know when they will exit before they enter. The usual execption to this rule is unexpected news.

I am not going to try and pretend like I know "the secret" that will win you a 1000 pips in one day (at least from a manual trading perspective). I don't think anyone can. I do know what has worked for me consistently is drawing out my lines. Trend lines, fib levels, supports, resistances and pivot points. I enter when risk reward is favorable according to the lines. I've also learned that moving stop can be useful under certain circumstances. Lastly, I usually use multi-tier entry and exits. For example: Buy 5 lots at 3450. Take profit on 3 lots at 3475, move stop loss to be+1 and let the other two run to 3500 (or be+1). That's pretty much it.
 
 
  • Post #11
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  • Apr 20, 2010 12:05am Apr 20, 2010 12:05am
  •  finally
  • | Joined Aug 2009 | Status: Member | 155 Posts
Quoting 2+2=4ex
Disliked
Ah man, I didn't mean it like that....
Ignored
Apologies accepted 2+2 but, unfortunately, what you say doesn't answer or even address the question.
 
 
  • Post #12
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  • Apr 20, 2010 12:05am Apr 20, 2010 12:05am
  •  swingtrader
  • | Additional Username | Joined Nov 2009 | 564 Posts
I would say greed is major factor why traders fails,yesterday one of my trade was stopped out just because i was greedy for few more pips
 
 
  • Post #13
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  • Apr 20, 2010 12:06am Apr 20, 2010 12:06am
  •  finally
  • | Joined Aug 2009 | Status: Member | 155 Posts
Quoting finally
Disliked
Apologies accepted 2+2 but, unfortunately, what you say doesn't answer or even address the question.
Ignored
Also,I am no beginner- Don't let the number of posts fool you.
 
 
  • Post #14
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  • Apr 20, 2010 12:21am Apr 20, 2010 12:21am
  •  finally
  • | Joined Aug 2009 | Status: Member | 155 Posts
Quoting FXSurfer
Disliked
I don't think that he's trying to be a smart ass - just trying to help - and he's right.

Look at it this way: Your first post points toward your attempt to superimpose a point of view upon the market that is in no way reflective of how the market is trading.

Another point of view: Your order will in no way move the market. Your profitability is completely dependent upon other orders carrying your along for the ride. It's up to you to plug into this reality - they don't give a shit about your stop loss, take profit or math.

Superimpose your...
Ignored
How do you INSURE that your profits add up to more than your losses if there is NO WAY to KNOW how much profit there will be in the trade?
 
 
  • Post #15
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  • Apr 20, 2010 12:26am Apr 20, 2010 12:26am
  •  FXSurfer
  • Joined Mar 2007 | Status: ~~~~~~~~~ | 3,692 Posts
Quoting finally
Disliked
How do you INSURE that your profits add up to more than your losses if there is NO WAY to KNOW how much profit there will be in the trade?
Ignored
It's unknown - the market is the master. We are the followers only; developing our skills and accumulating experience as we go along. Greater skill, more experience, less loss, more gain. No certainty.

Also, I pulled my post because I'm afraid it came across as rude.
 
 
  • Post #16
  • Quote
  • Apr 20, 2010 12:27am Apr 20, 2010 12:27am
  •  asgard2
  • | Joined Jun 2009 | Status: Member | 222 Posts
Quoting finally
Disliked

You never know how much profit the trade will give you.
Ignored
That is true but you must have an expectation or you should not enter the trade. Otherwise you cannot calculate your risk/reward. Steve Nisons candlestick trading video is a good one to show you how this should work.


Quote
Disliked

This is the main reason why nearly everyone loses money trading.

For instance, today on all my trades the entries were crystal clear and so was my stops- always set to 15 pips.

Being that you can never know how much the trade has in it, on many of my trades I wanted to take the profits before they disappeared, so on many trades I took 3 pips profit, 5 pips profit, and 10 pips profit.
How, exactly, do you handle this problem?
Any and all ideas would be appreciated.

Thanks and Happy Trading
It appears and I could be wrong.. that you are doubting your trade will actually go in the direction you have chosen. This is normal if you haven't traded very much. Try this on a demo account, cause I don't want any blame.

Pick the three trends.. that is long term, medium and short term. When any two are in the same direction, it should be safe to make a trade in that direction but you need to check, A) your daily candle B) 4 Hour Candle and C) 15 minute candle. Find the consolidation points rather than trend lines to use as support or resistance zones. Make up your mind where it is going and don't change your mind. So better not to watch it if you worry.

Enter only after a narrow range candle that appears soon after the low/high is apparent .. Reason, that is where your stop loss goes below the low of the low candle. If it is more than 10-20% of your next support or resistance zone or expected profit.. then don't take the trade.

See, if that works.. you will not always find a trade every day. This is just an outline of standard trading practice. To get good at it.. it will take a lot of practice and you will not stop learning. So read about the mistakes others have made and it may save you a buck or two.

Oh.. unless you are brilliant.. 15 pips stop loss is not going to cut it. Aim for higher profits, which will invariably lead to higher draw down.
 
 
  • Post #17
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  • Apr 20, 2010 12:30am Apr 20, 2010 12:30am
  •  blueace
  • Joined Jan 2008 | Status: Member | 265 Posts
I think you've asked a great question and not one that I hear very often.

This question is actually what set me on the track to trading profitability.

Here's how I solved the problem for myself.

Find/create a system that can give you a RR of at least 1:1.5 and can give you at least a 50% winning probability.

I know that sounds idealistic but I guarantee those systems exist. Money Management is key.


Best of luck!
 
 
  • Post #18
  • Quote
  • Apr 20, 2010 12:33am Apr 20, 2010 12:33am
  •  finally
  • | Joined Aug 2009 | Status: Member | 155 Posts
Quoting asgard2
Disliked
That is true but you must have an expectation or you should not enter the trade....
Ignored
You can't calculate your risk/reward in trading BECAUSE you can not KNOW how much profit there will be in the trade.

Without this KNOWLEDGE it is extremely difficult to make meaningful money in trading.
 
 
  • Post #19
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  • Apr 20, 2010 12:35am Apr 20, 2010 12:35am
  •  finally
  • | Joined Aug 2009 | Status: Member | 155 Posts
Quoting blueace
Disliked
I think you've asked a great question and not one that I hear very often.

This question is actually what set me on the track to trading profitability.

Here's how I solved the problem for myself.

Find/create a system that can give you a RR of at least 1:1.5 and can give you at least a 50% winning probability.

I know that sounds idealistic but I guarantee those systems exist. Money Management is key.


Best of luck!
Ignored
How can you GUARANTEE a risk/reward ratio of ANY kind if you can not KNOW, for certain, how much profit there will be in a trade?
 
 
  • Post #20
  • Quote
  • Apr 20, 2010 12:36am Apr 20, 2010 12:36am
  •  asgard2
  • | Joined Jun 2009 | Status: Member | 222 Posts
Quoting finally
Disliked
You can't calculate your risk/reward in trading BECAUSE you can not KNOW how much profit there will be in the trade.

Without this KNOWLEDGE it is extremely difficult to make meaningful money in trading.
Ignored
Yes, well I am agreeing with that.. but it you don't have an expectation then you should not be trading because you just put yourself in a no win situation.

The support and resistance zones are your expected take profit area.. how far you push it is entirely up to the trader.
 
 
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