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The reason why 95% of new traders consistantly lose money

  • #41
  • Feb 19, 2008 2:16pm Feb 19, 2008 2:16pm
Fair enough FXTitan, and great you're having success with your method. But I'd say there's three reasons why new traders consistently lose money:

1) Stops are too close
2) Undercapitalised
3) Profits are booked too early

Combine the three and you might as well write a cheque to your broker now. The fact is, most new traders perform worse than a coin-tossing trading system, which, if carefully money managed should gradually lose you money over a very long time. Most people lose their money over a very short amount of time, underperforming the coins in my pocket, which is a very shabby performance indeed.
  • #42
  • Feb 19, 2008 3:38pm Feb 19, 2008 3:38pm
Quote
If you can double your account every month, you can turn $500 into $2mil in just 12 months if you don't withdraw anything because it just keeps compounding! Who do you know that even got close to that?

Bunnygirl
  • #43
  • Feb 19, 2008 4:14pm Feb 19, 2008 4:14pm
Well, triphop - how far should be the stops? 500 pips? 1000 pips? One high spike during the news or pleasantly arranged by you broker could get it hit very easily on high volatile pair especially if price has been going in that direction for some time. Ask me how I know.

FxTitan, I'm trying to make sense from your hedge method which is I think a key of your "no-stop-loss" strategy.
So, here is how I understand it, please correct me/answer questions if you could.
1. We enter the market using any of proven Trading Methods (longer time frame recommended). Trading Methods applications are out of scope of this discussion.

2. We risk 1% of our trading capital per trade - it's not very clear how you calculate the lot size regarding the risk since you're "not losing anything". I mean if I had 100 pips SL for a trade I would easily calculate how much I would lost if it gets hit. Please elaborate more about lot size calculation.

3. Hedge strategy. We enter marker by entering two opposite (long and short) trades. Questions: Do you always do that even if price goes in your direction? Wouldn't be better to enter two opposite Stop Orders with some distance between them? Do you keep trading while your hedge lock still in action decreasing your lot size (according to 1% of total capital rule) or you close the profitable side of the hedge first? If you ALWAYS enter 2 opposite trades does 1% rule apply to each trade or both trades as a one entity?
As I understand how to resolve the hedge lock is also out of this discussion's scope, every man for himself, but at SOME POINT you close one side which is at profit and let the losing one "to run".

Is everything correct?
  • #44
  • Feb 19, 2008 5:14pm Feb 19, 2008 5:14pm
Quoting FXTitan
Hi

I have been trading forex fulltime on and off for more than 7 years. I have bought and completed several forex courses, read books, did online research on forums such as this one and even tried out EA robots. The only consistent thing that kept on happening was that I was bleeding money. Sure, I would have one or two profitable months, but I mostly lost money. I have wiped out several trading accounts causing myself terrible heartache during this time.

I would bet that every trader reading this post can and is identifying with me. Most of us reading these forex forums are consistent losers in forex and we wouldn't be here if we weren't looking for a better way to trade...

Have you ever wondered why 95% of traders lose consistently? What is the most common thing that most traders consistently do? What is the most urgent mantra that is drilled into our brains while learning to trade? Can anyone guess?

It is using stops! CUT YOUR LOSSES AND LET YOUR PROFITS RIDE!

95% of all traders consistently lose money because they use stops. Big stops, small stops, trailing stops, you name it. Who of us can truly know which way the market will go? Even by using every indicator, being a technical or fundamental fundie, no one can predict market movement.

Who of us thought that the usd would fall 200p against the gbp at the Feb 2008 nfp report. The worst report in 4 years produced exactly the opposite result than we expected! How many fib bounces did exactly work out as you hoped? How many times did the market take out your stops when you least expected it and turn around to go in the original direction you planned?

This is my theory. Traders that lose consistently, use stops. Forex trading is a guessing/ gambling game. The market makers indirectly participate in the forex market by finding traders dumb enough to actually trade and by trading I mean losing their money to the brokers' account. The brokers make money in forex not by trading themselves, but by having noobies trade for them and losing.

The traders who have become successful and that have stuck around long enough knows that no strategy using stops, consistently works and make money. So what have they done? These traders had to start thinking out of the box. Only by turning everything they know onto its head were they able to change their results.

Since I had this 'awakening' I have not lost a single trade. I have 100% consistent winning track record! No Bull! {Don't worry, I am not selling anything...}

Ok, so how does it work? Lets say instead of using stops to book your losses, you use stops to book your profits... Huh?

It is very simple... As has been said by another famous trader/ mentor, CUT YOUR PROFITS AND LET YOUR LOSSES RUN! If your stops are going to be hit anyway, why don't you allow them to make you money instead of losing you money?

This is exactly the opposite of the mantra every broker/ market maker drills into you. They make you believe that you will be safe if you cut your losses short and use stops to protect yourself. They make you believe that with some cool system you will consistently win more trades than you lose or win more money than you would lose by having the right risk/ reward ratio. These guys fully know that you will lose all your money eventually just like the other 95% of traders out there. You will be just another usual statistic if you trade like everyone else trades.

Now this is where gearing and money management really come in. If you use low gearing {1% of your account per trade} you can let the market swing very wide and very far against your position. If you now use a stop to take profits, it will eventually be triggered just like your stop for loss would have eventually been triggered.

Now look for possible turning points. I am sure you can find an indicator/ price pattern that does that. Only work on longer time frames, 4hr minimum, daily is good. Hedge your position, go long/ short at the same price with the same profit target both ways. You can also make your profit target bigger in the direction of the larger trend. Now your stops will definitely be hit no matter which way the market swings.

But, you might ask, what about open positions that really run away against you? No problem. As your account balance grows, you will still use 1:1 gearing. When your account balance keep growing by booking profits, the percentage drawdown of previous open positions with smaller lot sizes will shrink {in relation to total account size} because the current lot size you use now will grow too and so determine your bigger profits as well.

By using low gearing you consistantly book, say 1-5% profit on every trade. Your equity balance will fluctuate and your free margin balance will also fluctuate but at a relatively constant percentage of your total account balance. If you use larger gearing like say 5:1 and 10:1, your account might be wiped out because your margin will not be able to carry it if you have multiple positions open.

Now you have to think what is the reason for you trading? Is this a longer term investment strategy or are you suicidal? {I recommend you keep your day job, for now} By suicidal I mean, trying to scalp or using any other short term strategy that doesn't work in the long run and under various market conditions. Using longer time frames for this investment strategy is definitely better! It is a fact that when you close your account, using my strategy, in the end, that the negative open positions will then be closed as well and you will then book your first real losses.

This is not a big deal if your available equity has grown much larger than your opening balance when you close your account. I, for example, am currently growing my account by a minimum of 10% a week and this current week on the gbp/usd is up 23% so far. The power of accumulated growth is truly amazing! I have fine tuned this strategy to produce better results and started using it on a new account and I have so far doubled this account since 7 Jan 2008 {15 Feb today}.

I am not writing this to show off how brilliant I am, but to challenge the broker induced/ losing trader mentality that you have been taught that prevents you from becoming successful in forex.

If you can start with $1000 and grow it consistently over time, you will be able to show a spectacular return on your investment when you close your account even after taking the loss in the end from the accumulated losing positions. If you manage to make 10% accumulated growth per week on your capital over a year, your available equity in the end will be many times larger than your opening account balance. Work it out on paper and you will prove it to yourself.

The power of hedging is great. If, however, you only trade in one direction, {say the direction of the weekly trend is up} and you keep buying the dips/ possible turning points on a daily chart in the weekly direction and the market for some reason keeps going against you and you find yourself 1000p down, then you run the risk of wiping out your account because all your open positions will be negative and will grow until your margin collapses. By hedging every new position in this scenario, you keep booking profits on the way down and you can just wait for the market to turn around to go back up again and resume the weekly bull trend.

Now I am not trying to sell you a system and I won't give you my system either. I have suffered too much to just give it away. This is my intellectual capital and my trading edge. I have paid my dues to learn this game the hard way. I am sure you guys understand that. I do not care to prove myself to the skeptics among you so I will not post any of my results. You have to decide if you want to take me at my word or not. I merely want to make you consider what I wrote and to challenge you to start thinking out of the box. If you start working on it, you will find your own market beating strategy and have plenty of free time to enjoy your profits.

I have now become one of the 5% of traders who consistently win, without using stoplosses, and make good money.

Good luck
So If I understood what you have writen here, you are "Cuting profits, and leting losses run", As for why 95% of people lose money, In my opinion its not because of stops, its 80% because of Lack of Discipline and the other 20% by lack of a good Trading Plan
Logic will get you from A to B. Imagination will take you everywhere.
  • #45
  • Feb 20, 2008 3:16am Feb 20, 2008 3:16am
How comes that my stops have never been hit without reason?
My Take Profits on the other hand get taken out all the time. (poor me)
Maybe I'm just better at placing stops than you
The times where my stops have been hit I was glad I had them. Could have lost 50-100 Pips more instead of 25. Well and if they get hit. This means I was just wrong with my analysis. I don't jump in right away and try to catch the top of a trend that has already proven my trade wrong. It's as simple as that.
  • #46
  • Feb 20, 2008 3:24am Feb 20, 2008 3:24am
first post here, but long time reader:

i found this fxtitan thread one of the most interesting things i read in the last time and worth to think about. enough to demo it for while. i like to test if this groth factor and hedge thing work out...

bravo!
  • #47
  • Feb 20, 2008 4:00am Feb 20, 2008 4:00am
Quoting FXTitan
Hi again

You must understand my reason for starting this post. I wanted to share with you my experience in working something out that is against everything we have been taught by people who have a vested interest in us traders either trading many times a day or losing consistently.

I turned the traditional paradigm on its head and used what I have learned {over the years} does not work and designed a system that now works like a bomb.

If I post my charts and my live account statement, I will then give my strategy away to all of you clever guys out there who will be able to work out exactly what I do. So, unless I start selling my system for $1000 a pop like other online vendors, I do not feel that I need to prove anything to anybody.

If the market just takes off, like someone stated, you do not need to be net long when the market goes up. Why? Because you will be identifying turning points in the direction of this strong trend as well and will continue to hedge your long entries, as well as your short short. This means that even when the market just goes up, you will still make money on the hedge trades that are in the direction of this strong trend. You thus win on your short and long trades because those trades will be long and short at the same price. This also means that every profit you take will be higher than the last one because you will be using bigger lot sizes as your account grows.

If you then started trading using 0.01 lots and after 6 months you are trading using 100k lots, then the loss that you are carrying on the 0.01 lots will be only a fraction of your account size. Does that make sense?

I though do have a continual, average drawdown of about 20-30% {I think} on my account at any given time. This doesn't worry me, because my account balance keep growing and my drawdown stays a constant percentage of my account balance. My aim is to grow my account to such an extent that my available equity will be 100 times more than my initial account balance. That is the point. It's about how you finish the game.

If you can double your account every month, you can turn $500 into $2mil in just 12 months if you don't withdraw anything because it just keeps compounding! Who do you know that even got close to that?

After 1 year {if I remember}, I will post my live account minus some details to prove that this strategy is the only one that will stand the test of time... and then I'll sell it to you! Ha Ha Ha... {evil laugh}

Later!
Hi FXTitan,

To my understanding,this system will generate around 5 - 10 % per month,it interest me your system able to double every month! I am keen to learn from you if you can PM me.

a)May i know how have you been successfully trading this system?


Btw thanks for helping me to think out of the box.


Zu
  • #48
  • Feb 20, 2008 6:16am Feb 20, 2008 6:16am
I think a very imporant factor is that quite a few retail traders simply suck.
Why has nobody ever thought about that? No, lets blame it on brokers and stops and the illuminati. That's much easier.
Why would 95% of all fat people lose against a record holing athlete? BECAUSE THEY SUCK at sport.
It's a myth that everyone can be a good trader. The fact that no 2 people are alike contradicts that.
  • #49
  • Feb 20, 2008 8:59am Feb 20, 2008 8:59am
I had been using this type of hedging strategy in the 3rd quarter last year

but I always not able to finish the demo test due to the Broker's demo

expiration (15 to 30 days demo account).

Aleast for me, It's the best I've ever tested.

Now I'm going to try and demo on it again.

Please ignore my bad english.

Thank You FXTitan for opening this thread.

FxHadji
  • #50
  • Feb 20, 2008 1:10pm Feb 20, 2008 1:10pm
Quoting zu si fu
Hi FXTitan,

To my understanding,this system will generate around 5 - 10 % per month,it interest me your system able to double every month! I am keen to learn from you if you can PM me.

a)May i know how have you been successfully trading this system?


Btw thanks for helping me to think out of the box.


Zu
Get Rich or die broke Right?
Logic will get you from A to B. Imagination will take you everywhere.
  • #51
  • Feb 20, 2008 1:54pm Feb 20, 2008 1:54pm
Quoting FXTitan
Hi again

You must understand my reason for starting this post. I wanted to share with you my experience in working something out that is against everything we have been taught by people who have a vested interest in us traders either trading many times a day or losing consistently.

I turned the traditional paradigm on its head and used what I have learned {over the years} does not work and designed a system that now works like a bomb.

If I post my charts and my live account statement, I will then give my strategy away to all of you clever guys out there who will be able to work out exactly what I do. So, unless I start selling my system for $1000 a pop like other online vendors, I do not feel that I need to prove anything to anybody.

If the market just takes off, like someone stated, you do not need to be net long when the market goes up. Why? Because you will be identifying turning points in the direction of this strong trend as well and will continue to hedge your long entries, as well as your short short. This means that even when the market just goes up, you will still make money on the hedge trades that are in the direction of this strong trend. You thus win on your short and long trades because those trades will be long and short at the same price. This also means that every profit you take will be higher than the last one because you will be using bigger lot sizes as your account grows.

If you then started trading using 0.01 lots and after 6 months you are trading using 100k lots, then the loss that you are carrying on the 0.01 lots will be only a fraction of your account size. Does that make sense?

I though do have a continual, average drawdown of about 20-30% {I think} on my account at any given time. This doesn't worry me, because my account balance keep growing and my drawdown stays a constant percentage of my account balance. My aim is to grow my account to such an extent that my available equity will be 100 times more than my initial account balance. That is the point. It's about how you finish the game.

If you can double your account every month, you can turn $500 into $2mil in just 12 months if you don't withdraw anything because it just keeps compounding! Who do you know that even got close to that?

After 1 year {if I remember}, I will post my live account minus some details to prove that this strategy is the only one that will stand the test of time... and then I'll sell it to you! Ha Ha Ha... {evil laugh}

Later!
You are completely right - I trade the same way - and it works
  • #52
  • Feb 20, 2008 2:33pm Feb 20, 2008 2:33pm
Quoting sweety
You are completely right - I trade the same way - and it works
Please don't let this thread die. I strongly encourage those who have been trading this method to share their experience and results. I always hated Stop Losses and have been thinking how to avoid them all together, also I like hedging a lot. If you don't want to share how to enter the market, that's absolutely fine. Just that hedging w/o SL thing plus MM - how it's been to you?
  • #53
  • Feb 20, 2008 3:17pm Feb 20, 2008 3:17pm
"q: there is a saying that every trader has to completely blow up his account at least once before he can become successful. what did you learn out of it?
a: like I earlier said, my private account saw some bad times during my apprentice in the bank, although I must admit, that back then I had absolutely no idea that there was something like 'risk-management'.
later on I found 7-digit losses to be cumbering. on day I had a blackout and after losing 2,5 million � I was seriously thinking about stopping. I still had enough capital left to live without having to worry about financial issues and i just wouldn't want to take those psychological hits anymore. after taking 4 weeks off, I regained my motivation and returned in the ring. I was able to make up the loss in a relatively short period of time, so that I came out stronger than before."



This is an excerpt from an interview with a trader named Paul Rotter, otherwise known as the Eurex Flipper. You see, you hate having your stop loss hit because you have yet to find the way to make winning trades which are larger than your losing trades, or more small winners than losers overall. To make big bundles of money in the trading arena you don't need 100% accuracy. Paul Rotter rumored to make 50million euro/year from trading. He takes losses, but because he knows how to make winning trades more often than losing trades, he gets back on his feet very quickly, and continues making ridiculous sums of money rather than chasing the psychological comfort of avoiding losses and making winners only(read: seeking the holy grail) Fact of the matter is, that if you know some traders, particularly traders that harvest the daily range of an instrument, you will see that due to the sheer experience they posess, they have very few losses, but only due to experience and not because of some magic system. They know what the winners look like. They know when to simply not trade at all.

Avoiding losses is like avoiding to learn how to trade. Losses will diminish if you want to learn how to trade.

Good luck. We expect to see you on earth sometime soon.
  • #54
  • Feb 20, 2008 6:13pm Feb 20, 2008 6:13pm
Quoting Masmp_FX
Get Rich or die broke Right?

You got it!
  • #55
  • Feb 20, 2008 6:17pm Feb 20, 2008 6:17pm
Quoting sweety
You are completely right - I trade the same way - and it works
Hi Sweety,

Do your system able to double your account every month?

Care to share more?

Thanks in advance.

Zu
  • #56
  • Edited 11:36pm Feb 20, 2008 10:20pm | Edited 11:36pm
It doesn’t matter whether we hedge, take profits or use stoplosses. All order types simply add to, or subtract from, our net position.

Think about it. If I enter long 1 lot when NZDUSD is at 79c, and then exit at 78c, my net equity is going to be exactly the same as if I "hedged" my long position by entering short 1 lot at 78c. Until I either enter another new position, or close one of the existing positions, I am effectively out of the market.

According to the 1KT traders, hedging in the same currency pair offers the following benefits and drawbacks: http://www.forexfactory.com/showthread.php?p=1854179
None of these guys are saying that hedging in itself somehow offers a "magical" way of attaining extraordinary profits.

As I said in my earlier post, unless we are net long while price is rising, and net short when its falling, frequently enough to overcome costs, then the unrealized losses in our account will exceed any profits that are booked. There is no way around that.

IMHO the key to FXTitan’s success must be the way in which he is timing the placement of his orders around the moves in price. If not setting stoplosses is generally profitable, that means that prices tend to revert toward a mean more often than they trend away from it. In longer timeframes, that may well be true, as national economies are regulated by governments, and tend to move in boom/bust cycles.

The concept of maintaining low exposure (e.g. 1% of one’s account balance), and using compounded gains to create exponential growth, are not unique to this method. They are mathematically self-evident principles, and a MM cornerstone of any successful trader’s approach.

100% return in a month is impressive, beyond the dreams of even the world’s best traders. It will be interesting to see to what extent it is sustainable..... that’s if FXTitan continues to post his results.

FXTitan, I’m an admirer of anybody who thinks outside the squares. I wish you every success. Many thanks for sharing.

David
  • #57
  • Feb 20, 2008 10:26pm Feb 20, 2008 10:26pm
Quoting Orest
Please don't let this thread die. I strongly encourage those who have been trading this method to share their experience and results. I always hated Stop Losses and have been thinking how to avoid them all together, also I like hedging a lot. If you don't want to share how to enter the market, that's absolutely fine. Just that hedging w/o SL thing plus MM - how it's been to you?
It is the thread of titan - I was just confirming that his way of trading works -I know I have a different system as titan but I trade the same way - you still can loose your account if you do it wrong - I am trading since 7 years and yes I lost money at the beginning like everybody until I started trading this way - there are very good threads on this website (inclusive this one, even it does not tell you exactly what to do, only there are different ways) and people - learn to trade and develop your own edge - use systems and trading strategies from this thread to develop your own edge and system - and learn - if you really want to you will get there -
  • #58
  • Feb 20, 2008 11:36pm Feb 20, 2008 11:36pm
that some thing out of the big big Box.
  • #59
  • Feb 21, 2008 4:09am Feb 21, 2008 4:09am
Quoting bobblong
"q: there is a saying that every trader has to completely blow up his account at least once before he can become successful. what did you learn out of it?.....
Bob, these are excellent "textbook" points, and highlight the extent to which traders will go to, just to avoid losses. As I pointed out, "hedging" and stoplosses effectively achieve the same thing – offsetting an open position – but they have a very different psychological connotation. Human nature being what it is, it’s very difficult for us to divorce ourselves from the idea that trading losses, however small, equate to failure. But expert traders like Paul Rotter have somehow trained themselves to do it.

Martingale position sizing is another example, as traders are willing to risk a complete wipeout, just to try to shortcut the process of recovering to breakeven on the current trade. Like you say: "the psychological comfort of avoiding losses".

I think the "cut losses short, let profits run" applies more to stocks than forex, but of course much depends on timeframe, and one’s trading strategy. Under certain situations, forex tends to revert to a mean, and respects S/R more often than stocks, lending merit to some contrarian strategies. In general, whenever the market trends, "cut losses short, let profits run" will maximize profit. In a rangebound market, profits need to be taken before mean reversion occurs.

Anyway, whether textbook or contrarian in their approach, expert traders make few losses because - like you say - they are selective about their entries, and their experience tells them how to close out both winners and losers.

David
  • #60
  • Feb 21, 2008 7:36am Feb 21, 2008 7:36am
"Well, triphop - how far should be the stops? 500 pips? 1000 pips? One high spike during the news or pleasantly arranged by you broker could get it hit very easily on high volatile pair especially if price has been going in that direction for some time. Ask me how I know."
The stops should be set at a level they statistically have the highest chance of helping you in the long run. Depending on your mindset, either beyond important S&R levels, or at a set price with enough room to give the trade to breathe, but not so far they don't protect you from anything.

They'll be closer with shorter timescales, longer with longer timescales. As for how you work it out, take any given strategy and work out how different your profits would be with and without a stoploss. You'll find that an effective stop loss tends to add 1-2% on your profits in general. If you make your stop larger than this optimised level, it will reduce that edge to zero (rarely will it be damaging though overall). If you reduce your stop from this optimised level, it will start impacting negatively on your trades- guaranteed. Ie it'll be a handicap.

And one spike doesn't prove anything - all you can say with certainty is that setting a stop at an optimised level provides the highest possibility of increasing my profits. Sometimes it will help me, sometimes it will hinder me.

In short, if in doubt, widen it out (before you trade, not while you're in it, obviously).

PS - never had any bad experiences with my broker that weren't obvious technical hitches.
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