The Reason why 95% Traders fail

Who said anything about other markets?

First you said:

Now you say.


What triggered the sudden change in your mind?

that isn't a change in heart about systems. I just said most are no good. I didn't say every system is bad system

the reason being is that most never follow price and don't make it very far. so that will make them unimportant in the long run. besides, Money management is a system within a "whatever you call what you do when you trade put here". goes back to one of the reasons I listed why people fail.

no system is a system too!

This is my first post here in FF. I have been around reading the many topics. If asked if I am succesfull, I would respond thusly: "After 3 years, I am still here learning, but I am still here".

As for the current topic i have this to offer. A friend of mine once gave me this helpful advice to trading: "First, you need to learn how to read a chart. Truly understand what is happening by the way the price is moving. Second, once you understand how to read a chart, then you can add Tech Analysis. Essentially indicators all give you the same information, so find the one that you understand the best and most thoroughly. Lastly, trust yourself."

Price action is very much a "IF this, then this" type of progression. Meaning price will continue in a direction, until it cant. When it encounters this area or level, it will retreat then test that level. Should it fail again, it will then head the other direction to a previous level. The indicators should be use in conjunction to Price action, regardless of TF. The moral being this, the randomness to any market is like any heard. It will stampede the current direction until it hits an obstacle, only then will it change that direction. Spending your time finding these "levels" in your chosen market is time well spent, because it gives you an insight as to where these "obstacles" are and can plan out your "IF/Then" analysis. Sorry this is was long. But as a relatively new trader, I wanted to offer this for thought to those who are also new. Thanks.

Are you willing to explain how?

The way I see it, there are two ways of profit exit: profit targets and trailing SLs.

If we use profit targets..........

(1) Statistical approach - by simply taking profit at 1R, 2R, 3R etc. We can try to optimize the R-value by testing, but I see that as being prone to curve-fitting, in the same way that optimizing indicators for entry is likewise. The market doesn't really care whether a tiny retail trader is entering or exiting. Higher R-values will increase overall average win size, but will decrease win rate in approximately like proportion.

(2) Technical approach - by taking profit at predetermined points of likely reversal, e.g. S/R.

(3) Dynamic approach - by allowing the market to tell us that the trade might be about to reverse, e.g. a stalling pattern, as the trade evolves. This is essentially discretionary.


If we use trailing SLs..........

(4) Statistical approach - trail the SL at X pips, and use testing to optimize the value of X. Again, I see possible dangers in curve fitting. The wider the SL, the more room price has to move, increasing the probability of attaining 'home run' trades, but the more profit that is forfeited on every trade (some winning trades could even become losses) as price retraces to the wider SL.

(5) Technical approach - for example, advancing the SL to lock in profit each time a point of likely reversal is reached.


Scaling out..........
Scaling out in itself doesn't really offer an edge, because all we are doing is effectively running multiple trades, whose overall P/L is nothing more than the sum of each component trade. It is actually nothing more than a 'diversification' process that will ultimately reduce itself to a mean, i.e. there will be (a) occasions when it would have been better to let all of the position ride as far as possible, and (b) occasions when it would have been better to take all of the profit early. If we can show (with statistical validity) that (a) occurs more often than (b), then we'd be more profitable in the long term by applying (a) every time; and vice versa. Diversification will provide a smoother, but not a greater, rate of income.


Moving SL to breakeven.........
Unless there is some kind of overwhelming statistical backing, I don't believe that this provides an edge, because the market doesn't care where the small retail trader entered. It is merely comforting the trader that the current trade can no longer end up in loss. Move SL to BE too early, and we end up truncating potential winning trades; too late and our losing trades will be more frequent, and our losses larger. Again, I see that as prone to the dangers of curve fitting.


IMO it's self-evident that 'knowing when to exit' will give us an edge. In hindsight everything is obvious, but of course we must make our exits in real time. So unless we can establish a statistical method that has a large enough margin for error to rule out 'over-optimization', or otherwise somehow exploits recurring inefficiencies in price behavior, our exits have no real edge. In fact, exactly the same logic applies to entries. As Merlin once pointed out (sorry, I can't remember the link), exit is nothing more than the mirror image of entry. And if we were to use some kind of 'nedging' technique (having long and short positions open simultaneously in the same pair), then what constitutes an entry or an exit is essentially moot. IMO this illustrates how profitable forex effectively reduces to a case of being net long when price is rising, and net short when it's falling, heavily and frequently enough to overcome costs. Entries and exits are merely tools that we use to adjust our net position. It is how accurately that we make these adjustments, relative to reversals in the market, that determines the magnitude of our edge.

At least that's the way I see it. Given that the market is too big to care whether we're entering or exiting, and that P/L is the difference between 'entry' and 'exit', then - at least mathematically - both must be equally important. Exits are much tougher psychologically than entries - our money is at risk - but our emotions don't alter the math, or the market's behavior.

[EDIT] Just found Merlin's post. The whole thread is an interesting read, IMO.

Nice post.

In my opinion, another important attribute to a trader's edge is adjusting to changing market conditions. As an example, it may be considered worthwile letting profits run - by trailing stops - in trending markets, whereas it may be beneficial to take profits in ranging markets. Of course, entry signals and even positions sizing may also be affected by the state of the market.

Mathematically, entries and exits should be equally important indeed. The only main difference is that exits involve greater psychological tensions, and therefore it is more likely that the exit is the area where successful traders differentiate themselves from unsuccessful ones.

garret posts by nology and hanover....nothing further to add your honor!

I agree 100%, and posted along these lines a while back.

Also agree with your point about psychology in exits. I remember reading somewhere that unless a trader has a plan for exits, he will invariably exit for one of two reasons: fear or boredom. But simply having a plan doesn't automatically mean that the plan delivers a statistically provable edge.

Hello,

Trading is just like driving,every one with good practice can do it.If you are not blind looking at one of the major currency charts for 1-2 years,not blurring your vision by indicators,I will give you a garantee some day you will learn how to do it.


atheer1

They don't though, they really don't, there are only so many ways to trade Forex markets profitably because of the subjective nature of trading everyone merely thinks there way is unique and most of the stuff there padding it out with it just useless filler, but if useless filler makes you happy its all fine.

It's all about pyscology, FEAR and HOPE :-

The FEAR that if you exit at this point you'll miss bigger gains.
The HOPE that if you don't exit the market will turn around.

FEAR means you'll see profit then see the SL and a loss.
HOPE means you'll take the full SL loss rather than exiting early and likely push the SL further out in the HOPE that it'll turn around.

There is simply no room for either if your going to make it, cold and calculating is where it's at if this isn't you don't waste your time / money sadly.

p.s. this is me normally but strangely not for trading which is what interests me, there really isn't much I don't master then get bored 10seconds later.

TJPLD exists are what i am thinking the entire, month, week and especially today

...easy to understand does not mean easy to do well. Playing hockey is easy to understand, it is not easy to do well. Similarly in trading, actually creating powerful techniques from the easy to understand parts is a challenge. Advanced performance is just another term for multiple angles of simplicity executed at pre-determined areas of confliction or opportunity. I think some reasons most fail is because of no game plan and a lack of ability to adapt.

I know I should know but who is the person in your avatar and why?

I know I should read the whole thread to see if someone has already said this but here you are anyway:

If you take a trade on a particular time frame and have a profit target in mind then that's the trade.

If, from careful analysis [sic], I see a potential on a higher time frame then I will trade a portion of the (lower time frame) trade at that level. Anyone who studies ATR will know what I mean. It's useful because a good set up on a lower time frame has a small SL and what we really want is runners. Runners on the weekly would be wonderful. I'm not sure about lower time frames than M15 but I usually trust set ups on the 15 minute upwards. That means I can reduce my leverage to almost game status. The losses are neglible. The potential gains are exciting. This is where I wonder whether anyone is reading. Probably not...

It's Vladimir Nabokov, the reason being that I was reading a book of his when I picked the avatar, pretty uncool eh?

Excluding noobs this is the closes hint thus far WHY 95% of traders lose money...although your broker might find that kind of information useful.

As I've progressed, I've got more and more hardened in my views, and I have to be honest, it's only really forums that have slowed me in coming to these conclusions (Turvey - I have some empathy with that footer of yours).

The biggest problem I've come across is seeing unprofitable edges dressed up as problems of psychology, MM or discipline. A good, solid edge will work with a 1:1 R:R. You're predicting with higher than 50% chance price will reverse (fade) or continue (breakout).

Because of a natural volatility of price or the strength of some breakouts, and the fact your entries are good, maximum profit may well be then at a higher TP:SL at the expense of win rate, but these are problems most traders don't get to address because their edge is illusory.

As for moving to b/e - opposite to Hanover I've found it does improve profitabilty if your entries are based on levels important the market. Revisiting of those levels tells me the trade is more likely to fail. However in quant strats, where for eg entry is based on a breakout of deviation of hourly ATR, that level won't have siginifance to the non-quant players and dealers, so moving to b/e will probably harm profitability.

@AgentFX - agreed!

@Triphop - I'll bookmark your post for future reference.
Exactly! Faulty MM and/or ill-discipline will likely bleed an account more rapidly than an unprofitable method, but the end result is loss in all cases.

The fact that very few (vended) EAs are long term profitable further demonstrates your point. Every EA trades according to strict MM rules, and with perfect discipline; hence any failure with an EA (that uses conservative sizing) must necessarily be caused by an impotent method. The irony is that many EAs use some form of progressive sizing, like Martingale, in an attempt to remedy this.

I have a huge edge entrys wise, I'm a statistian kinda so I know it's real, but I still suffer from big moves that blow through my SL and cost me 3x's the desired SL and wipe out 10 profitable trades.

My win rate is likely 75% over all ( sometimes 10+ wins in a row ), but my profits aren't as good as they should be which I'm working on.

Generally I think if your not making 2x's the profit that your SL is, it's going to be very hard to push ahead and make money.

A lot of trades get so beaten up its very easy to slip into the risk 20pips and end up taking 4pips as it looks rough, then another 4, then lose 20pips so your -12 over 3 trades and keep repeating.

The market the last week has been aweful, any attempt to hold for more than a few pips has ended disasterously.

I was near account highs up 25% then I took a 18% hit ( should of been 6% tops ) when EJ dumped hard my SL's filled badly and 1 position got corrupted and stayed in all the way to the bottom pretty much

Also the Spread may look small, but average loss over 5 years last time I worked it out was @2.5-3pips or something basically the spread, I'd be atleast even which would make it loads easier to go forward if not for this!!

Moving stops to BE surves one remarkable purpose only, which is that it reliefs some of the psychological stress the trader faces, possibly allowing him to act more rationally later.

Triphop, you are describing your specific situation where the entry is at an important level of support or resistance. Moving your stops behind areas of support and resistance can be a very effective method of trailing stops. In your case, when you move your SL to BE, this level coincides with a level of S/R, which actually results in a stop placed at a rational level.

However, there are many traders that enter positions at other locations. I, for example, enter positions after a rejection of a horizontal area of S/R (one of my criteria). Others may base entries on technical indicators and such. For me and them, the BE level has no value except for the psychological part mentioned before. This means that moving stops to BE in no way increases the probability of success from a market point of view, and therefore it is important that traders should learn to control their emotions, and shouldn't need reassurance of knowing the trade is at break-even for their rational decision making.

Exit strategy is still the hardest part of the game.

I know, I abundantly used the word rational, which may be wrong since it could be argued that all decisions made by all traders are rational, implying that even emotional decision making is rational However, when I'm talking about placing stops at rational levels, I mean placing stops behind levels that "the market cares about".

Do you actually place a SL with your broker, or do you manually exit trades at a predetermined levels? Most of the big moves I can think of occur during major news releases (NFP most noticably), and you could consider staying out of the market during those times. I always let the big boys play those events, and try to have as few positions open as possible.

To be honest, I'm always sceptical when it comes to people stating RR numbers here. A number of very successful traders here at FF on average have a RR lower than one, and statistically speaking the number shouldn't significantly affect your profits.