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

  • #61
  • Apr 20, 2010 2:56am Apr 20, 2010 2:56am
The most important is discipline and good money management. If you are looking at limit to stop loss ratio of 1:1, you are going to lose. Most trader get most of their trade wrong.
  • #62
  • Apr 20, 2010 2:57am Apr 20, 2010 2:57am
Van Tharp is not a trader - he's just another boffin selling books. There is some good stuff in his books but I wouldn't pay too much attention to it, especially having in mind that he usually refers to stocks - I always get the feeling that OTC currency markets are something a bit too blurry for him.
Anyway, I am sorry to disappoint you guys but anyone using a fixed risk/reward formula is most likely to fail. Market simply doesn't care about anyone's ratios. So placing a fixed win/lose algorithm to follow a system that changes all the time... I thing you are getting my point. Hope it helps.

Rgrds
  • #63
  • Apr 20, 2010 3:27am Apr 20, 2010 3:27am
Quoting Setebos
Van Tharp is not a trader - he's just another boffin selling books. There is some good stuff in his books but I wouldn't pay too much attention to it, especially having in mind that he usually refers to stocks - I always get the feeling that OTC currency markets are something a bit too blurry for him.
Anyway, I am sorry to disappoint you guys but anyone using a fixed risk/reward formula is most likely to fail. Market simply doesn't care about anyone's ratios. So placing a fixed win/lose algorithm to follow a system that changes all the time... I...
I disagree. I believe it helps to have some idea of risk/reward of your method/s over the long term. It does not have to be rigid as of course a key ingredient is to be able to manage your trade after entry according to your rules. If you have some idea of success rate of trades over the long term by forward or back testing then you can make an informed decision with regards to what risk reward you would use. eg 50% success rate risk reward would need to be greater than 1:2 to be profitable. This is merely a very simple indication not necessarily a concrete rule by any means. It helps you to place your method/s in context of the bigger picture, to make it a concrete rule would not be wise.

Another web ref worth considering - again this is simple stuff but it helps you to know it and will make you think about what you are trying to achieve: http://www.freetradingsystems.org/10-system-analysis/
  • #64
  • Apr 20, 2010 3:39am Apr 20, 2010 3:39am
I guess I articulated badly, sorry. I was actually referring to what the author of the thread was asking in the first place - how do you manage your positions' risk/reward ratio, meaning how do you manage your pain threshold (SL) and choose your profit gathering zones.

Considering results on the long run is just a derivative of it, not the questions itself - after all how do you become profitable on the long run if you cant build properly your daily trades?

Rgrds
  • #65
  • Apr 20, 2010 4:16am Apr 20, 2010 4:16am
Quoting finally
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.
No, this is just part of the problem that many traders don't understand the underlying mathematics of trading, and this is far from the only pitfall.

Quote
How, exactly, do you handle this problem?

I handle it by not having it in the first place. Your post suggests you think it is a universal problem, but it is not. You're just not trading decent opportunities. Think more about the situations in which you trade, rather than the risk and reward of the trade.

Quote
It is nearly impossible to make the math works

Not at all. If you risk 15 pips and win say 7.5 on average, you just need to trade opportunities that give you a winrate better than 66.6%. You should also consider that adjusting R:R will adjust winrate, so by choosing 2:1, you'll probably achieve a winrate not too far below 66.6% over time.

Quoting Maxout
The most important is discipline and good money management. If you are looking at limit to stop loss ratio of 1:1, you are going to lose. Most trader get most of their trade wrong.
I'm sorry, but this is a ridiculous post. First of all, the most important part of trading is to have an edge - positive expectancy. Second, the generalisation that trading at 1:1 is a losing proposition is nonsense. Finally, that might possibly be because most traders are poor traders*.

*Note that I user "trader" to describe anyone who trades, regardless of skill (or lack of it).
  • #66
  • Apr 20, 2010 4:18am Apr 20, 2010 4:18am
the problems with failing in day trading are:

failing to think critically about what they do and always acting on impulse, therefore loosing money. that's really what it boils down to in the end. it seems that all roads lead to or are related to that one reason.
  • #67
  • Edited 5:00pm Apr 20, 2010 4:50pm | Edited 5:00pm
Quoting finally
Can anyone one think of a way to solve this most basic trading dilemma?

Any and all ideas would be appreciated.
I try to find as many (semi-)independent reasons as I can why to take a trade, i.e. why there's likely to be a significant move one way or the other. Then I use multiple S/R types (possibly similar in concept to 2+2=4ex) to try to find a 'likely' place where price will bounce, allowing me to set a tight-ish SL and thus facilitate a low risk entry. If there are multiple potential entry points, then I'll consider scaling in.

Then, anticipating (in reality, hoping for ) a significant move, I'll run an ATR-based trailing SL. When price reaches the next significant S/R plateau, I'll manually advance the SL to BE.

Sometimes I get stopped out for a small loss, sometimes at BE. Sometimes a small win, and very occasionally I manage to catch a home run. I have very little idea which of these will occur at the time I enter. Having said that, if price looks like it will continue to trend strongly, I'll look to stay in the trade; if it looks like there could be prolonged sideways movement, I'll tighten my trailing SL, which generally causes an exit. Along the way, if there's an abnormally long (favorable) candle, I'll bank part of the position.

For better or worse, I have no preconceived notion about RR when I enter the trade. I simply try to catch long moves by stacking as many potential independent 'edges' in my favor, and then find low risk entry points, which (everything else being equal) should create opportunities for high RR trades. I believe that it's the best that I can possibly do. Ultimately the market determines each trade's fate.

The goal is positive expectancy, sufficient to overcome costs, and with a decent safety margin, over a very large number of trades. RR is only part of the expectancy equation. I figure that if I focus on learning how to trade proficiently, the numbers will ultimately take care of themselves.

Having said all that, I've only been at this 3 years, which makes me (compared to many who post here) a relative newbie. Am I profitable? Sometimes. I'm still very much learning and experimenting. Thus far I've found it to be a VERY long, hard road.
  • #68
  • Apr 20, 2010 6:46pm Apr 20, 2010 6:46pm
Quoting finally
Or better yet how do you deal with the fact that there is NO WAY to know for CERTAIN how much profit there will be in a trade.
EXPERIENCE plays a major role .. study the charts
Discipline yourself and 'take the loss', move on and learn from your mistakes..
Price action is all random but that's where you need to do your homework..
Technical analysis is a measurement of the behaviour of traders in the 3 trillion dollar forex market..
  • #69
  • Apr 20, 2010 6:55pm Apr 20, 2010 6:55pm
greetings...been lurking here for some time.

i'm only replying about the first message in this thread.

i too traded like that when i started, and i know many who still do!! i know several who think that 20 pips a day is their ultimate goal...

i say jack that stop up to 30-40 pips and only enter setups where the target will get you 120+ pips...i use fibs, support/resistance lines, trendlines, and rsi and simple stoch. that's it!! keep it simple!!

the second or maybe first thing to do is check the calendar for events, and scan a little business news (bloomberg, reuters) and try to gage 'sentiment'.....

until i did this...i lost a lot of trades that looked good technically...but were overweighed by fundamentals.....

i think this is the only way you can profit in this market. and it ain't easy!!

i don't think there are that many 'novices' that end up being full on pros!!
  • #70
  • Edited 7:23pm Apr 20, 2010 7:09pm | Edited 7:23pm
Quoting hanover
I try to find as many (semi-)independent reasons as I can why to take a trade,

.
Excellent post Hanover!

It is pretty important to know you will not always be right but stacking the odds is what it's all about..

Some famous mistakes in the picture from the book "beat the forex dealer".
Attached Image (click to enlarge)
Click to Enlarge Name: mistakes.png Size: 436 KB
  • #71
  • Apr 20, 2010 7:34pm Apr 20, 2010 7:34pm
Yes you can know where is your take profit point and how much pips you can expect to win,not always but very often.
Problem is with high leverage,i ruin most of good entries not letting them to develop to my profit target because of fear,no nerves to wait, all due to big leverage.
Trading with low leverage ...you need really big account to make sense to trade like that.
Why do you think brokers give us so much margin to use ?
They know we will fck our self,there is no need for them to do anything else,just let us ruin our accounts.
For most of the traders only way to win is not to trade.
And for those who are still in profit,sooner or later you will have a bad day,you will make mistake-s,broker will rob you....it will come to that and when you start to lose...it is very hard to get back in wining row.
Please don't try to prove me wrong,i have seen everything on the markets,now siting and thinking how to save my last trading account,after years of trading,lost big profits and many accounts.
This game is simply created to take our money !
  • #72
  • Edited 10:08pm Apr 20, 2010 8:49pm | Edited 10:08pm
Quoting deepdrunk
This game is simply created to take our money !
While that is true, some traders are doing ok even though they are in the low percentages.

No one can trade and make a profit (in my opinion) unless they can think like the Broker thinks. Practice that and you will go a long way to saving large DD and knowing when to exit.

If you don't understand the mechanics from the brokers side he has all the advantages.

For example... check your brokers feed against another.. ECN broker.. Look for spikes and pin bars. If they are on your chart and not the other then you know one of your brokers tricks. You will know not to enter the trade on the first hammer for example and that you can be sure another one is coming after the market moves up in order to take every careful traders stop.

So, don't enter your trade when all the signs say it is going up.. wait for his trick and use it to your advantage. It might never come and you cant be sure you wont miss the trade but there will be a system he uses.

Trading is not just about a chart, its about your opponent and that is always your broker.

Get inside his head and look for the stuff he cannot hide. When you look hard, you will find plenty.
  • #73
  • Apr 21, 2010 12:02am Apr 21, 2010 12:02am
Quoting asgard2

Trading is not just about a chart, its about your opponent and that is always your broker.

Get inside his head and look for the stuff he cannot hide. When you look hard, you will find plenty.
Very very true. they cant manipulate price action or you'd know it. Now learning how to trade price action is a whole different subject but once you figure it out, there's no way they cant manipulate that. you'll see it in plain day.
  • #74
  • Apr 21, 2010 3:50am Apr 21, 2010 3:50am
I guess as many have said, before you make a trade you should have some expectation of where the trade is going. Markets don't often go straight up to you limit, often they will go part way then pull back. Its very easy to think, opps its going the wrong way and exit.

And your comment, if you have a 30 pip limit and your trade gets to 25 pips and then reverses, what do you do? Well if your strategy says 30 pips, then you should wait for 30 pips. If you are cutting yourself short by 5, 10, 20 pips profit each win, you are also going to need to do the same for your losses, which isn't so easy.

If you set stops and limits on your trades, there is only 2 results a win or a loss. I know some traders who have maybe a 20% win rate and are profitable, basically because they are looking for the big moves.

Many traders place almost random stops and limits based on a figure they have just come up with. i.e. 15 pip stop - 30 pip limit. Then they work on the logic that if they are right 50% of the time they will make a nice profit. A few missed trades and they start to panic and cut winning trades short or grabbing any profit because they are so scared of the loss. Trading without a plan is basically planning to fail
  • #75
  • Apr 21, 2010 3:55am Apr 21, 2010 3:55am
Totally agree with last 2 posts but problem is not in brokers,it is in our heads.
No one can be and trade perfect,we all have bad days,lack of concentration and discipline,greed,fear...add to this high leverage and there is your answer.
  • #76
  • Apr 21, 2010 4:22am Apr 21, 2010 4:22am
Quoting deepdrunk
problem is not in brokers,it is in our heads.
Why not narrow in on doing some very serious work on this problem area that you've identified? Stop all trading, if you really can see that your account is just draining out! Work on psychological issues that are causing problems for you - and it will benefit you greatly in a general way whether or not your trading ever succeeds. You will benefit. Also, I hope that you don't take offense, but your name "deepdrunk"? Wow, that's bad. Whether it's a joke or the truth. We have to preserve our mental and physical health - in this game of nerves and in life in general. We need our health and clarity of mind.

Just trying to help, my friend!
All the best to you.
  • #77
  • Apr 21, 2010 4:51am Apr 21, 2010 4:51am
Of course one of the biggest dilemmas is that for there to be winning traders, there need to be losing traders. It is the many losers, that fund the big winners and makes them profitable.

Poker, Betting exchanges, stock markets, etc.. are all the same. Even countries economies to some extent. For there to be winners, there has to be losers.

There also needs to be a belief for those 95% of losers, that one day they can make it into that 5% of winners (some will, most won't). Although everyone hates these adverts promosing hundreds of dollars profit every day with little or not work, it is the people who are constantly looking for the holy grail system or trying to find their way in trading that is funding the top.

Yes this is a very simplistic approach and I am ignoring the broker, because to be honest a losing trader will probably still be a losing trader even without spreads and without the brokers.

If a trader can't see a way past the emotions of trading and the fear of losing, then probably they will never be successful over the long term.
  • #78
  • Apr 22, 2010 12:17am Apr 22, 2010 12:17am
Quoting Porkpie
I disagree. I believe it helps to have some idea of risk/reward of your method/s over the long term. It does not have to be rigid as of course a key ingredient is to be able to manage your trade after entry according to your rules. If you have some idea of success rate of trades over the long term by forward or back testing then you can make an informed decision with regards to what risk reward you would use. eg 50% success rate risk reward would need to be greater than 1:2 to be profitable. This is merely a very simple indication not necessarily...

Tharp couldn't trade his way out of a wet paper bag.
  • #79
  • May 6, 2010 2:02pm May 6, 2010 2:02pm
Quoting finally
Tharp couldn't trade his way out of a wet paper bag.
Maybe so, but I read Trade your Way for the first time this week, having never bought into it, because it was always mentioned in the same breath as the turgid dog of a book ,trading in the zone. Tharp also gets misquoted all over the place, especially here, so I assumed he was full of sh*t. Anyway, having read it, it was really annoying as it contained tons of stuff I spent a long time figuring out on my own.

Moral of the story - don't be stubborn. Read it if you haven't. Curtis Faith owes a lot to the material in this book too.
  • #80
  • May 6, 2010 2:43pm May 6, 2010 2:43pm
If the exits are the main problem, then dont exit trades....
at least not on daily basis.....short term trading is the main reason why
everyone lose! Think longer, trade smaller.....
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