Another reason why 99% of traders fail

IMO, here is the core requirement:

1. You must have a plan (or a system, method, strategy, approach..... call it what you will). It doesn’t have to be completely mechanical, but the core rules must be non-negotiable. Why? Because at virtually every point in the market, there are valid reasons to buy, and valid reasons to sell, depending merely on one’s perspective. Without a plan, all you’re doing is second guessing which way the market is about to move. Guessing is gambling. And it's even more important to have a plan for exits: when you're sweating over money that's at risk, if your response is not a measured one, then it can only be an emotional one.

2. The plan must be on-balance profitable. Costs make forex a negative sum exercise, and if your plan doesn’t include at least one artifice that turns these probabilities around, you can’t hope to succeed in the longer term; randomly made entries and exits just won’t cut it. Whether it's simple or complex doesn’t matter; whether the edge lies in the entries or exits doesn’t matter; whether it’s high win/low RR or low win/high RR doesn’t matter; the only requirement is that it’s got to win more than it loses over time. Yet (such is the chaotic nature of the market) this is not necessarily as easy as it might seem.

3. You must believe in your plan unreservedly. Perform whatever testing you need to totally convince yourself that your plan is long-term, rock-solid profitable. Otherwise, after a few losses, the doubts will creep in, and eventually you won't be able to stay with it. Then you’ll start looking for another plan, and then another, ...... and end up going around in circles. That’s how I wasted my first 2 years.

4. Play for a level of stakes that you’re totally comfortable with. Work out what loss per trade you can comfortably stomach, and then size your risk, and your positions, accordingly. If you over-leverage yourself emotionally, you’ll never be able to keep to your plan: scared money never wins.

I'd put it simpler.
Q: Why do 99% of the fx traders fail?
A: Because they trade.

Imo that explains fairly everything.

Q: Why do the 1% of fx traders win?

Because they sell EAs and Signals.

LOL.

Mostly it's because people with no experience try to trade the M5.

It's trivially easy to be profitable in forex by trading the monthlies. Of course that means you can't run with a jillion:1 leverage, either.

and decide to become a broker instead of a trader anymore...

1. lack of experience in market movement
2. must set SL according to plan
3. overleveraging lot size
4. over-analyzing charts
5. stay away from news trading
6. learn the tools that help you trade (fibs, s/r, and etc)
7. patience and well rested

http://www.myfxbook.com/widget?id=38...pe=1&color=red

I haven't opened the thread to discuss why 99% of traders fail, but for discussing that recovering from a loss is harder that losing what you have won, but because there is also another thread that hanover has post with the same discussion maybe it will be interesting discussing other reasons why traders fail. We have till now:

- odds are against us, to lose 1% after win 1% is easier than to win 1% after lose 1%.
- spreads and commissions adds more odds against us
- spikes due to lack of liquidity in brokers or due to SL hunting
- the most of traders let their losses run because they hope a reversal to close the trade with profits, and if the market reverse they close the trade with little profits, when the better is doing just the opposite: cut your losses soon, let your profits run
- high leverage (the highest of all markets) make rookies risk more in each trade hoping huge profits, and they get margin calls easier and lose everything quickly (me, for example, I blew up my first account, a micro account with 1:500 leverage, in just 1 week)
- revenge trading (I'm right, the market is wrong)
- sell high and buy low, this is the dumbest things that I've heard, forget the highs and the lows, you MUST follow the trend while the trend still work, I'm still doing dumb things like this, yesterday for example shorting the EURUSD... Search in the charts the 2 weeks after 7th December 2008, do you really think that anybody in the planet did imagine that in 2 weeks the EURUSD would rise 2000 pips? Impossible.

The exact percentage of losers is not clear, but you can imagine that the real percentage is near to 99% than to 80% reading posts like this from other thread:

Cool post - very interesting ideas...

Don't worry about whether 80%, or 90%, or 99% of traders fail; instead, focus your energies on beating the odds yourself. If there are plenty of folk losing, that's more $$$ for you to take, if you can get yourself into the winner's circle.


- odds are against us, to lose 1% after win 1% is easier than to win 1% after lose 1%.
- spreads and commissions adds more odds against us
- spikes due to lack of liquidity in brokers or due to SL hunting
- the most of traders let their losses run because they hope a reversal to close the trade with profits, and if the market reverse they close the trade with little profits, when the better is doing just the opposite: cut your losses soon, let your profits run
- high leverage (the highest of all markets) make rookies risk more in each trade hoping huge profits, and they get margin calls easier and lose everything quickly (me, for example, I blew up my first account, a micro account with 1:500 leverage, in just 1 week)
- revenge trading (I'm right, the market is wrong)
- sell high and buy low, this is the dumbest things that I've heard, forget the highs and the lows, you MUST follow the trend while the trend still work, I'm still doing dumb things like this, yesterday for example shorting the EURUSD... Search in the charts the 2 weeks after 7th December 2008, do you really think that anybody in the planet did imagine that in 2 weeks the EURUSD would rise 2000 pips? Impossible.

Decide which of the items are within your control, and which aren't, and work on eliminating the former. I would say that those in blue typeface are areas that a trader can work on. I've included the SL hunting in blue because big shark behavior should create certain chart patterns that are potentially exploitable. In other words, if you can't beat the sharks, swim with them. I'm currently reading up about Volume Spread Analysis which attempts to gain insight into how the professionals ('smart money') manipulate the majority of retail traders ('dumb money'), by merely studying price and volume. (Search the forum for 'VSA' and 'VPA' for more info).

And sure, nobody might have predicted the 2000 pip rise in the EU based on fundamentals, but a simple TA-based method would have spotted the trend.

Most of the remaining blue items can be overcome by making sensible decisions, and devising a plan that eliminates confusion, indecision, and emotional decision making (see my earlier post - #21 in this thread).


Now here's some GOOD news:

1. Provided that you size conservatively (e.g. 1% risk per trade), the effect you're describing ("to lose 1% after win 1% is easier than to win 1% after lose 1%") is not that difficult to overcome.

2. You can choose the timeframes you want to trade, and be as selective with your setups as you wish. Find out which patterns work and which don't.

3. Mathematically, the minimum requirement of an edge is overcoming '50/50 + spread'. Sure, you need a little more than that to provide a decent margin for error, but it's not insurmountable. I wasted a lot of time searching for the grail; perfectionism was (and still is) my worst demon.

4. If you want to make some serious money, the grail ain't necessary. Compounding a small edge is all that's needed. As a rough example, if you average 2 trades per day each at 1% account risk, averaging 1:1 RR, then a 55% win rate will deliver ~60% ROE annually. Not too shabby, compared to 'conventional' investments. And that's just for starters: a marginal increase in any of these parameters will have a very significant impact, thanks to the effect of compounding. Increasing the RR by taking only low risk entries is possibly the safest way.

5. Excessive screen time is not necessary. I have indys that send me an SMS text whenever suitable patterns occur. Then I go to my computer and decide whether the trade is worth taking, and how much I want to risk. If I take the position, I might babysit it for a while, but I have a couple of simple EAs that manage my exits automatically and emotionlessly.


Have a look at my post here. At the end of the post there are a few links that explain my basic approach, which is about finding and stacking as many potential independent edges in my favor. Hopefully there are ideas there that will help to get you started. Like I said before, I'm currently looking at ways of adding volume as a 'smart money' indy - another possible edge.

The James16 ideas - candles, S/R, longer TFs - are also well worth studying, IMO. There are a lot of guys (and gals) following J16, and making some real $$$.

To me, it's edge first. Lots of chart study gives one a vast increase in dexterity to spot opportunities.
Unfortunately, the more complex to figure, the more discretionary. Skill / Emotion = Profit: Always a compromise.

Addicting thing with forex is the ease with how we place trades, just a simple press of the button to buy or sell. We control the outcome of our trades, the wins and the losses. A trader affects the probabilities to gain the edge.

At first, one trade has a 50/50 ratio(win/loss) with either buying or selling, but once we add--
- fundamentals/sentiments, adds 1% advantage
- forums analysis, gives another 1%
- chart patterns, gives another 1%
- fibonacci, gives another 1%
- support/resistance levels, gives another !%
- and many more technical tools
(ps. percentages are just examples)

in that case, a trader has more than a 50/50 ratio if you apply those added edge.

But why do some still default?

http://www.myfxbook.com/widget?id=38...e=2&color=gray

Sure, but higher time frames are more "trend efficient" because of money flow and macro conditions. A trend or
momentum-based approach is trivially easy to find on the monthlies. The edge lies in choosing the right pairs.

Let me give you some different numbers to chew on. I pretty much stick to D1 and sometimes H4. Most of the time the spread is between 1-2.5 pips for the pairs I trade. Trading on D1 means I am only taking maybe 5 or 6 positions a week, max. So the spread is completely inconsequential to me. Just pocket change. One last thing. I only trade 1% of my account on average. I might go a bit higher sometimes if it is a super high probability trade but not that often. Most of the advice out there says not to go higher than 2% but for me I think that is too high unless you are absolutely certain. YMMV.

Last 2 weeks I traded 10 times. 7 times in a row I got stopped out. Since I am trading D1 my stop loss is usually quite large so I lost a lot of money and it sucked. However, the last three trades this week went my way. A/U, G/U, and U/C. Now A/U and G/U were no big deal. Only recovered half of my losses from the previous 7 trades. However, the U/C I was able to take with a tight stop loss so the number of $'s I traded were significantly higher than my average. I made something like 200 pips on that one trade and turned all my losses from the previous week into a gain by the same amount. So basically 1 trade in 10 was All I needed to turn a significant net loss into a significant net gain on my account.

So the moral of the story? Money management is EVERYTHING! With proper money management you can lose 7 out of 10 trades and still turn a profit....although I wouldn't recommend it if at all possible!

If you want to make real money and not deal with any stress, stick to higher time frames. Scalping is for gamblers IMHO and successful forex traders are not gamblers.

I know here in FF 3 traders with 10+ vouches that claim themselves to be profitable scalping in tick charts, they say that with compound interest win more than if they trade on large timeframes. Unfortunately it's impossible for me to know if they lie or not because they trade with EAs written by themselves and they don't share or sell those EAs. Me, I'm not an example because I lose scalping and trading large timeframes, so I can't confirm if you have reason or not, but one thing is true: it's next to impossible to became profitable scalping with high spreads, if a broker has more than 1 pip of spread in EURUSD forget it for scalping. Regards.

jmo but I believe the very statement is flawed in it's intent.

To say that 95% of TRADERS fail is one thing but it is the definition of "Trader" that I believe is mis used.

Yea, the whole 95% or 99% number is not the right way to look at it IMHO.

Let me turn it around and say it a different way! 95% of the traders who never quit and never give up and refuse to accept being part of the 95% of traders that fail will likely succeed! Think about it.

Exactly!

For that 95% statistic to mean anything we'd need to know who the 100% are. I suspect >70% couldn't be called 'trader' by any stretch of the imagination!

lol, just because you haven't learnt how to scalp profitably doesn't automatically mean it's gambling!

I bet there's a lot of people who wish that was true!

Perseverance doesn't necessarily lead to success, in fact it's more likely to lead to going broke following your advice!