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Why do most traders lose money in the market?

  • #41
  • Edited 7:58pm Feb 1, 2012 6:18pm | Edited 7:58pm
Quoting hanover
The topic of why most traders fail been discussed countless times before.

The debate invariably sorts itself into two camps: those who believe that many years of research is necessary in order to develop a robust methodological edge; and those who believe that almost any method will work successfully, provided that you have the mindset needed to execute it consistently.

So take your pick. I lean toward the first camp, for whatever my opinion is worth, but that's probably because I've found simple, commonsense ways to alleviate the 'psychology'...

First off i remember hearing a quote from you stating that some people learn and become profitable faster then others. So you should agree that it does not take many years to come up with a profitable system for some individuals.

Second I see you used the word almost in your second explanation which i am sure you were hesitant in your choice of words because you are skeptical
of the reasoning of how it is possible to take any strategy and be profitable. Especially using reasonable stops. On the other hand the infamous 50 coin flip
method where some say that you can end up in the positive through 50 coin flips trading in either direction. Now personally the longer you hold each trade
the more decisions you can make during the trade through out the fifty coin flips. A 100 pip stop will allow more opportunity to take profits or stop yourself out manually before the stop hits to give you the room to take profits with a better reward. So if some people can profit with with 50 coin flip method. Then any system should be sufficient as long as your position sizing allows room to manipulate the trade.


My opinion is pretty basic TIME. How many licks does it take to get to the center of a tootsie pop. Each individual is different.

Any average intelligent bloke can be profitable trading. Only question how long will it take.

The truth is 90% of traders fail because they give up. The actual figure is probably 99.9% because traders that find profitability stay with the game and
the 90% consists of new traders taking place of old traders that are throwing in the towel.

The real question is what approach are you taking to become profitable.
Out of every 10 people there is 1 leader and 9 followers. I guess though that is a new discussion to be debated.
My trades are 100% profitable 65% of the time!
  • #42
  • Edited 10:51pm Feb 1, 2012 10:26pm | Edited 10:51pm
Quoting jimmyjames79
First off i remember hearing a quote from you stating that some people learn and become profitable faster then others. So you should agree that it does not take many years to come up with a profitable system for some individuals.

Second I see you used the word almost in your second explanation which i am sure you were hesitant in your choice of words because you are skeptical
of the reasoning of how it is possible to take any strategy and be profitable. Especially using reasonable stops. On the other hand the infamous 50 coin flip
method where...
Jimmy,

With respect, you've made a lot of assumptions about what I might think. My statement was about how these threads turn into a debate between those who say "it's all about methodology" (which may or may not include trade management, depending on one's view of "methodology") and those who say "it's all about psychology" (the biggest obstacle is not the market, but oneself). If you look at the posts thus far, you can see that pattern starting to develop. All I said was that I leaned more toward the "methodology" camp, and gave a reason why.

The "coin flip" idea has been done to death. But do the folk who believe that random entries are viable actually use them? Why don't the big firms save themselves millions in salaries by dismissing all of their analysts, and simply flip a coin instead? Why do many of them spend millions on devising superior trading algorithms?

I can easily write an EA to make random entries, use a 100 (or whatever) pip SL, and some basic trade and money management. Given that the EA will execute tirelessly, accurately, flawlessly, emotionlessly, I've nailed the whole psychology issue. The question is: am I now going guaranteed to effortlessly become a forex millionaire, by simply running the EA?
--- If so, then why doesn't everybody do it?
--- If not, then the answer can only be that the algorithm lacks the 'intelligence' in its entries and/or exits needed to beat the market....... which brings us squarely back to methodology.......

I believe you could be correct in saying that many folk would become profitable if they persevered longer. But, unlike you, I don't have any numbers to either prove or disprove it.

Anyway, we could debate semantics until doomsday, but it's not probably not going to change the way that either one of us trades. I don't care whether I'm right or wrong — a lot of which is merely perspective, in any case — all that concerns me is improving my bottom line.

Jaded — from typing the same comments repeatedly — and moving on,
David
  • #43
  • Edited 1:53am Feb 2, 2012 12:42am | Edited 1:53am
Quoting hanover
Jimmy,

With respect, you've made a lot of assumptions about what I might think. My statement was about how these threads turn into a debate between those who say "it's all about methodology" (which may or may not include trade management, depending on one's view of "methodology") and those who say "it's all about psychology" (the biggest obstacle is not the market, but oneself). If you look at the posts thus far, you can see that pattern starting to develop. All I said was that I leaned more toward the "methodology" camp,...
Hi Hanover , I only made one assumption. Probably one to many. I could have chosen wiser words. I perceived your statement possibly incorrectly. My assumption in a nutshell was that you may not be a believer that it is possible to be profitable with just any system thus the reason you chose to use the word ALMOST any system. A bit nit picky. I am sure you could nit pick my comments apart even easier. Sorry will try to be more thoughtful in the future

As far as the 50 coin flip scenario.

The debate is whether you can be profitable through 50 coin flip trades not whether it's practical or not. Obviously nobody is going to use this method to make money. It's simply a test of skill.

Not saying this would be a skillful approach but would this work?

Look at a chart

perceive the direction (the reason why i say 100 pips because i was referring to a daily chart ) which would allow room if you believe you are in a minor correction for that particular coin flip to have a better opportunity to be successful. A 5 pip stop on a five minute chart would have way less of chance right.

Flip the coin if the coin lands on the unfavorable side stop yourself out. you lose the spread.
Flip it again lose the spread
flip it again now it lands on the direction you perceive to be correct. Now cover your deficit 3 spreads, with a 1 pip spread you only have to cover 3 pips and so on. A profitable trader should be able to cover the extra spreads.

Now what kind of technical analysis could you input that would determine to hold the trade or get out of the trade right away. And how can you code this to an EA.

In a perfect world 50 flips would result in 25 unfavorable perceived positions and 25 favorable perceived positions. A profitable trader should be able to cover an extra 25 pips on the negative flips. Why couldn't you find a way to do this with an EA. Not at all trying to say you will make millions. But if started with enough capital why not.

Please inform me if i am totally incorrect as i do not code EA's.

Also i don't really need to see the numbers to believe that TIME is the only hurdle a majority of the traders out there need to be profitable. Otherwise I would have never started trading in the first place.

I'd rather say you show me the numbers of why it is not possible (as i am on the logical side) rather then the numbers of why it is.


I believe i lack your capabilities and you lack mine. Simple mind verse complex mind. I don"t mean that disrespectfully. My intelligence is raw and very non academic relative to yours.

I know you are jaded. If you want to reply you can message me if you want.
I understand if you don't.
My trades are 100% profitable 65% of the time!
  • #44
  • Feb 2, 2012 5:24am Feb 2, 2012 5:24am
Quoting jimmyjames79
Hi Hanover , I only made one assumption. ......
Jimmy,

I apologize. In fairness, to whatever extent I'm unwilling to contribute to a civil and constructive discussion, I probably shouldn't post at all.

I can’t prove that it’s impossible to be profitable with a coin flip entry. As with any idea, the only way to find out how profitable it might be, would be to test it for several months. If somebody can make coin flips work for them — whether as the starting point for a profitable system, or simply to improve their trade management skills — then that's fantastic. But I have my own approach to forex, and as long as it remains profitable, there’s no incentive for me to spend time and effort testing new ideas, even though they might be able to be fashioned into a very profitable trading strategy. There are folk here who trade for a living (pipmutt and flotsom are two examples) and — assuming I understand them correctly — assign much greater importance to their exits than their entries.

There are some assumptions that I continue to hold on to, whether rightly or wrongly, simply because either math or commonsense tells me that they are reasonable. I covered some of these in my post here, for whatever it’s worth. Having said that, I’d like to think that I have an open mind; I could be swayed otherwise by convincing enough evidence.

I wish you the very best in all of your trading endeavors.

David
  • #45
  • Edited 11:00am Feb 2, 2012 10:50am | Edited 11:00am
[quote=hanover;5348916]Jimmy,

I apologize. In fairness, to whatever extent I'm unwilling to contribute to a civil and constructive discussion, I probably shouldn't post at all.

No worries and no need to apologize. I as well don't want to put time and effort into a coin flip toss. I'd rather improve my bottom line as well and maybe later when I feel i have reached a certain degree of success maybe i'll give it a shot.I tend to observe a lot more then interact. I have read so many of your posts and have realized that a lot of posts hit home with my philosophy of trading. Your linguistic skills are amazing. Way above and beyond most. But yet you still show respect to people no matter what skills they hone.

As far as entries and exits go. I just started a thread on exits your opinion would be highly appreciated. Unfortunately my non academic ass can't even put up a link. Obviously you can find it on my page.

Bottom line I feel you enjoy teaching you spend tremendous amounts of time helping folks out. I mean jeez were here to be financially successful and at any time we can read through the hard work that you have offered through your time and effort with your posts. It was you who enlightened me and allowed me to realize why what i am doing is right with magical words.

Keep up the good work If you stop posting it's my head. LOL!

Also maybe we can chat sometime about some ideas i have for a possible EA.

Thanks David
My trades are 100% profitable 65% of the time!
  • #46
  • Feb 2, 2012 5:25pm Feb 2, 2012 5:25pm
Quoting prashant7
Good knowledge of technicals and some better control over emotions is the best way ''''''''' perhaps to avoid being a looser in trading
Switch two words around on that one and I think it is closer to the mark ... i.e. "Some knowledge of technicals and good control over emotions" ...

Quoting duca
lose because they do intraday; timeframe for trades of less than H1;
That one is definitely wrong, that comes from my experience, and many other full timers I know.

It is a well worn discussion that is true, and not something you should worry yourself with. If you believe you can do it, then show the work ethic to prove it. I truly believe that so much of the "edge" we all talk about though is actually ourselves.
You can quit and they won't care, but you will always know.
  • #47
  • Feb 5, 2012 3:03pm Feb 5, 2012 3:03pm
Some other possible reasons why traders lose money:

1. Hindsight bias: (wikipedia definition) "the inclination to see events that have already occurred as being more predictable than they were before they took place". In other words, the result of a lack of objectivity when testing systems.

2. Failure to understand the nature of statistical fluctuation: strategies should ideally be tested over several hundred trades, and many years of changing markets. Anything less runs the risk of being 'fooled by randomness'.

3. A belief that MM (position sizing) can in itself provide an edge: All MM can do is redistribute wins and losses, with the ultimate result (if tested over thousands of trades - see point #2) as being identical to consistent sizing (e.g. 1 lot per trade, or 1% risk per trade). Unless you know in advance which trades are more likely to win, and size them higher, then you are merely playing a game of hit-and-miss.

If your entries and exits deliver a profitable edge, then there's no need to complicate matters by applying any kind of fancy MM system. For example, applying a martingale variant merely increases risk of ruin, while having no effect on trade expectancy.

4. Poor or non-existent risk management: no loss exit strategy; strategies where losses are allowed to grow; averaging down without limit; increasing position size in an attempt to recover recent losses. Which brings us to:

5. Strategies that are based on recent performance, rather than analysis of the market: Market behavior and probabilities are not going to change because of one retail trader's recent performance (winning or losing streak). Hence there's no justification in varying position size based on recent performance. All losses are equally significant to bottom line, but more recent ones weigh most gloomily on our minds, and an attempt to use MM to accelerate recovery from recent losses represents an emotional response.
  • #48
  • Feb 5, 2012 3:48pm Feb 5, 2012 3:48pm
I have been trading forex for about 2.5 years. I have been profitable some months only to blow my account the following week. I haven't blown my account and seen small profits for 7 continual months (nothing major, but i guess it's an accomplishment to me, considering where I was a year ago)


1) Greed- I thought forex was the answer to my prayers. I just had pictures of $$$ in my head. I thought it was realistic to think to turn a $1000 account into $5000 in a week.

2) Not taking the time to educate myself or open a demo account before trading live- I thought "why waste time on a demo account when I could be making REAL money". Looking back, it would have been a lot easier loosing all that money on a demo account.

3) Not funding my account with enough capital- I would put $1000 into an account and the next month it'd be gone.

4) Not accepting that I could make a losing trade.

5) Thinking the market will ALWAYS bounce back- it doesn't.

6) Thinking I was the in the small percentage that could be successful.

7) Emotions

8) Overtrading

...if someone had told me these things when I started out, I probably wouldn't have listened anyways
  • #49
  • Feb 7, 2012 8:14am Feb 7, 2012 8:14am
Quoting hanover
1. Hindsight bias: (wikipedia definition) "the inclination to see events that have already occurred as being more predictable than they were before they took place". In other words, the result of a lack of objectivity when testing systems.
Can you please explain this with more details? How do we increase the objectivity?
Think twice before going live, even if you own the best trading strategy...
  • #50
  • Feb 7, 2012 8:18am Feb 7, 2012 8:18am
Could a market exist if most win?
  • #51
  • Feb 7, 2012 8:29am Feb 7, 2012 8:29am
Quoting auxesis
Could a market exist if most win?
Of course not.

Could the retail market exist if there were mainly winners though....?
  • #52
  • Feb 7, 2012 8:30am Feb 7, 2012 8:30am
Quoting FxMaestro
Can you please explain this with more details? How do we increase the objectivity?
Test on a simulator, not just with historical charts.
  • #53
  • Mar 2, 2012 4:52pm Mar 2, 2012 4:52pm
To my mind, the main reason is simply the SPREAD. More specifically, new traders not realizing its effects. It's just math.

Why do Casinos have roulette tables? Because they ALWAYS make money. They always make money because of the built-in House Advantage: 37 to 1 odds of paying out 35 to 1 (on American wheels with the 0 and 00), or, if you're the bettor betting on a "50/50" such as Black, or Even, you have a 18/38 (47.37%) chance of doubling your money on each bet. The longer you play, the the more you will lose.

Forex is similar, especially with short term traders chasing many small gains, as I believe MOST newbies are. They've seen all the "Day Trader Riches" stories and dream of waking up, doing a few quick trades in the morning, making their $$$ and hitting the golf course.

The Forex House Advantage is the Spread. Think about the math: Most newbies are going to join one of the Big Brokers with a small account. This means relatively high spreads - 2-4 pips on E/U, more on other pairs. If they then enter a trade with a 10 pip Limit and a 10 pip Stop, then they are immediately, say 3 pips in the red. So now the market needs to move 13 pips in their favor for them to make their 10 pips, but it only needs to move 7 pips against them to lose 10 pips. Those odds say that they are going to lose almost twice as often as they win, with only a 2:1 potential payout. Vegas can only WISH it had that kind of house advantage! But they keep trying because, Look at all these ads, anyone can make money in Forex! Even if they choose a Broker with low spreads, the effect is the same, it just takes longer to blow up their accounts.

The alternative is to make longer term trades with wider Stops and Limits, but then that means having to keep open positions overnight - good luck with the whole "sleep" thing, newbie!

This is a rough racket people. There ARE some with the "attachments" required to make a go of it and make money, and they ALL have lots of horror stories about starting out.

Education cost money. Your losses are your tuition, but most people will end up dropping out or flunking out, not graduating.
  • #54
  • Mar 3, 2012 4:58am Mar 3, 2012 4:58am
Quoting davidf515
To my mind, the main reason is simply the SPREAD. More specifically, new traders not realizing its effects. It's just math.

Why do Casinos have roulette tables? Because they ALWAYS make money. They always make money because of the built-in House Advantage: 37 to 1 odds of paying out 35 to 1 (on American wheels with the 0 and 00), or, if you're the bettor betting on a "50/50" such as Black, or Even, you have a 18/38 (47.37%) chance of doubling your money on each bet. The longer you play, the the more you will lose.

Forex is similar, especially...
yeah, you have a good point. The spread makes winning this game a more difficult endeavour. But like the casinos, we can find edges in the market that can overcome the trading costs per trade.
  • #55
  • Mar 3, 2012 6:54am Mar 3, 2012 6:54am
at first glance, spread might appear to be an obstacle..... if so, might be worth takin a closer look..... and if, after that second look, spread was still considered to be a unbearable obstacle, might be worth lookin at the trades themselves...... esp lot size.....

no two of us trade the same..... and i hope everyone trades far better than me..... but lookin at real trades from hundreds of real live ibfx trader accounts, it has always seemed to me people are done in first by aggressive lot size..... and second, by small pip 'takeprofit' targets....

must add here because i have spent so much time studying his every trade, teamsky did triple his account in the 2007 contest using an aggressive lot size with just a 6 pip target.....

so yes.... no doubt..... aggressive lots with small pip targets can work..... at least in contests......

//----
//----

for me, the first 2 pips on the way to a 100 pip target are no harder to overcome than any other 2 between..... actually it might be just the opposite, the first 2 are easy.... the last 2 are hard.......h
to trade and code, keep both simple... no call to impress....h
  • #56
  • Mar 3, 2012 7:03am Mar 3, 2012 7:03am
Quoting hayseed
at first glance, spread might appear to be an obstacle..... if so, might be worth takin a closer look..... and if, after that second look, spread was still considered to be a unbearable obstacle, might be worth lookin at the trades themselves...... esp lot size.....

no two of us trade the same..... and i hope everyone trades far better than me..... but lookin at real trades from hundreds of real live ibfx trader accounts, it has always seemed to me people are done in first by aggressive lot size..... and second, by...
another good point. So we got trading costs and money management. One more thing is missing and that is having an edge. If you can find a system that has an edge, is traded with appropriate money management and can overcome the average trading costs per trade, then you got a winner. Miss one of these things, and you are trading a losing system.
  • #57
  • Mar 3, 2012 7:29am Mar 3, 2012 7:29am
Trader's Lament
The spread is always there,
the opportunities innumerable,
the edge difficult to obtain,
discipline a rare thing.
  • #58
  • Mar 3, 2012 7:42am Mar 3, 2012 7:42am
Quoting ha-pattern
Trader's Lament
The spread is always there,
the opportunities innumerable,
the edge difficult to obtain,
discipline a rare thing.
wise
Never again will fade the trend
  • #59
  • Mar 5, 2012 1:46am Mar 5, 2012 1:46am
IMHO the more I play this trade (forex in general), the more I feel its more of a psychological play. Indicators are there for you to use, but a matter of how you apply it.

This explains why the senior traders (more experienced) are always the ones picking off the younger traders.
  • #60
  • Mar 5, 2012 2:23am Mar 5, 2012 2:23am
Some people might think it's the insufficiency of technical knowledge, while some, fundamentals. When a person gets into a business venture, one would be likely to fall into the pit hole. Just like our financial market, what goes down, must come up? Very cliche and catchy eh? hehe. Greed, fear, ego and funny emotions are trivial, what is more important for a person to be successful is to be unsuccessful really hard, and take the road not taken. Solitude is important to read the market behavior, and in life generally.

The next time when you search for a solution to your trading, just tell yourself "Shhhhhhhhhhh....." , i'm connecting with the market ! Good thread !
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