Why 95% of traders fail and what they should do then?
Just try to search any Forex Trading systems. Most of them will market their systems with:
- You can be rich with little money
- You can double your money in a short time.
- You can do that just by clicking the mouse.
- You will get fun and glamorous life.
If you ask yourself why do you enter Forex Trading at the first place? Most of you will answer with:
- I want to be rich with little money.
- I want to be rich in a short time.
- I can do it by just clicking the mouse and do not have to work hard.
- If I get rich I will have glamorous life.
You see that they have completely brainwashed you with the rosy life and how mega rich you will be if you trade Forex, and they also sell you the know how to get there. The correct analogy is to compare it with a casino. If you go to casinos, you will see fun everywhere, you feel that you will be lucky that night and win a lot of money. Before you enter the casino gate you will pass through small shops, and guess what they sell. They sell books, lots of books of how to gamble. Do you think casinos do not do that on purpose? Do you think after reading those books you will win? It is better to lose money betting in the casino than trading Forex. At least you will get the fun losing money in the casino.
If you buy Forex Trading books, trading seminars, trading systems, trading signals, trading robots, black boxes, etc most of them will teach you:
- To set a high return target by using very high leverage (usually more than 1:100).
- How to predict using fundamental, technical analysis, magical indicators or black box systems.
- How to cut loss if the prediction is wrong.
- How to manage capital in order to survive longer if the prediction is wrong. Usually they will tell you to risk 1-2% per trade.
- How to manage risk reward.
- To be discipline and have an iron gut and tiger claw mentality (always take the next trading opportunity regardless previous loss).
You should ask yourself if all traders start with the same knowledge then why 95% of them fail and only 5% succeed. What is wrong?
- Is there something wrong with the knowledge itself?
- Is it because of the teaching method?
- Is trading Forex not suitable for most people?
- Are 5% of those traders psychics and able to predict?
- Have 5% of those trades found a secret formula?
- Are there other reasons?
STOP for a moment. I want you to THINK first why 95% traders fail before continue reading.
If your goal is to be rich with little money in a short time then the only way to get there is by using high leverage (I consider more than 10 times leverage is very dangerous). By using high leverage then you face tremendous risk that you will lose all of your capital soon or later. And if you use high leverage automatically you are forced to predict where the price is going to be and use tight stop loss to protect the remaining capital if your prediction is wrong. In the end you will win some and lose some. In other words you will use gambling mentality to trade Forex. These methods are taught by most books, seminars and gurus. I believe all of them will fail and the other 5% of traders who are successful do not use this approach.
I believe most of you are still in the vicious cycle of finding the holy grail of predicting. If one method of predicting fails you will start finding another one, and so on. You will swear and curse if your new predicting method fails. Yet you do not realize that what you seek is only one part of the big picture. And you have been wrong all of the time with all other parts without realizing them.
You will fail soon or later because:
- You have a wrong target because you set unreasonable target return. If you have a wrong goal then how can you achieve it?
- You use high leverage. By using high leverage you will face tremendous risk. High leverage is a time bomb. It will explode soon or later.
- You try to predict. The fact is nobody can predict the price movement in a short time period. By using a fundamental economic analysis you can predict the price movement for a longer term, and it usually more than 5 years time frame. But anything can happen and change the direction along the way.
- You use tight stop loss. By using tight stop loss you will have high probability that your stop loss will be hit.
- You will win some and lose some but in the end your capital will be depleted and gone because of the transaction costs. The price movement is always 50% up and 50% down. If you gamble with 50:50 odds, in the long term your capital will be the same with your starting capital. But Forex Trading is not a zero sum game, meaning that the winner will not take all. Your winning is always deducted by the transaction costs and your losing is always be added by transaction costs also. That’s why in the end your capital will be depleted and gone.
- You will experience greed and fear, and you will not be able to control them. You will be afraid whether your next trade is a winner or not. You will be afraid that the price will make a u turn so that you take your profit too little. You will be greedy if your current trade is in the profit zone to compensate your previous lost.
- You will use gambling method to approach the market. But the casino is always winning over gamblers.
A successful trader is not a trader who can make ridiculously high return for some time only but in the end he will be broke. What is your definition of a successful trader defines your goal and your perspectives. What is your goal and your perspectives define your methods to achieve them.
I will guide you to shift your goal and your perspectives. In the end I would like you to change your goal, perspectives and methods into this:
If you set your target return reasonably then you are not forced to use high leverage. If you use no or low leverage then you have the freedom not to use stop loss at all. By having no stop loss at all, your trades will always be winners.
You will win soon or later because:
- You treat Forex trading as a business. You make a plan. You prepare your capital accordingly. You execute your plan. You will stay safe.
- You expect to grow our money in a steady manner for the long term.
- You set your target return reasonably.
- You always close your trade with profit.
- You will make profit regardless where the price going to be.
- You use no or low leverage.
- You do not have to use stop loss.
- You will manage risk, return and probability. Therefore greed and fear can be minimized to a very low level.
You see, by changing our perspectives we will totally change our approaches. If you compare those approaches, they are very different. It is like day and night.