Why do so many traders lose money?

[incog2009]

In my own opinion, I believe the majority of people who trade treat this as a get rich quick scheme. Most are only looking for holy grails (e.g 1001 indicators on screen or automated systems) rather than taking the time to learn their markets and understand what the price action being played out infront of them really means...

 

[tenbobtrader]

1. The majority do not understand what the market is and how it facilitates trade in all timeframes for all players
2. They acquire part truths and information and act prematurely usually at the wrong location due to 1.
3. They have not acquired enough knowledge regards the market (house built on sand)
4. They have then built a complete method built on sand
5. They give up / blow up when they should return to 1. and start again

unprepared unprepared unprepared

they cannot trade = the truth

SUN TZU ON THE ART OF WAR

If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.


later

Andy

In my own opinion, I believe the majority of people who trade treat this as a get rich quick scheme. Most are only looking for holy grails (e.g 1001 indicators on screen or automated systems) rather than taking the time to learn their markets and understand what the price action being played out infront of them really means...

good post

 

[Captain Currency]

In my own opinion, I believe the majority of people who trade treat this as a get rich quick scheme. Most are only looking for holy grails (e.g 1001 indicators on screen or automated systems) rather than taking the time to learn their markets and understand what the price action being played out infront of them really means...

Yep Indeedy, a bit like the poker saying of "all you need is a chip and a chair"

What would be the saying for trading???


Andy

 

[cuotes]

What would be the saying for trading???

These days, over here, there are more and more ads and commercials trying to sell trading accounts like if it where mobiles, clothes or cars.

All you need is a couple of bucks and a mouse to click

 

[TAjammy]

i should know the answer to this question, as i've just came out of a 6 month long holy-grail chase.
And now i aml comfortable with daily time frames, and i tried intraday cause it sounded cool and boy o boy did i suck!
it all boiled down to one thing-impatience

edit: o yeh and trying to master a market which doesn't suit you. To be honest it's probably better to focus on a number of markets

 

[mrsoul]

Some good feedback here, but I'm still trying to boil it down to the simplest denominator. As an example, I often speak to traders who tell me that moving the stop to breakeven is the most important thing to do (once the rate has moved far enough in your favour), because then it's a "free bet". Also, if the trade is a long way in your favour, then start ratcheting the stop up (trailing stop loss). These two approaches sound perfectly logical, reasonable etc.

BUT I've done a fair bit of testing on this, and frankly the best method is to leave your stop loss and take profit alone..... tinkering ruins performance of the strategy because there will be times when you get stopped for breakeven, only for the rate to reverse and go back again.

So I'm starting to wonder if trading is difficult because of the simple reason that everything which is INTUITIVE is wrong, i.e. humans are not NATURAL traders, they have to learn it.

Golf would be a good analogy here.. much of the swing is counter-intuitive. Want the ball to move right? Aim left and watch it slice. Want to hit the ball hard? Swing as fast as you possibly can and (most likely) duff it 20 yards. Golf requires years of practice and training, and the vast majority of people who play it are simply not very good.

"moving the stop to breakeven is the most important thing to do (once the rate has moved far enough in your favour), because then it's a "free bet"."

There are no free lunches in trading.

 

[gamma]

"moving the stop to breakeven is the most important thing to do (once the rate has moved far enough in your favour), because then it's a "free bet"."


There are no free lunches in trading.

Please elaborate

 

[mrsoul]

...............and yesterday afternoon E-Mini session was mine.

I managed to not blow my account nor eat into my initial capital, but I did quite successfully manage to blow away the entire of last months profits in the space of 2.5hrs.

I sat there last night having a beer and tried to dissect why it had happened. The main reasons are as follows:

- I ignored my own risk management rules which inflated the extent of my losses, even though my stop losses were not tinkered with. Keeping the stops in place and not tinkering with them was my only saving grace.

- I was not focussed whilst trading. I had not tuned into the mood of the market before I started the session. I did not do my usual prep of checking news, looking at the morning session behaviour and going through charts from higher to lower timeframes to arrive at my trading context for the session.

- I ignored my usual set-ups and impulse traded on techniques that I know do not suit me or my personality (I am a lousy swing trader but good with breakouts/fake-outs). I have empirical evidence from demo trading to show I am rubbish at them, so god knows why I chose to execute in such a way.

- I ignored the fact that I was tired and was not mentally prepared for the session.

- I got emotional and revenge traded 3 of the 6 trades. The other 3 trades I just got wrong in terms of volatility stopping me out and drawing trend-lines in the wrong place (I run really tight stops but can afford to do so most of the time because my S+R line placement on 5m charts is good enough to run tight stops within the current volatility context).

I don't think there is ever one reason why people lose but what hit home to me last night is that you only need 1 aspect of your trading methodology to be wrong in order for the market to take you to the cleaners.

So the moral of the story in a really boy-scout way is always be prepared and disciplined.

As Ray Liotta in 'Goodfellas' said, "Every now and again, you have to take a beating".

It's whether you get back on the horse and learn that makes the difference.

Great post robster.

If you don't stick to your plan, you are going to take a beating.

 

[incog2009]

These days, over here, there are more and more ads and commercials trying to sell trading accounts like if it where mobiles, clothes or cars.

All you need is a couple of bucks and a mouse to click

Hahaha..

 

[Thaumaturgus]

"moving the stop to breakeven is the most important thing to do (once the rate has moved far enough in your favour), because then it's a "free bet"."

There are no free lunches in trading.

Based on my very limited experience, the hard part about this is determining what constitutes "far enough".

 

[mrsoul]

Please elaborate

putting in a break-even trade does not mean you have a free trade because when you put the trade on there was risk.

a free trade is a trade in which there is no risk.

there ain't no free lunches in the market.

 

[normbeef]

Personally I believe that the gap between winning and losing in trading is VERY VERY small... But the overall figure is magnified in the long term for most because they continue to make the smallest errors which constitute the difference in the results.

If you GUESS whats going on perhaps it might look like my sample below based on the 90% figure everybody bands about ..


Massive Winnners - perhaps 1% or less
Profitable - perhaps 9%
40% - Break even / flat or mildly profitable for a time ending in extended drawdown
50% - Blow up - give up failed

The reason apparently 90% end up losing and not say about 50% which would seem statistically closer to the general mean i.e (in any one trade you can only win or lose.)

is really the continual error factor, profitable trading really only has a single rule...

DONT MAKE ANY MISTAKES...

I think a good deal of traders get to a point when they are close to break even / even slightly profitable, but in the end they succumb to the error factor..

Obviously there are always going to be the Crash and burns...

Just my opinion....

Have a nice day...

 

[Technically Fundamental]

putting in a break-even trade does not mean you have a free trade because when you put the trade on there was risk.

a free trade is a trade in which there is no risk.

there ain't no free lunches in the market.

arb

 

[tommog]

As someone pointed out earlier, if 95% of people lose, just do the opposite. However, there is no 1 thing all losers do. Ive known people make fortunes by having winners smaller than losers. And ive seen the most intelligent disciplined people always take their setups, try and run their winners and still not make it.

There are factors people rarely analyse though. For a start the OP says in his original thread "excluding trading costs" (or something similar). But trading costs are the number 1 reason people fail at day trading i feel. I'll talk FX seeing as this seems to be the market of choice for most home traders. If you pay 2 pip spread on Eur/Usd and you do just 5 trades a day (and i bet most ppl do more) thats 5x2 = 10 pips a day you have to recover to break even. Or about 20 x 10 = 200 a month... 2400 a year! Even trading 1 lots thats 24 grand a year you are in the hole just by turning up to work! Assuming you are an amature (and i mean that with respect i.e not your full time job) and you have 10k to play around with, using 1 lots your trading costs are going to need to make 250% a year to break even.

Professional traders have a huge advantage, they pay tiny comissions. For example at one point i think i was paying 0.8Eur comission for a bund trade. The equivilent in fx would be $20!! Same goes for spread betting and even retail DMA futures trading.

If you want to be a home trader you are far better off looking more for position type trades therefore your win size will make the comissions less relative and your trade count will be lower.

95% of brokers make money

 

[cuotes]

But trading costs are the number 1 reason people fail at day trading i feel.

95% of brokers make money

Personally I believe that the gap between winning and losing in trading is VERY VERY small... But the overall figure is magnified in the long term for most because they continue to make the smallest errors which constitute the difference in the results.

Two thoughts quite interesting

 

[tenbobtrader]

good posts / points imvho

"If you want to be a home trader you are far better off looking more for position type trades therefore your win size will make the comissions less relative and your trade count will be lower.

95% of brokers make money "


sorry for re-quote

"The Axiom of the Small Edge:
A trader's long run edge is smaller than he thinks; it is much more akin to a card-counting blackjack player's edge of 1% due to variance, ever-changing cycles, and fear-induced losses.
The Postulate of Trading the Small Edge:
Given The Axiom of the Small Edge, what really matters in money management is that a trader always be prepared, always be able to hold a position with a positive edge that goes against him, and always be able to take the next trade:


Imagine
The worst trading day you've ever had. The seconds ticking by, the disaster scenarios playing vividly out.
Imagine
The blackjack player. His edge is 1% or 2 hands/100.
Imagine
The pressure.
Imagine
The public speaker. Stammering, nervous, unpracticed and unprepared.
Imagine
The blackjack player, the public speaker and the trader as one.
Imagine
Once per month being unprepared: 12 hands Once per quarter succumbing to the pressure: 4 hands Once per quarter not taking the next trade, not betting the correct size: 4 hands
Imagine
The blackjack player giving up 20 hands to the house:

His edge is now -18%
Imagine
The blackjack player and the trader as one.

"His edge is now -18%."

The Axiom of the Small Edge and The Postulate of Trading the Small Edge say that what really matters in money management is that a trader always be prepared, always be able to hold a position with a positive edge that goes against him, and always be able to take the next trade."


Andy