Why most newbie traders fail?

Yokiro

Member
69 4
It is said statistically that 90% of the people who enter the Forex market end up failing and thus losing all the money they used to trade. But why are all these people ending up failing with so many strategies out there and such a big chance of building up a fortune?

The simple answer is: They don't treat their trading accounts as their businesses. Yes! Forex trading is a business. If you reject this idea you have failed or will probably fail as part of that 90%.

When you deposit your first $100, $500, $1,000 or whatever... you are making an investment to start your own business. That money needs to be carefully managed on each trade because if you don't, your business will collapse. Everyone knows a business needs to be run with patience, responsibility and most of all discipline.

Newbie traders are in for the big bucks, and that is not bad at all. I am in for the big bucks as well and I actually have a big amount on my trading account. However, newbies want to make the big bucks overnight and that is the BIG mistake. We all know that trillions of dollars are flowing every day through the forex market but that doesn't mean we get to have a big cut of the cake right on day 2.

Trading is a skill you need to learn based on discipline and self-control. Humans are greedy by nature and that has to be ripped off from us when trading. We cannot expect to have 100 pip gains on our first day (unless you have been practicing with a demo account that won't happen).

Forex can really change your life as it has for many of us. The key to build a successful forex business is to go for small but consistent earnings at first. Then as you grow your trading account and you are confident with your skills, you will be able to trade bigger amounts of money and get growing at a faster rate. I dare to bet that most of the successful traders that have made forex their living, started this way. It is recommended that when starting you only trade 2% of your trading account on each trade. As you get confident with the market and your skills get it up to 3-5%. When you feel considerably comfortable then you will be able to trade up to 10% of your account.

You can't just enter the market and get rich tomorrow. Unfortunately that won't happen. But if you are disciplined and get to know the principles you will become successful and believe me you will make a fortune if you do it right.

Good luck with your trading and don't be greedy!

Yokiro.
 

gamma

Experienced member
1,231 331
It is recommended that when starting you only trade 2% of your trading account on each trade.

This is one of the most overused phrases in trading and in my opinion one of the most ridiculous ones.
Ok lets analyse it, say you have an account with $1000 in it so now you use $40 of that for your first trade as you need to put your stops so near the only option you have is to day trade and we all know where that path leads.
Being a beginner the chances are you will take 3 or 4 losing trades before you realise your stops are too near.3 or 4 losing trades and you are down 12 to 16 percent of your account.
A far more sensible approach is to say if your account is anything up to $1000( and most new traders only have accounts this size or smaller) use 10% of your account and have larger stop losses. Basically do not put yourself in a position where the only option is to scalp or day trade.
 
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Trader333

Moderator
8,655 981
As you get confident with the market and your skills get it up to 3-5%. When you feel considerably comfortable then you will be able to trade up to 10% of your account.

If you risk 10% of your account per trade regardless of how good a trader you are then you will get wiped out.


Paul
 

Vaco

Senior member
2,134 269
i agree with paul,

However lets face it $1000 is not enough to trade effectively. How many other businesses would you attempt to start with this sum of money.
 

gamma

Experienced member
1,231 331
Paul,
I agree with you, However the point I am trying to make is if you have a small account then by risking 2% of your account then you only have a very limited number of options open to you in the stop loss field.
Ok if your account value is 10k then the whole 2% thing makes sense. but with anyhing below 1k and the whole ball game changes.
 

gamma

Experienced member
1,231 331
i agree with paul,

However lets face it $1000 is not enough to trade effectively. How many other businesses would you attempt to start with this sum of money.

Totally agree.
But you will be surprised at the number of people who open accounts with ridicilous amounts. Well can you blame them you have so many bookies advertising that you start trading with $100 in your account.
Anything below 10k and you are asking for trouble.
 
Last edited:

Vaco

Senior member
2,134 269
Totally agree.
But you will be surprised at the number of people who open accounts with ridicilous amounts. Well can you blame them you have so many brokers advertising that you start trading with $100 in your account.
Anything below 10k and you are asking for trouble.

no not brokers,

you have so many bookies telling you you can open an account with £100 and you can but with an account this small and min bets at £1 a point it is just like gambling.
 

gamma

Experienced member
1,231 331
My Apologies for misquoting, thankyou for the correction Elefteros.
Shall edit straight away.
 

Vaco

Senior member
2,134 269
My Apologies for misquoting, thankyou for the correction Elefteros.
Shall edit straight away.


:LOL: (no need to apologise)

I only say because with CFds i think you need £2.5 min deposit. With D.A. trading futures, mini dow for example you need just over £3k and thats just to trade a single contract not including room for the trade to swing against you.

This is what people must understand before opening a spreadbet account. they want as many punters as possible for revenues. That does not mean you can make a success out of it with a £100 account!
 

MrGecko

Senior member
2,778 789
This is one of the most overused phrases in trading and in my opinion one of the most ridiculous ones.
Ok lets analyse it, say you have an account with $1000 in it so now you use $40 of that for your first trade as you need to put your stops so near the only option you have is to day trade and we all know where that path leads.
Being a beginner the chances are you will take 3 or 4 losing trades before you realise your stops are too near.3 or 4 losing trades and you are down 12 to 16 percent of your account.
A far more sensible approach is to say if your account is anything up to $1000( and most new traders only have accounts this size or smaller) use 10% of your account and have larger stop losses. Basically do not put yourself in a position where the only option is to scalp or day trade.

Think you've got your wires crossed here Gamma.

Firstly, risking 2% of your account means after 4 losses, you're down to 1000*(0.98^4) = 922; the risk for the 5th trade, at 2%, is 18.44, not the same 20 you started at.

Secondly, the whole idea of fixed pip or fixed $ losses is counter-intuitive; the placement of a stop is determined by the market, not one's capacity for risk. The 2% risk is then engineered through position sizing.

Consequently, having a small account doesn't necessarily mean you are tied to scalping or day trading. It is simply a case of finding a way to place very small $ per pip Spread Bets - Oanda are good for this - it would be possible, in the example above, for a trader to take their 5th trade at 2% risk, with a stop 50 pips away, by having a position size that returned +/- $0.3688 per pip. Risking 10% and choosing arbitrarily large stops is a recipe for disaster.

This is where I imagine lot of traders go wrong. The fixed $ per pip trades offered by some SB's and DMA brokers are massively out of proportion with their minimum account sizes - for trading via ECN to be sensible, a trader must have a sufficiently large account that correct position sizes can be made up of fixed lots. For the same 50 pip S.L. trade, 2% risk implies a position size of $25,000 for a major pair, up to $37,500 for some crosses. Further still, this is only suitable if the trader doesn't start losing right off the bat - IMO DMA becomes feasible only with an account of $50k + to account for drawdowns, etc...
 

Rhody Trader

Senior member
2,620 266
This is one of the most overused phrases in trading and in my opinion one of the most ridiculous ones....
A far more sensible approach is to say if your account is anything up to $1000( and most new traders only have accounts this size or smaller) use 10% of your account and have larger stop losses. Basically do not put yourself in a position where the only option is to scalp or day trade.

It really depends on your market. There's at least one major forex broker which has no minimum trade size (no fixed lots) which means doing a 2% risk - or whatever level you like - is no problem at all, no matter the timeframe.
 

Hoggums

Senior member
2,176 878
I think that you could trade successfully with only £1000 provided you only took the trades you could afford.

e.g. if the stoploss you wanted was 50 points away and the minimum bet was £2 a point (talking SB'ing here) then you'd be risking 10% of your account - therefore don't take the trade!

Of course - how many newbies have the discipline to do that!
 

Kingwizz

Member
80 2
I would say it is a combination of the way in which people are, of-course ripped of by countless scams & courses (Bearing in mind the beautiful Woody Allen quote "Those that cannot do teach & those that cannot teach, teach P.E"). But most importantly the way traders react to risk. Unfortunatley the only thing between winning & losing are emotions. You start to feel that everybody in the trillion $ markets are against you & that maybe it isn't for them. That's the single are to the question "Why isn't everybody doing it?".
 

montpro

Junior member
46 0
Biggest problem I have found with small account balances is overtrading and then getting a margin call. I am a newbie to forex and have lost £'000's in 3 months, but like someone said - its a business and I see it as my investment in learning. I have a much larger pot now and try to keep trades within 3-5% and trade only when the trade meets my criteria. I agree that 10k would be the minimum needed to start off with, together with research and discipline.
 
 
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