"Many are called, but few are chosen". Ever heard this proverb?
This is certainly true for trading, in fact, there is even a rule in trading about this, the 90-90-90 rule. So what does this rule say?
"90% of traders lose 90% of their money in 90 days" 😱😱😱
That's right, statistics show that 90% of people who start trading lose the majority of their money in less than 3 months. But why is that so? In this post I will try to lay out the reasons for failure, if you are a new or struggling trader, I'm sure you'll find this useful. Let's get into it ...
🤯 EXPECTATIONS Many start trading because they've seen or read about success stories, people becoming rich overnight, they might even have a friend who has been successful in trading and they think (to say it in Jeremy Clarckson's famous words) "How hard can it be?. With this approach, failure is imminent...
📐 NOT HAVING A PLAN "If you fail to plan, you are planning to fail - Benjamin Franklin. Trading without a plan results almost certainly in failure. Your trading plan should include the definition of your setup, entry, stop loss, profit taking, trade management, risk management and money management.
🔄 NOT TESTING YOUR PLAN OK, you have determined how you will trade, what defines your entries and exits, how much of your capital you will risk and how you will manage your trades. But do you know what is the expectancy of that plan? Do you know how much trades you will win on average, and how many you will lose? How much money can you expect to make? Backtesting your plan, executing it flawlessly time after time on historical data will give you that information and the confidence to execute your plan time and time again without hesitation.
😱 EMOTIONS - THIS IS THE BIG ONE! If did not take the time to create a trading plan and backtest it, you don't really know what you are doing and emotions will have the best of you. Fear, greed, hope, excitement, anxiousness, boredom and frustration will drive your hard earned capital away from you. Results of these emotions are : trading too much, letting your losers run and cutting winners short, revenge trading, overleveraging etc... I could write an entire post about each of the emotions and how they can affect you while trading, but it would make this post too lengthy. Just know that emotions are your biggest enemy when trading, for best results you should be in a stoic state when trading.
🕺 EGO "The market can remain irrational longer than you can remain solvent.". If you want to prove the market that you are right, you are doomed to fail. The market is always right, no matter what happens, so you better learn to accept that your analysis or prediction of what would happen was wrong and cut your losses. Fast!
📚 LACK OF EDUCATION It takes many years to learn a skill or a profession, trading is no different. If you think about making lots of money without putting the time in to learn and test, you pretty much guarantee yourself to fail. You wouldn't want a lawyer without education to defend you in court, or a self-proclaimed surgeon who learned on YouTube to operate on you, would you?
💰 STARTING CAPITAL TOO LOW If you're starting with a low capital, you will tend to try and make it grow fast, resulting in taking too many trades, too high of a risk, too high leverage. If you start with a low capital, you'll have to be OK with the fact that it will grow slowly and that it will take (a lot of) time to build up a sizeable account.
🚦 BUYING OR FOLLOWING SIGNALS "There is no such thing as easy money." You might think that you don't have the time to learn about trading, making and backtesting a trading plan. So why not follow signals? Ask yourself what you know about this service? How profitable is it (and don't just go from the claims they make)? Do you know anything about the reason for a signal, why was it triggered? Have you talked to other users who used the service, what do they think about it? Why is this person/company selling signals if they are so successful as they claim? Philanthropy ? 🤔
📉 INDICATORS OVERLOAD Indicators can help you make decisions for trading, but too many indicators can and will lead to opposite signals or "analysis paralysis. Most indicators are derived from price, so it makes sense to learn how to read price action and discover the story behind the candles.
🆕 THE NEXT SHINY OBJECT SYNDROME You took the time to develop a trading plan and even tested it, but you run into a drawdown... Rather than counting on your experience and the expectancy that you know is there, you look for a new shiny method of trading, until the same thing happens again with this new method ... Rinse & repeat, never giving the chance for your original method, which you know was working when you tested it, to prove its worth ...
Alright, I think I have provided the main reasons why new or inexperienced traders fail. Knowing why they (or you) fail is one thing, doing something about it is not a small feat. But with enough dedication, persistance and the right mindset, you can prove these statistics wrong! Feel like reasons are missing, let me know in the comments below.
"Trading is a ruthless business that does not take any hostages, better come prepared. - Nico Muselle
So what is your story?
Are you a successful trader now but recognize these reasons for failure?
Are you a new trader? Was this helpful?
What did/will you do to overcome this?
What did/do you struggle most with?
Help the TradingView community by commenting below.
"Trading is a ruthless business that does not take any hostages, so you better come prepared." - Nico Muselle
Liked this post ? "Smash that like button!" 👍 - follow for more educational posts and alerts 🔔 when a new one is published. Thank you for your visit! 🙏
Comment
⋅
Bumping this for all new traders that have come online and have not had the chance to read this (yet).
This is excellent on breaking down how and why most new traders will fail in this industry. In my personal opinions, most trading strategies actually do work in their respected right. Why traders can no capitalize on it is due to they do not follow their plan from the start, rather they make decisions based on emotions. Like you mentioned few demises of trading is how one trader can take 1 month to make profit, and just to see it give back to the market in 1 day due to emotional trading, revenged and over-leveraged trading.
Where are in today's social media era, everyone is a trading "guru", non-stop profit and profit...etc. Most new traders expect trading to be like so, can easily picked it up in 3-6 months and become master at it. usually end of blowing their accounts in no time. Trading as a business is how anyone who is serious about trading should think about. It takes years of years to grow a business into a profitable, sustainable operation, same as trading.
I can honestly say almost everyone, myself included will gone through almost everything you have mentioned up there :) yet for those who are still here today to trade, are the ones gonna continue to improve and grow. So my honest feedback to everyone is to understand how trading actually is. You must learn from your mistakes, lose money in the market, journal down all your trades to look back and adjust. That is how a person can go from inconsistent trader to a consistent trader. Thank you
Nico.Muselle
⋅
@jojofang0901, you are absolutely right, the social media is not helping a single bit as it really zooms in on the success stories, not many people are posting their failures. This makes that the new trader's view on what can be expected is extremely skewed, making him even more vulnerable.
BillAnt
⋅
@Nico.Muselle, Except for the occasional "rekt" posts. lol
Jason_Hlongwane
⋅
@jojofang0901, you know i also thought i have mastered the forex market just by trading for a year i know it sounds dumb and stupid but reality is we tend to look at what other people have and believe if we can duplicate that then we can also become masters but the point is there is no short cut i actually acknowledge the fact that i will not fund anymore until i have a solid plan and idea of what forex is
markgavin609
⋅
Nico.Muselle
⋅
@markgavin609, thank you very much for the coins! Much appreciated!
Gnothisafton
⋅
Very good analysis, however, it is necessarily very general. A few comments I want to add.
1) New stock traders should NOT start with big capital because they have a 90% chance of unleashing it. First they need to learn not to lose, and then increase their capital.
2) This capital should not be needed in order not to be dominated by the fear of losing it.
3) Nobody should buy a single share of a stock without studying technical and fundamental analysis.
3) A new trader's first goal should be to learn not to lose and then learn to win. He also has to accept that he will pay market tuition for his education (losing money in the beginning).
4) Trading is a process of knowing yourself, continuous self-improvement and overcoming the ego, as you rightly mention. Traders without adequate knowledge of themselves and control over their emotions are doomed to fail.
5) The most destructive of emotions is hope. The new traders are trapped and while they continue to hope that prices will come back they are tearing down and draining their capital. The worst mistake they make then is the increase in their position to drop the buying average. We only increase the position on the rise, not on the fall, and this must be forward-looking, that is, we buy more at the beginning of the rise and less afterwards.
6) A trader should never do scenarios for the course of a share.
7) A new trader should never buy a share when it is below 200d SMA and below 30d SMA.
8) When a share breaks down 30d SMA must immediately sell it.
9) Trust nobody. Listen to everybody but check what they say with the most powerful tool, your crystal clear logical thinking free of emotions and also technical and fundamental analysis.
What I mean is that the new trader must first learn to protect his capital from large losses that will put him out of the fight, and then chase the profit.
Of course it is impossible that he should have no loses at all. We all make mistakes by breaking the rules we set ourselves, because we are people with weaknesses. The point, as you rightly point out, is that these losses have to remain small while the gains are much larger (Big wins and Small losses are the mantra – I agree with you). But this can be achieved only with a lot of training and the maximum possible discipline in the rules. Rules like the ones I have provided and the ones you filled out (and with which I agree).
Fortunately TradingView gives us all the tools and data to build a successful trading system. We just need to put our brains to work a lot to get it done and do constant research to pick the right stocks.
Where are in today's social media era, everyone is a trading "guru", non-stop profit and profit...etc. Most new traders expect trading to be like so, can easily picked it up in 3-6 months and become master at it. usually end of blowing their accounts in no time. Trading as a business is how anyone who is serious about trading should think about. It takes years of years to grow a business into a profitable, sustainable operation, same as trading.
I can honestly say almost everyone, myself included will gone through almost everything you have mentioned up there :) yet for those who are still here today to trade, are the ones gonna continue to improve and grow. So my honest feedback to everyone is to understand how trading actually is. You must learn from your mistakes, lose money in the market, journal down all your trades to look back and adjust. That is how a person can go from inconsistent trader to a consistent trader. Thank you