Nico.Muselle

The 90-90-90 rule - Why do traders fail?

Education
FX:EURUSD   Euro / U.S. Dollar
"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.


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

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Comments

EMOTIONS. I have backtested my trading strategy on more than 40 stocks, i have the confidence to put it into actual use. But, every time when i take a trade with proper risk management, emotions got better of me. Now after taking a trade i start reading book till i hit the target/sl and call quit for the day.
+12 Reply
gapeguero tradeofrahul
@tradeofrahul, this is something I need to work on. I find myself getting stuck watching the charts and it causes anxiety
+1 Reply
Very good post which I agree. I myself am a Trading Coach and also have Signal Groups. From my point of view, I can say the following, which has already been mentioned several times in the comments: Most people who have money for signal groups or a coaching/consulting do not have time for trading because they work a lot for their money. If they had time and money, they wouldn’t want to trade. I think that’s a great thing for these people. Everyone has to decide for themselves who to entride money to and there are plenty of opportunities to get an idea of the signals in advance. Someone who doesn’t show you his abilities for free is 100% a fraud. Another reason for signal groups is that not everyone wants to deal with the financial market but just wants to earn an extra income. This has always been the case in human history. Want to do as little as possible but earn as much as possible.
+3 Reply
Best quote ever "Give a man a fish he'll eat for a day, teach a man to fish he'll eat for a lifetime."
+1 Reply
You Nailed it.. Emotions will drown you !!!!!
+1 Reply
Sir this bog is really very helpful. I make good plans but failed to execute. I really feel very disappointed when I failed to execute my plan and thereafter what I see, my planned trades are hitting the big targets.
+1 Reply
Thanks.For giving knowledge about truth of new traders.
+1 Reply
TRADING FOR THE WELL DISCIPLINED, BRAVE HEARTED , HUMBLE , DEDICATED PERSONS AND NOT FOR OTHERS
+1 Reply
It should 90-100-90 rule
Reply
Very late story. I would have this message 2 years back so that i wouldn't had lost so much money.
Reply
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