Traders World Online Expo #18
Nov - Dec 2016

 
                                                                                                                         

 

 

Why Traders Fail

 


By John Matteson


It
is said that 95% of stock and futures traders lose money. In the forex market, I have heard numbers as high as 99% of traders fail! A recent study done by a major brokerage firm uncovered some interesting data as to why the majority of their clients were losing money. It, surprisingly, had little to do with accuracy. In other words, they found that their clients were right in their analysis more than 50% of the time. In some cases their win/loss ratio was greater than 70%! Yet, despite the high win rates, the majority of their clients were losing money.

 

So, what's the problem? Why do so many traders fail when they have more winning trades than losing trades? It all comes down to the golden rule of trading – keep your losses small and let your winners run. The majority of traders have a lot of small wins and a few big losses that end up wiping out all their gains.

 

In the study, the brokerage firm found that clients trading the EUR/USD, for example, won 58% of their trades. The problem was that they were profiting on average only 65 pips while they were losing on average 127 pips – almost twice the size of their winning trades. This is a perfect recipe for disaster in trading that I see being made over and over again by the majority of traders I come across. This is the number one reason why traders fail.

 

So, how can we fix this? Most professional traders have a process they go through before they consider entering the market. Some traders may word it a little differently but essentially it covers 4 basic steps. At MTPredictor, we call it our 4-Step Trading Process:

 

1. Find a trade.

2. Assess your risk/reward.

3. Determine your position size.

4. Control your exit strategy to maximize profits

 

This 4-Step Trading Process covers all the bases a trader needs to cover in order to lose small if his analysis is incorrect but win big when he is right. It will keep your risk profile consistent from trade to trade, market to market and time frame to time frame. Follow this process for every trade and start doing what 95% of traders fail to do – lose small and win big.

 

Example of a low risk/high reward trade setup taken by an MTPredictor client using the MTPredictor trading software for stocks, commodities, futures and forex.

 

Chart1

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