Why do almost all Forex traders fail

[Davidee]

Why do 95% of Forex traders fail?

I have three ideas as to why this could be -

1. Small Forex traders are mostly gamblers trying to fade the longer term trend and pick tops and bottoms and are therefore almost always wrong.

2. What 'feels' like the right thing to do is usually the wrong thing to do, we want to avoid pain and seek pleasure. Small Forex traders usually trade their emotions (or at least let their emotions influence their trading) and do things like grab a small profit when they have it so it doesn't run away from them and let losses run OR do something else equally counter productive that feels right but has bad results like setting 15 pip stop losses.

3. Large institutions with virtually unlimited funds always take the otherside of the trade that the small traders are on, when the majority of small traders are long they continue to take the otherside of the long positions until the small traders give up and the market falls and they reverse their positions and so on.


Personally I think it's a combination of ideas 1 and 2. But what are your ideas? Someone always has to be on the otherside of every trade it's true, but I don't see why that means the failure ratre has to be as high as 95%

[hess]

the 95% failure rate is not exclusive to the stock market, although the forex market may have a slightly higher failure rate due to the unregulatory structure and high leverage but to get the correct answer to your question we need to ask the 5% who suceed not the 95% who fail so here's something you might find interesting.

The Harriman family fortune, which endures to this day, was created in the early 1900s by "Old man Harriman," who had started his career as a floor runner and wen on to become a major banking and brokerage power. He made a $15 million profit in 1905 from one play in Union Pacific. This speculator king focused on just railroad stocks, the hot issue of his era.
In 1912, an interviewer asked Harriman about his stock market skills and secrets.

The trader replied, "If you want to know the secret of making money in the stock market, it is this: Kill your losses. Never let a stock run against you more than three-quarters of a point, but if it goes your way, let it run. Move your stops up behind it so that it will have room to fluctuate and move higher."

Harriman learned his cardinal rule from studying trading accounts of customers at a brokerage firm. What he discovered was that of the thousands upon thousands of trades in the public accounts, 5- and 10-point losses outnumbered 5- and 10-point gains. He said, "by fifty to one!" It has always amazed me that businesspeople who have tight control and accounting practices in their stores and offices lose all control when it comes to trading. I cannot think of a higher authority than E. H. Harriman, nor a more enduring rule of speculation than what this man gave us in 1912.

But you might say thats a long time ago and markets change, hell we don't even use the quarter and sixteenth system anymore and markets are electronic now-a-days. But apparently this reason why 95% fail has'nt really changed in the documentary "Trader" Paul tudor Jones a contemporary trader says the very same thing. I would have given you the youtube link but it seems its been removed for copyright violation.

So the answer or part of the answer may be because they don't agressively cut their losses. Of course you need a system which works you need to follow good mm, there's psychology, discipline and all but the above is probably the most common reason

[Ultimate eBook Store]

What's coached and pushed out there simply doesn't work well.

The actual trader not being able to follow a plan.

Starting with the hardest game in town which is day trading.

Not enough money for risks or markets random movements.

Using a static system or method regardless of volatility.

Needing to follow the herd and not go against the grain.

This list could literally go on forever.

[Davidee]

All good answers and all food for thought, thanks

[A8T]

Originally Posted by Davidee

Why do 95% of Forex traders fail?

Lack of the correct education & an unwillingness or inability to seek it out.
Lack of self discipline
Lack of patience

Those 3 kill the majority of new entrants. The remainder usually run out of money & cash their chips way before they get their stripes.

[Rrossi333]

I agree that its a combination of 1 and 2, mostly number 1. I dont think brokers really need to purposely take the other side of trades to money. This is risky and probably illegal and they can make enough money just on the spread.

Alot of FX traders enjoy the huge swings and are therefore more gamblers than traders and when you are gambling its only a matter time till you experience losses. When you trade without proper money management skills you are bound to go broke sooner or later.

[Davidee]

Originally Posted by A8T

Lack of the correct education & an unwillingness or inability to seek it out.
Lack of self discipline
Lack of patience

Those 3 kill the majority of new entrants. The remainder usually run out of money & cash their chips way before they get their stripes.

Which would you say of these 3 things is the single biggest factor?

[A8T]

They’re all interconnected aren’t they?
Just think about it.

Every successful practitioner in any top tier business role will be highly trained & educated correctly in the essential skills required to enable them to move forward with confidence & assurance.

It doesn’t take an Einstein to work out that if you’re equipped with the necessary skills from the outset, then it’s less likely you’re going to have issues with discipline & patience.

95% of people in these places aren’t even adequately prepared before they begin the unenviable task of planning a training regime, let alone get to work assembling the necessary skills & discipline programs to get off 1st base.

That’s often the difference between those who can & those who think they can.

[trading801]

my favorite answer to this is NO proper money management!!

mastering proper money management is like having won half the battle heehee

[paralotnik]

Originally Posted by trading801

my favorite answer to this is NO proper money management!!

mastering proper money management is like having won half the battle heehee

I agree with you.