I believe it. Most traders are new (the attrition rate for trading in general is staggering). They don’t really know what they are doing (I include myself in that category). Currency trading is probably the most difficult instrument to trade. On top of that, most traders are lured into the “easy money” side of it. This compounds the psychological difficulty of losses. Simply put, new FOREX traders are going to lose money. There is good news in all of this, though.
I’ve been trading for almost a full year now and I still lose most months-- okay, days. The cool thing is I have only lost about $200 in that entire year! I consider that cheap tuition for the Trading University of Hard Knocks. That is the wonderful thing about FOREX. You can trade small. In fact, my average risk is about $1.78! I trade about 4 different pairs on the 30 minute charts. My position size is always 1 micro-lot. That’s it. I’m happy to lose that $1.78. Why? Because, well it’s $1.78. I spend more on coffee every day. I hardly notice it. And like I stated before, It’s much cheaper than a university education.
I’m sure I’ll eventually move the decimal point over to the right… eventually. In order for me to do that, I need to learn to be consistently profitable taking $1.78 trades. Until then, I will continue to take “I-Don’t-Give-A-Darn” sized trades. I suggest the other 89% do the same.
Why would modern traders be more advanced and knowledgeable than before though? Yes, people have access to the Internet, but Forex requires just as much effort and study as it did before.
There isn’t a way to trade without losses, and it would be a huge mistake to try.
Expectancy is what matters, not win-rates: you need to develop of a way of winning more, collectively, from your winning trades than you lose, collectively, from your losing trades. Aiming for the highest possible win-rate (i.e. losing as few trades as possible) [B]isn’t[/B] typically the right approach.
If you look in beginners’ textbooks such as Van K Tharp’s[I] Trade Your Way to Financial Freedom[/I] or Michael Harris’s [I]Profitability & Systematic Trading[/I], you’ll find explanations of the reasons why it’s typically easier for aspiring traders to become profitable from lower overall win-rates than from higher ones. It may sound surprising, but it’s so. Probability and statistics are counterintuitive subjects, but they’re subjects of which every trader needs to develop some understanding, to achieve any success. And the time to try to do that is [I]before[/I] you start practising/experimenting.
There isn’t a single, objective “right answer” to this question: it depends on your account-size, type of trading, location and a range of other factors. This section of the forum will help you: 301 Moved Permanently
There could be number of reason for a trader to lose money. Major problems are lack of proper money management. There were 50% trader (among the looser) who made profit from their 71% trades but still lost money! (a survey of 2016)
Emotions, and trading phycology is another major issue for the new traders. Even trader lost all the profit after a win trade, due to use higher leverage.
Anyway, my broker (Hanseatic Broker) has 1:50 leverage by default until you change it. I suggest the same. Practice a demo account lower leverage and then go to live. Or you will miscalculate in live trading.
About the let winners run and cut losses short theory which you (and others) have regularly proponed: I have a question - how do you balance the letting of the winners run - with the need to not be greedy. Have found that a winning trade is running to about 25 - 30 profit, but decide to let it run rather than profit, and then it comes to 10 - 8 pips and close before it goes to zero. So how do we balance this ? Is this all about the find the correct exit point with technical validation : you know like when it has resistance and looking at the SMA etc ?
I don’t believe in this over rated statement “let your winners run and cut your losses”, certainly not for an intraday trading approach. It’s an entirely subjective statement, counterintuitive and results in diminishing returns, overall.
At the end of the day, if you have a large enough sample size of historical trades, with subsequent data for each, you will already know the optimum risk to reward. Surely this is the end result all aspiring traders want to get to, eliminating all “guess work and gambling” of letting a trade run or cutting losses too early.
As with so many things, this is a concept which has been greatly simplified and presented in the wrong context very often. The foundation of the “let your winners run” recommendation comes from Prospect Theory and its idea of loss aversion. Basically what it boils down to is we tend to feel the pain of loss more than we enjoy winning. When I say losing, I don’t just mean in nominal terms. I mean in relative terms. This is where the cutting winners short thing comes from. We fear giving back what we’ve already made, so we book the profit and fail to let the trade run its course per the parameters of whatever system we employ.
You can see this whole thing come into play with so-called “hedging”. Traders don’t want to take a loss, so they irrationally put on an offsetting position because they think it prevents them losing.
This is ever so true - In fact I’d go as far to say that it’s certainly become the ‘statement of the year’ with regards to promotional material and courses.
I think you are right on the nail here. For example, if you apply a particular trading method to various timeframes it will give different optimum levels for targets and stops. When one analyses and arrives at an understanding of the appropriate levels for one’s own Trading style then there is no need for advice such as “let your winners run”.
I include in my journalling two additional columns: one for the [I]theoretical [/I]maximum profit the method [I]could [/I]have obtained from the particular trade and the other for how far the price reversed against my trade (whether it was stopped out or not). Over time this gives me data to determine what is the optimal profit level to look for and its percentage likelihood of being achieved - and the most sensible distance to place a stop to avoid accidents as well as unnecessarily excessive loss. It also indicates when there is a change in the overall volatility of the market and a need to tweak the limit/stop levels accordingly. I do this analysis for every trade opportunity in the sessions I watch even if I have not actually taken it.
In the same way as " let your winners run" becomes unnecessary, so your own risk and money management criteria also remove any relevance from another similar phrase: “it is never wrong to take a profit”.
However, unless one is runnng a totally mechanical system, one should never override pure commonsense on those occasions when an action is clearly correct and obvious!
I think only 70-80% are failing in this business, loss is inevitable in forex trading but loss only comes when we trade blindly and without having knowledge, experience and skill, otherwise forex is lucrative business if we will do it with proper planning and strategy.
Losses are part of every business. But it is not necessary that all the traders lose a substantial amount of their money. Lack of knowledge, skill and experience are the cause of loss. One who understands the fact of learning from his own losses will eventually turn out to be a successful trader. Proper planning and understanding the concepts, strategies all can help prevent losses. Also, losing a certain amount professionally is not bad as it help build further gains.
Why do you think it’s just 70 – 80% of the traders that lose money? I’m just curious, because I have never seen any kind of statistical information about it. I think the number of people losing money is very large, but how large exactly no one can tell.
There’s some, collated from numbers of brokers’ anonymous customers’ accounts, but it doesn’t really prove very much, because it isn’t published frequently enough and doesn’t monitor the turnover of losing traders, which is what you’d really need to know, to interpret the figures.
(Via the site at leaprate.com, somewhere, you can find some statistics from a company that tracks accounts at various forex brokers. It’s not much use, really, for the reasons I mentioned above, among others, but it does consistently demonstrate that FXCM has the smallest proportion of profitable customer accounts and Oanda one of the highest. No surprise, there!).
FXCM’s SSI indicator is a perfect example how most traders buy the wrong side of a trend or move, Look at the S&P in this chart, 88% of FXCM’s traders are currently short the S&P, by the way the S&P hit a new all time high today
I don’t think that example is necessarily accurate. The S&P is moving up, so a trader entering a short is certainly in drawdown on that position - however where they close the trade determines if they register a loss. For example, said trader may exit the trade on a pullback, and in profit. (Often called contra-trend trading). Having said that I do agree with the premise of your statement, that most retail traders are on the wrong side of the market.
There was a study published on the results of the retail Forex market in France, where over a 4 year period, 89% of retail traders were “experiencing losses”. I do not have the link though I do remember the study was published in Forex Magnates.
I would guess the retail forex market in other jurisdictions would show similar results.
If you follow the SSI you will see as soon as the S&P starts turning down, most of those traders currently short, will start closing their shorts, and as price continues to move lower over several days, the shorts will continue to decline until long positions become the majority of traders.
What is happening is inexperienced traders tend to hang on to their losing positions, until they can no longer take the pain of seeing their account decline or worst they blowout their account. And when they have a winner they take quick profits, missing out on big moves.
if you would like to trade without losses you should have good knowladge about trading, i recoomend you to read some forex blogs, for example i have read interesting articles on liteforex broker site. about brokers you should choose by yourself
