The 3 Biggest Reasons Why Most Traders Fail And How You Can Avoid It

Beginner Questions Trading Psychology
1

Now I’ll be honest with you all…

  • I can’t help you with your money problems.

  • I can’t turn you into a millionaire trader.

  • I can’t help you turn $1000 into $100,000 in 2 weeks.

You might be wondering…

“So why the heck should I listen to you?”

Well, I could improve your trading results.

This means…

If you’re a losing trader, I could help you stop the bleeding.

If you’re a breakeven trader, I could help you get to profitability.

If you’re a profitable trader, then what are you doing here?

But, don’t take my word for it.

Anyway…

Today’s post isn’t about me.

Rather it’s about you, and how you can avoid the top 3 mistakes that almost all new traders make.

So, let’s get started…

#1: You listen to opinions

In 2009, I started trading in the financial markets.

I was new to this business so I did what most traders do…

Lurked around a stock trading forum with the hopes of gaining some tips and insights.

Every morning, I’ll read the forum to catch up on the things I’ve missed from the night before.

But today was different.

I noticed there’s a new thread in the forum.

In that thread, a guru did some technical analysis on a stock called, China Sports.

He drew an upward trend line on the stock price and was bullish on it.

I thought to myself…

“Wow, he seems to know what he’s doing.”

So, what did I do?

I bought China Sports, of course!

The next day, the stock rallied and I said to myself…

“Damn, trend line works like magic!”

However, over the next few days, the price of the stock declined and started moving lower.

It went back to my entry price and eventually, put me in the red.

I wondered what’s happening to the stock.

So, I quickly went back to the forum and check out the latest analysis on the stock.

Then something caught my attention.

The upward trend line I saw previously was “shifted lower”.

I didn’t think too much about it as the guru was still bullish on the stock—so I held on.

Over the next week, the price of the stock collapsed even more—I was down 30% from my entry price.

And every day, I was at the forum checking out the latest analysis of the guru.

Then I realized one thing…

His upward trend line was “shifting lower” as the days go by.

Eventually, the stock price tanked so much that his upward trendline became almost flat.

I had no choice but to cut my loss and call it quits.

The lesson?

Never trust the opinion of others—it puts you in a position of weakness.

#2: You “play” with indicators without knowing what it means

Here’s the truth:

Indicators are derived from price.

This means the values on your indicator are “created” by applying a mathematical formula from the price on your charts.

You’re probably wondering:

“What’s the problem?”

It’s this…

Indicators are “manipulated” to form bullish or bearish signals.

Let me ask you…

Have you noticed that your RSI indicator shows a bearish signal, but your MACD shows a bullish signal — at the same time?

So, which indicator do you trust?

Well, you’re stuck because now you have conflicting signals.

So, what’s my point?

Stop toying with indicators, it doesn’t give you an objective view of the markets.

Without an objective view of the markets, you can’t make the right trading decisions.

Without the right trading decisions, you’ll find yourself losing consistently in the markets.

Now don’t get me wrong.

I’m not saying indicators are bad and you can’t use them. But they shouldn’t be the basis of your analysis.

#3: You rely on fundamentals to make your trading decisions

Here’s a fact:

The market can go up on bearish news and it can go down on bullish news.

And often, by the time the news is out… it’s probably too late to enter.

Now you might be thinking:

“You should combine both fundamental and technical analysis.”

Okay.

But what if your technical is bullish and fundamental is bearish.

Now you’re stuck, AGAIN.

So, what now?

Well, here’s a secret for you…

Often, when the fundamentals are bullish, it would be reflected in the price.

This means the market is in an uptrend when the fundamentals are bullish (and in a downtrend when the fundamentals are bearish).

Here’s an example:

NZD demo
NZD demo1024×479 59.1 KB

As you can see, NZD/USD is in a downtrend even before the central bank cuts interest rate.

So, does it mean technical analysis is better?

Yes, at least in my opinion.

Because when you’re wrong, you have your stops in place to cut your losses.

But if you rely on fundamentals…

By the time the “bad news” is out, the market had collapsed and you’d lost a huge chunk of capital.

So here’s the deal:

If fundamentals can’t accurately predict what the markets will do and it’s a horrible risk management tool, then what use is there?

Thats all from my side… All these are 3 major mistakes normally made by the traders and they end their trading with a loss. In last I would say please avoid all these major mistakes.

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I use both RSI and MACD as TREND indicators. For example, the RSI above 50 shows a bullish trend, and the MACD histogram at 3 -10 -16 shows the strength of a bullish trend.

Needs two to tango.

3

This is a really nice post, just need to find what works for you too. There are so many ways to trade a combination of any could work for someone and not for another :slight_smile:

4

Yeah exactly… Its just about the Market terms, sometimes they are opposite to each others in trend while sometimes they are just following each others…

5

Thanks mate… Basically we need to focus on a single strategy on which you can master in it.

6

Meanwhile you can follow me to understand my trading pattern and you will get notify for my next article

7

Be careful here regarding trend, specifically. RSI is mainly used as an indicator for overbought or oversold signals - that’s why it can get confusing. And why it’s pretty useless.

However, when used solely as a trend indicator at over or under the 50 mark it’s only limitation is a slight lag - as are all indicators, even price action.

I’ve yet to see any indicative divergence between e.g. RSI 50 level and MACD zero level.

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8

Most traders don’t become successful in this market because of their low knowledge and skills.

9

Good informative post well appreciated.

Because as Beginner you have to do something than learn something. People have to make mistake than he/she learn from mistake.

Without playing with indicators how do i know which is working which is not working?

Experience is GEM.

10

Would you recommend books to help learn this or only experience?

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Yeah you can follow me, I have my own books which can help you in your trading

12

Thank you. I think trading can be lonely. I think the best advice I’ve seen so far is to be patient and do the preparation!

I’ve just bought an ebook called: Forex Trading: Why we fail and how to avoid this. Hopefully I can avoid making errors!

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13

These mistakes are very popular among the traders, I especially liked the first mistake you’ve mentioned about listening to other people’s opinions. Especially the newbies think that some bloggers or ‘experts’ definetely know more about the market than they do and they follow all of their advice and recommendations without understanding them. That is a very rude mistake as 90% of somebody’s ideas or signals are absolute trash. That is why I think that before trading seriously, a trader should have his own perception or opinion about the market in order to let other ideas throught the filter of his own knowledge and experience.

1 Like
14

Sounds sensible and agree that if we develop better understanding by ourself, we will be more likely to open better positions. I was reading about this - following the crowd sometimes leads to disaster.

15

That’s a very helpful post, and really @filatovarthur you did a great job in explaining it in detail. I would only add that even if we become overconfident with a few wins that we stop noticing the market deeply, we just trade in a rush.

16

Same here, I thought it was pretty much best off just to trade on your own rather than taking opinions from other. You can take them as an advice, but at the end of the day, it is your money and you should be trading on your own, with cautious.

17

The reasons which were mentioned here can really lead a trader to the absolute failure on the forex market, so the author did a very nice job in writing this post.
Using indicators without knowing how to use them properly is one of the most frequent mistakes, I believe. Many traders feel that indicators are the ultimate truth however it is not always so. If you tend to use indicators in your trading, you’d better look at several indicators simultaneously. As it was mentioned, one indicator can show you one thing and another indicator shows you quite the opposite. Every signal that you get from your indicator should be confirmed by several other indicators in order to make sure that the signals deserve your trust. There is lots of noise during every trading session and this noise can mislead you very much.

18

Good right up and best to trade your own style whatever that may be

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According to me, the three biggest reasons of failing in trading are:

  • Lack of knowledge
  • Overtrading
  • Improper strategy