The REAL reason why nearly every trader fails. Can you solve this trading dilemma?

Trading Discussion
1

After thinking long and hard about why nearly every trader fails, I think that I have found the answer.

The basic trading dilemma is this:

It is nearly impossible to make the math work.

Let me give you an illustration of why it is so hard to make the math add up trading:

I traded this method the whole day today and did well but there is a problem that all traders face regardless of their methods and it is this:

You never know how much profit the trade will give you.

You can know, for sure, your stop and entry but you just can not know how much profit the trade has in it

This is the main reason why nearly everyone loses money trading.

For instance, today on all my trades the entries were crystal clear and so was my stops- always set to 15 pips.

Being that you can never know how much the trade has in it, on many of my trades I wanted to take the profits before they disappeared, so on many trades I took 3 pips profit, 5 pips profit, and 10 pips profit.

Some of these trades went on to give bigger profits if I had stayed in the trade but some of them retraced and my profit would have disappeared if I had not exited with a quick profit.

So, what I am getting at is this:

The risk/reward ratios in trading are unfavorable because you can’t be GUARANTEED that the trade will give a profit that is equal or more than your stop loss.

So, basically you are risking 15 pips(if you use a 15 pip stop) to make 3,6, 10 and sometimes 15 pips.

Today, I hit most of my trades but if my 15 pip stop got hit a few times, most of my profits would have disappeared.

Sooner or later, this will happen and all of those small profits will be given back by being stopped out a few times.

So, my question is this:

How, exactly, do you handle this problem?

Is it the case that many profits, that are smaller than 15 pips, in the end make up for getting stopped a couple of times?

In my opinion, this problem is the main dillema in trading and is the reason why nearly every trader, in the end, ends up losing all their money.

It is nearly impossible to make the math works (your profits add up to more than your losses) because it is impossible to INSURE that your profits will be bigger than your losses because you NEVER KNOW how much profit a trade has in it.

Can anyone one think of a way to solve this most basic trading dilemma?

Any and all ideas would be appreciated.

Thanks and Happy Trading

2

As a person who’s in the ‘still losing money’ category, I think I know the answer why I am not yet mounting profits…

Its not a question of what the market does - EVER. The market is ALWAYS right! The problem is our response to what the market is doing, and getting in tune with reading what it is telling us. As Mark Douglas said, the market offers us opportunities and it is up to us to avail ourselves to those opportunities. The better of a trader we become, the more opportunities will be obvious to us.

For example, I was bearish on the Euro today. I tried to get in front of a train today and I was punished for it. The next trade, I waited for hesitation before putting on my position. I was 20 pips in the money, but then it retraced back to its resistance point.

Yeah, I could have closed at 20 pips and banked that money. But I broke even. If I had taken the 20 pips, I would have risked 18 for 20, a 1:1 risk reward. I shoot for a 1:1.5 minimum on my trades. I’ve considered experimenting with multiple lots, but I am trying to stick to one lot and learn to properly trail my stops. I haven’t quite gotten that art down yet.

I think profitability is all about getting in tune with what the market is telling you, and understanding how to respond to it. It just takes time. If you’re introspective about each trading experience, and treat each trade as a learning opportunity (something I have been lacking in for a while, which is why I still suck), you’re eventually going to get more in tune with how to trade.

In the end, most failing traders are people who thought it was going to be easier than it was. Some people are lucky to have a good knack at trading and can make money very quickly, others like myself don’t seem to have any inborn knack and we just have to make mistakes, persist, and learn.

I believe fully that if I try hard to learn what I am doing wrong, and work on correcting that, I can succeed in this business and pull my target of 10% a month. Most people who quit find that their time has more profitable uses elsewhere, and thats perfectly fine. Everyone has their calling.

One of my biggest inspirations is this real estate guy Raymond Firetag. He blew his first $5000 account, then decided not to give up and worked one hour a day every day on learning to become a profitable trader. After 8 months he turned a $50,000 stake into over a million dollars. Now maybe Ray was riding a good streak, and I don’t know what his risk management plan is, but it shows you that its certainly possible to do extremely well if you just focus. Ray said in an interview that he believed that he had found his calling, and that is why he worked so hard even after he blew his first account.

3

You missed my point.
The reason why nearly everyone fails at trading is because there is NO WAY to INSURE that your profits will add up to more tahn your losses because there is NO WAY to KNOW how much profit there will be in the trade.

4

The market does what he does you cannot control it but you can predict it for an extent. IMO it’s a game of probability. If you can find a method to give you consistant returns you can make it in forex.

5

There’s no way to ensure a lot of things in life, there is risk everywhere. If you buy a 10 year treasury bond today and inflation goes on a wild ride, you’re also going to have some pretty serious problems :slight_smile:

6

Basically you can only [B]know your risk[/B] so you can only handle the risk…risk management.

There a few strategies but I think the idea is to keep moving your stop up closer to your entry as is allowed by price action. You may get a few more losses, break evens, or small profits, but like you said “some of them go on to bigger profit” which could more than make up for that. Do you know on average how many of those trades go on to bigger profit, and how much the bigger profit can be?

As they say, manage the risk and the profits will come as long as you don’t put a cap on the profit potential. Trail your stop, scale out, etc to let the potential for a profit run.

:slight_smile:

7

20 pip TP? :smiley:

8

OK, I am not going to give you any ideas!!
I am an experienced trader and I am going straight to the point to tell you the truth!! :slight_smile:
Have a look at my post count.
Take note of how long I have been on this forum.
How many threads have I not started and trading systems that I have developed.
I have seen stacks of people come a go on this forum.
Many start out eager just like you - a few months later their money is gone, and so are they.

I am still here!! :slight_smile:
[B]If you take my cousel now, you will survive.[/B]
If you reject what I tell you, you do so at your own peril and you will be another loser on the scrap heap.

[B]So lets see what your problem is…[/B] :eek:

You never know how much profit the trade will give you.

Being that you can never know how much the trade has in it, on many of my trades I wanted to take the profits before they disappeared, so on many trades I took 3 pips profit, 5 pips profit, and 10 pips profit.

Sooner or later, this will happen and all of those small profits will be given back by being stopped out a few times.

The quotes above are the essense of your problem.

So, my question is this:

How, exactly, do you handle this problem?

[B]Here is the answer…[/B]

There are 3 main aspects to trading…

  1. Trading system.
  2. psychology.
  3. money management.

Your problem above is one of psychology and money management woven in.

Good trading psychology says - let your winners run and cut your losses short.

This is the [U]exact opposite[/U] of what you have been doing.
Out of fear (bad psychology), you have cut your winners short and so your stop loss has eaten your profits!!

You [U]must [/U]let your profits run - if you [U]do not do this[/U], you are doomed to failure!!
[B]Letting your profits run and cutting losses short is [U]the [/U]secret to trading success!![/B]

So here is how you do it - and get correct money management thrown in (because your money management is poor).

[B]Read the following hyperlink - and learn it well.
Then use this strategy - you will overcome your fear!!
Do it and you will survive - reject it and you will become a forex statistic!![/B]

http://forums.babypips.com/analyst-arena/12562-using-multiple-lot-positions-improve-trading-fx.html

9

Your trade frequency may be a tad bit high. Do not be in a hurry to get into a trade.

10

I read the link but do not see any charts. I could not post a reply in that thread.

11

This forex is a battle of wills. Scared money loses EVERY TIME. You are trading with your tail between your legs cutting out before the trade even covers your 1R risk. Meanwhile the pros are holding out for 40,50,60+ pips and maybe even buying out your contracts when you get scared to maxmize their profit.

Don’t kid yourself, the market won’t pay you a dime unless you wrangle it down to the ground and make it pay you. And that takes guts and wits. There’s lots of wits on this forum, in this thread, but the GUTS gotta come from you!