Small Forex traders are mostly gamblers trying to fade the longer term trend and pick tops and bottoms and are therefore almost always wrong.
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.
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%
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, “[B]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.[/B]”
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
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.
The 95% sit there [B][I]passive[/I][/B] like a rabbit in front of a snake so to speak and watch the market prove them wrong…pip by pip…by pip…by pip. Over and over and over again.
The 5% don’t do that. They are [B][I]active[/I][/B] and [B][I]not passive[/I][/B].
Speak to any one of the 5% group and ask them what their biggest trading accomplishments are.
They are not going to tell ya about their big wins…they tell ya about how they actively got out of positions that reversed against them [B][I]before[/I][/B] they turned into a major loss.
Averting disaster so to speak and actively protected themselves.
In my experience…any trader that brags about his/her wins and hides his/her losses needs to be taken with a grain of salt so to speak.
The “correct education” is “drowned out”. The “correct education” has nothing to do with charts, systems, indicators, money management, discipline, patience, etc… There is too much at stake to allow the “correct education” to be freely and widely disseminated. Most attempts are thwarted. Study Nassim Nicholas Taleb to understand what I am talking about.
Because all Forex brokers have dealers, and dealers trade against traders (forex broker clients). Just when the traders start making good profit the dealers have the systems to cut off the traders profits, and therefore no traders ever get away with big profits.
Saying the ‘market is always right’ is a little like saying ‘the weather is always right.’ It’s up to the individual trader to observe the conditions of the market before jumping in. If it’s cold outside, wear layers. No trader has the power to influence the market anymore than we can change the weather. We can however, through risk management, and yes, behavior modification, create personal environmental controls that keep us alive and comfortable.
