What are the reasons why the vast majority of traders are losing money in 2020? It’s a pretty interesting question and the answers help you to better understand the market and give you a focus on what you should and should not be doing. Here, we’ve provided a summary of the most common mistakes seen within the industry this year.
- Insufficient training to start trading
- Poor approach and lack of perspective
- Emotions interfere with your trading
- Do not limit losses
- Making predictions
- Trading scams
- Lack of persistence
Insufficient Training to Start Trading
More than 70% of the traders who start bankrupt their accounts in the first month. This fact says it all. It’s not that they lose money, it’s that they lose all their money. It is curious as for any other kind of professions as can be a doctor, teacher, dentist We dedicate years and to do trading you turn on your computer, watch some free videos on the Internet and you already think you can make a lot of money in one or two days. ¡ Ou, mama!
This does not mean that you have the need to spend years studying and training until you can start, only that your training takes time and doing things right beyond running and running and burning your account.
Poor Approach and Lack of Perspective
As you well know, there is too much information on the Internet about the study of graphics (chartism) and technical analysis. Lots of copied and pasted information that you start to devour and that many people apply over and over again. This has two consequences:
The vast majority of people lose money because they apply the same thing and this ends up making those patterns not fulfilled in the market. This way or approach to analysis is very subjective and makes you not know if what you’re learning or applying works. What we mean is there’s a lot of people teaching how to trade from twenty-page manuals without opening a real account or without results. There are few barriers to entry in terms of training and most are very theoretical.
All this, coupled with the idea that you can open a $100 trading account and take it in a couple of days at $1000, is a fateful cocktail. Recently someone asked me if I could earn 5 euros a day with 100 euros. We are talking about 5% daily. My answer was “How many days?”. You can earn 5% in one day, but you can’t expect to earn 5% or 1% every day. You know why? Because profitability in such a short term is not up to you. I like to say this because the other person’s reaction is usually to think “Okay, you don’t know, but you can”. After a while, that person usually remembers you. Sometimes the human being needs to be wrong to realize things.
All I can tell you about all this is that you need to see this business objectively and with a real perspective.
Emotions Interfere with Your Trading
It’s normal that you don’t feel the same when your account goes up as when your account goes down. We have emotions and that you feel them is normal. The problem comes when you do the opposite and your emotions interfere with your operations. For example, your adrenaline goes up and you start to raise your exposure and the size of your positions or, worse, you’re losing and you start doing surgeries without a beat. It works something like this, “Wow, I’ve run three operations and they’ve all been positive. From now on I’m going to double my tickets”. Or so, “The last two operations have been negative, abandonment”.
You need to create a methodology that makes you make cold decisions. This I have achieved with algorithmic trading, I focus on creating systems and evaluating them, measuring them. And once they’re running, I just supervise them. In this way you gain x1000 peace of mind and feel relaxed, knowing that you do everything that is in your hand.
Do Not Limit Losses
I’m not just talking stop loss that limits your loss when an operation is against you (of course they have to be applied). I’m talking about having the ability to eliminate strategies that are having a bad performance by others that can work better.
What most traders usually do is apply a single strategy. As you know, every strategy has a winning phase and a losing phase. What is it possible for you to do when you only have one strategy and start losing? Wait, little more. However, if you work with different strategies you can remove from your account those that behave worse and constantly incorporate those that do better. This will not just depend on a system and make your curve more stable.
Limiting losses is a key aspect of survival. Someday, whatever system you’re using will stop working. What are you going to do then?
If you are a trader, you will often be asked something like “what do you think of the price of bitcoin?”. The reality is, no one knows unless you have inside information about it. And it’s not usually common unless a relative of yours is a colleague of Trump’s.
Making predictions in the press or social networks is very cheap. In the case of not fulfilling people usually delete the tweet or forget. But if everything goes as they said, they will say that they were right and that they are experts in it. You should not as a Forex trader depend on this.
You also don’t need to make predictions to make money. You need trading systems with a statistical advantage in your favor. Don’t worry about how to do it, nowadays there are tools that allow you to do it without programming and create your own arsenal. This is what I do myself and I recommend you to do: focus on creating strategies, check that they are robust, apply them and supervise. That’s it.
Yes, unfortunately, there are many online scams related to trading. Unregulated brokers, groups of signals that make up your results, martingale robots that burst your account. You need to know that all this is there and not fall down to know what is best for you. You need to differentiate what is right for you from what is not.
You want profitability or you want to lose everything already? Many people fall into this kind of scam not because they are clumsy, but because they have the illusion of multiplying their money in a few hours and just in case they try. It happens in different sectors, in sports betting, online shops that do not deliver their products, etc. This has been and will be there. The question you have to ask when a broker calls you offering something is whether it is aligned with your interests. This type of broker wins when you lose. Need a partner for your business who would make money if you perform badly? It doesn’t make sense. Just avoid all of it and keep your head clean to focus on what you’re really interested in generating profitability.
Lack of Persistence
Many people are attracted to trade as a way to make quick money. They start, they start with a lot of risks and when a losing streak comes they leave it. They don’t know exactly what the subject is. They seek to make money by doing anything. And they finally end up losing all the money doing a lot of things. All without results.
Like any other business, you’ll need to take some time off and not run off at the first exchange. If you’re not really attracted to trading and just looking for results, you have a lot of ballots to go out the back door.
Change the Chip
It may seem complex, but it’s very easy to avoid all of the above. From not reading biased news or predictions, from being relaxed looking at your screen while watching how the EAs are running. I certainly do not know what will happen to the price of the EUR/USD pair, or EUR/GBP. I am dedicated to creating strategies that have worked based on profitable patterns. I test them and measure their robustness and work with a number high enough not to obsess over the performance of one. I eliminate the ones that don’t work well and incorporate the ones that are working correctly.
It all comes down to working with systems that make you take positions without thinking too much and react by impulses. The only thing we have as traders is the possibility to see how things have gone in the past. We do this through backtesting. Doing reliable backtests and managing your strategies in the present is how I’ve managed to get results, doing all this in a scalable and bearable way.
If you can automate to leave out of control the divergences of doing it manually, but you can start discretionally. The important thing is not to automate by automating, the important thing is to apply strategies that work. This is what is in your hand. At present, the real question is, how can I know what works? The answer is simple, focus on statistics.