Why do traders fail?
There is a long list of reasons for trading failure that can probably go on forever. I can’t
go over all of them, but I will talk about the main reasons people fail at trading as well as a few ways to avoid failure.
There is no point in having rules if you are going to break them. If you’re breaking your rules you’re basically playing a high risk gambling game and you might as well lose your money at a local casino!
Once you have this first rule down, you have achieved a major victory. Congratulate yourself! But don’t think you know everything just yet. There are quite a few more big errors that a trader can make that can be just as disastrous as ignoring your rules. Here are some of the major problems traders are faced with:
1) Having No Plan:
It is a known fact that most new traders don’t create a plan for
making trades. If you don’t write down you’re plan, which includes your rules and trading
strategy, how are you supposed to stick to that plan? When your emotions start going out of
control during a trade, you need a written plan that you can go back to. Without a plan you will
most likely end up like the other 95% of traders that never make it.
Having a plan is very important, but first you have to know what information goes into
your plan. The following are very good pieces of information to include when forming your
trading plan:
What time of day are you going to trade? (What session?)
When are you going to quit trading for the day? (After x amount of losers,
after a specific time of the day, after x amount of winners/profit?)
What is your trading strategy?
Money Management (How much are you willing to risk per trade)
That’s it! Keep it as simple as possible; if you make it to complicated it will be too hard
to follow. Make it short and sweet!
2) Emotions:
Most of the time when I lost money this was one of the biggest culprits.
If I had a single losing trade I would suddenly lose sight of my plan and let my emotions take
over which often led to bad decisions and more bad trades.
Traders all have two modes that we go into while trading: Reactive and Responsive. When I have a losing trade, I go into the reactive mode. While in the reactive mode you lose your perspective and you have difficulty controlling your actions and decisions. You don’t think before you act! If you’re like me, you have to walk away from the computer when you go into reactive mode. For example, when I get a loser now, instead of forcing trades, I make myself take a ten minute jog before coming back to the computer. If I don’t get away from my trades while my emotions are taking over, I will blow my account!
When trading you always want to be in the responsive mode. When in this mode your
mind is relaxed and you can look at the bigger picture. This isn’t just for trading, but for
everything in life. If you start feeling yourself going into the reactive mode start taking charge. Stop yourself! All you have to say is “I’m doing it again, I gotta stop that!” Once you realize that you’re in reactive mode it’s much easier to get out of that state of mind. You just have to acknowledge it.
To avoid letting your emotions ruin your trades, trade like a robot! You can’t let
emotions control you. If you have several winners in a row and you get cocky, the next trade
that you throw 50% of your account balance into will probably lose, because you were trading
based on your winning streak optimism and not your plan. And if you lose 50% of your account
because of a stupid trade, no doubt you will get angry and depressed and quickly slip into the
reactive mode. You might try to make up for your 50% loss by putting your remaining balance
into the next random trade at that point, and I can tell you that you will lose this last trade
almost every time. I can safely make that assumption because I lost money on trades like that
ten times! I never did win that last trade :). Just tell yourself that you will never be 100%
accurate, you simply have to accept your losses and move on. Once you can accept minor set-
backs you will be well on your way to achieving the freedom you’ve been looking for.
3) Over Trading:
When I first began trading I was in the get-rich-quick mode. I wantedto turn my $100 into thousands within the first week. I was placing over 30 trades a day, and was consistently blowing my account on a daily basis. One day I sat down and did the math. If I could trade 3/3 each day making $1,000 trades, that would be $2,400 a day. Everything completely changes when you start looking at trading like that. There is no reason to makethirty trades a day. The key to success is consistency! Take the perfect looking setups and tradea maximum of five times a day. Instead of trading with 59% accuracy trading thirty plus times a day, trade with 75% accuracy with as few as five trades da y. You will make just as much money, and log in less screen time. When you over-trade you have a lot more risk of losing because the market isn’t perfect. The more trades you place, the more chances you have to lose. If the setup isn’t perfect, stay out!!
I overcame the compulsion to over-trade when I made a checklist to use as a trading
guideline. Before I made my checklist, I would take any decent looking trade. With binaries
you can’t take “decent” looking trades. You want to take the trades that are going to win! By
making a checklist you HAVE to wait for those perfect looking trades. I printed out notecards
with a list of my strategies. If I can’t check each box on my list, I won’t take the trade. I can’t
believe how fast the cash started adding up once I created and utilized a checklist. If you have aproblem over-trading, I would highly recommend creating your own personal list to help keep trades on track!
4) Making it Complicated
I think it’s impossible not to run into this problem at some point. When we all first start it seems like trading has to be harder than it really is. There’s no way that it could be simple, right? We all go on a search for the holy grail of successful trading,
adding ten indicators at a time on our chart and trying out every different type of strategy just because someone else is making money off of it. We think to ourselves, “If they’re making money with that strategy, then it will make me money too!” even though that may not be the case.
The biggest lesson I learned in trading is K.I.S.S. Keep It Simple Stupid! Figure out what works for you, and keep it simple. You often have to make trading decisions in split seconds, so why would you have ten different signals conflicting with each other while you’re trying to make your trade?
Remember: K.I.S.S!!!
5) Lacking Patience:
This is the killer of binary traders. Having patience and discipline is
the key to trading. If you don’t already have these skills, you must make the effort to master
them. If you don’t, you will inevitably make one mistake after another while trading. It took
me TWO years to master patience and discipline. Perfecting the ability to follow your rules
instead of making impulsive decisions based purely on your adrenaline rush is a lot harder than
it sounds, but it is necessary for successful trading.
I can’t stress this point enough, because when I started trading it was one of the biggest
factors in my constant money losses. I would often get into a trade knowing full well before I
made the trade that it was most likely going to lose. Why would I take a trade if I thought it
was going to lose? I still can’t answer that question, but I have a pretty good suspicion that I
just liked that trading adrenaline rush. In the end you have to ask yourself, “Is an adrenaline
rush worth losing my hard earned money?” Remember to be patient and disciplined. Without
these two key components.
Checklist
- Taking a five minute trade off the one hour chart
- Forgetting to check the news
- Forgetting to change the expiry time before entering the trade
- Forgetting to change the Investment amount before hitting buy/sell
- Poor Money/Risk Management - taking big trades on tiny accounts
- Poor Money/Risk Management - Stacking trades especially on small accounts
- Chasing Lost trades
- Treating trading as gambling
- DO NOT CLOSE YOUR EYES AND HOPE FOR THE BEST -
- Do not trade out of emotions
- Keep trade size each session consistent- so if trading with 10.00 do that whole session don't jump around