Sorry guys! I am behind schedule by a month due to some difficulties while logging into the DFC. No worries, we will just move forward with a month lag but as per the plan.
A report shows that only about 5-10% of the retail traders make money in leveraged financial instruments may it be Stocks, commodity futures or Forex and others donate their money to the professional traders. But why most of the traders lose? What makes them think trading is gambling and consider it's waste of time trading. When we analyze the traders’ performance in Dukascopy Trader contest we see around 150 traders in positive balance and around 250 traders don’t trade and over 700 traders blow up their account.
We know financial instruments are zero sum game. Where there is a winner, there is a loser some where else. Market is same for all. Everyone gets the same chart, same price streams, and same news at the same time. Then too why most people end up losing in the market.
Some of the reasons for most of the traders lose money in trading
High expectation: Newbie traders enter the market due to the leverage available in Forex market and ability to hold long and short position with ease. They will have shown a hypothetical returns based on excel sheets talking only about the gross profit people would have, but hiding the loss making trades.
Undercapitalization: In an expectation of high returns people don’t fund enough to their trading account and over leverage the position leading to margin calls at a later time. And keep funding their account every month in a hope to recover the loss. Because the disclaimer says; “don’t invest more than the amount you can lose” they keep funding the small accounts, only to lose everything.
Loving their emotion: A lot of people trade with emotion. If they feel the market goes up they long and vice versa without understanding why the market should go up or correct. If they see few upticks they to want to go with the wind and buy and then market reverses and lose.
Adamant bull or bear: Traders who make money in a down trend market in their initial days mostly end up shorting the pairs and never buy or long the positions. They keep selling at what ever the price they get and then blow up eventually. The same happens with those who participated in rallies blow up entire money in the bear market.
Ignorance towards the happening: This is the most common mistake people do. Most of the times people are ignorant about the fundamental news and they fail to understand the impact of the news on market. Market is highly sensitive to news. It acts and trends on the outcome of the news, but an ignorant trader end up trading on the wrong side of the market either trying to catch the bottoms or tops.
Poor education: With no proper training programs for retailers to get education on markets on both fundamental news as well as technical chart interpretation, most of the traders are not educated to handle the market volatility. The only way for them to learn is at their own cost and mistakes. Of late, there are a lot of institutes and individuals offer training but mostly off market.
Indiscipline: This factor occurs due to Fear, Greed and hope. A trader may have a great plan of entry, exit strategy but when he sees his position in loss he doesn’t wait till the stop loss hit assuming that it will eventually hit and in order not to lose more, closing the position too early. like wise, When in profit even though his take profit level is hit due to greediness he continues to hold the position in the expectation of more profit and when market rebounds he fails to close which will ultimately end up losing the profit and also booking loss.
Impatience: Some traders have a habit of opening a position the moment they login to the platform. They don’t wait their trading setup to complete but what ever they see on the platform they open the position they feel like. They always want to be active and having a position opened in their platform else they feel frustrated.
Depending on tipsters: Once a trader understands that he can’t make money on his own analysis, his immediate aim will be to recover the loss he made in the market and starts depending on the tipsters or trading signal providers. If there are 2 or 3 continuous signals end up in loss a trader does not trade the next signal thinking that it may also lose money but it would have made a lot of money to him.
Choosing bad brokers: It is as important as trading. Opening an account just because a broker gives some bonus for funding account is the biggest mistake by most people. The said broker may have bad execution, charge abnormally high spreads, bad platforms and charts may put a trader on disadvantage compared to other traders. Knowing the regulator with whom the broker is registered is important and opening an account with unregulated broker is the risker than trading as there is no guarantee of the money with unregulated broker
Let me tell a story now...
There was a painter in a city and was considered as the best painter and he was proud of him self. Then a saint enters the city and painter meets him and proudly presents his paintings and says he is the best painter. The saint decides to teach him a lesson and asks him to place his painting in a major circle and ask people to identify the mistakes done by him. The painter does the same and by the evening he sees hundreds of comments for his painting. Painter feels sad and approaches the saint, who then advise him to ask people about what they liked in his painting with people but even after 3 days the painter doesn't get a comment. Then the saint says, "It is always easy to identify the mistakes of others but not the good qualities". Saint being an adviser to people, shows both good and bad for them. Likewise, I not only identify the mistakes but also try to explain what measures a trader should take to be successful. Watch for my next article on the "Qualities of a successful trader"
BOTTOM LINE: As Thomas A Edison quotes: "Many of life's failures are experienced by people who did not realize how close they were to success when they gave up" people struggle hard and when they have learnt most of the things about the market they give up trading there by wasting their valuable time in learning the secrets of trading.
As always, looking forward to your valuable comments which will certainly help me improve my presentation. Thanks for your time.