Many traders including beginners and experienced gurus faced an issue of ‘standing around zero’ or even continuously trading with losses. Every single phenomenon has its own hidden and obvious reasons. Losses have their own reasons as well. This article is dedicated to key things preventing traders from profitability and how to find them, based on multiple years of practice in trading.
One million starting from $10, or stop dreaming.
This part is written especially for beginners who decided to take ten bucks and turn a dream into reality, making easy millions. You must be kidding me!
Usually, these guys are coming from a category of people who have read dozens of success stories of super-traders in the late 90s. They dream about doing nothing, invest a minimal amount and take out of the market a couple of hundred thousand bucks, clicking a magical “CASH” button. They’re traditionally divided into two different groups: those who leave the markets, wasting all of their money, and those who stay and start using their brains.
Dear friends, easy money does not exist in this world, OK? Especially in the markets. Any exchange trading is a perfect tool to take money away from weak people, giving it to strong ones. And if you really want to survive and make profits - then you must put large enough efforts and time to learn the markets and gain enough experience.
Of course, if you asked an experienced trader about how hard is it for him to make money now, you would have 80-90% chances for an answer like ‘easy enough, anyone can do that’. But the same person would give a completely different answer to the question about how hard was the path to this easy income, indicating such things as ‘a bunch of own mistakes which you start realizing only after a huge loss happened’, ‘years of gaining the experience’ and so on.
In addition to all that, it’s worth mentioning that the vast majority of people lose their accounts because of using the leverage. “Why wouldn’t I use all of my $100 as I see moving averages crossed each other!”
Be reasonable. Surely, there are examples of launching a rocket from minimal investments, but that’s impossible to be done in a fast and stable manner. You’ll get lucky once, twice, and then you’ll just waste all of your money at some point. Trading is very hard work and a long time which is needed for even an experienced trader, without mentioning newbies.
Remember, that if you want to get something you need to give something before and instead. That’s the market. It’s very cruel to any mistakes which are made by ALL traders. Hoping for luck - it’s better to gamble in roulette.
Misconceptions in the basics of the market.
Let’s start with the first and probably the main reason for losses, especially for beginners.
Do you remember the way you’ve got into the market? Through advertisement, most probably. ‘Click that button and get cash flow in your pocket’, that’s quite simple. Buy and sell… There are lots of slogans out there but the meaning is always the same: everything is so simple in the markets. That's exactly the first misleading. Most people don’t even think that before starting trading on any exchange they need to learn the matter of it, how it works, what functions does it make and what the source of your potential income. Unfortunately, traders-beginners thank that they make money out of the air. That does not work that way though.
“If you want to ride a bicycle then you should get to know how it’s structured, where are the pedals, how to turn and how to break initially. But not vice a verca.”
The market rules are the same. If you did not figure out the basics, if you still have questions about limit-orders, deal executions - you’re definitely far away from starting trading yet. We live in a century of information and there are tons of knowledge about trading basics available. You shouldn’t go far - every brokerage website contains data and documentation about how all of that works. But why would you read all of that? You need to make money!...
That’s how we live - don’t know how and what but it’s ok like that.
Friends, you should not underestimate self-education in the trading sphere. You risk your own (or even someone’s) money. Students learn how to trade during the 5-6 years in the United States and Europe before getting access to the markets. Just think and answer for yourself - how much do you know about the markets? Learn and everything will get much easier! Those who own actual information will always be successful.
Greediness, or how to take the profit.
Another reason for ‘staying around zero’ or having losses is greediness which is traditionally inherent to traders with some experience.
Let’s have a look at a standard situation: A position has been opened, it started to go in the right direction, there is some profit seen on the screen. In the best case, a trader would put the position into the non-risk mode, avoiding any loss. The worst scenario suggests that a trader would dive into the ocean of fantasies and emotions: “if the market goes there I should take a maximum, what if I caught the trend reversal - I’ll double-up the account balance right now!” Well, you know what that means.
Such methods do not work though. Yes, a non-risk mode often rescues traders but that’s temporary. That’s going to just postpone further losses. In such cases, traders should write down not only the entry algorithm they used but also the exact algorithm of exiting the position. And it has to be established for any trading system. A trader can take the profit in time, following clear rules of the algorithm. Traders have to be as cool as possible, taking the profit according to their trading strategy.
As an example, a trader has two possible options for exiting the current position if it’s profitable. And both these options are literally written down. The exit must be performed in certain market phase. All of those rules are must-have for any trader.
We should clearly divide definitions of ‘trader’ and ‘gambler’. There should not be any excitement in the markets. Trading is the same routine and hard work as an accountant, manager or anyone else. Only clear execution of rules and algorithm allows achieving some results.
The conclusion is to find a statistically optimal exit point for yourself and follow it. For example, you could use a certain number of pips depending on an asset you trade on, and always set take-profit orders for the same distance. All of that could be done by checking your algorithm on historical market data. This will allow you to take profit in time and you would not regret closing a position earlier while the price went in the right direction without you. You cannot take all of the possible profits!
Lack of knowledge and experience.
This traders category includes people who have already read a couple of free books, possibly graduated a couple of cheap courses, having a bit of experience in trading. Their trading strategies are traditionally based on Gann funnels, Fibonacci Retracement levels with the addition of a mix of several technical indicators. The trading terminal looks as pretty as possible with lots of lines and drawings. The main feature is a complete denial of any other trading strategy and a wish to avoid thinking about logic. SUch traders rely exclusively on indicators, trying to make ‘just a picture’ out of the market and describe the market with one single pattern (the same ‘CASH’ magic button). It’s usually hard to convince such people that the market intimates different points of view. As usually happens after a couple of course where some trading strategies were learned, traders get their mind full of bullshit, stating that there’s no alternative view, that’s impossible to work another way. Additional fuel is always added to the fire, that large market players work exactly the same way (by the way, that’s a separate caste of believers). That’s it - a perfect loser is ready. He manages to make some money in a short period, relying on that rainbow of indicators until the market changes its trading conditions. Then huge losses start to come.
It’s possible to trade just on indicators but it’s not recommended as the price is the only primary element. Anyway, that has to be done in a cautious way. You need to understand the nature of the market structure in order to realize what you do but not just look at uncertain crosses. You need to keep in mind how the price action is built and what’s the current market phase. If you were able to think like a speculator, you would not need any indicator at all soon. None of the indicators will show you a perfect entry point. The vast majority of experienced traders use a clean chart of the price without any indicators for years - that’s enough to understand what would be the next direction of deals including ideal price ranges to trade in. Yes, that could be easily identified without any Fibo levels, nets and so on. It’s impossible to predict the market. But you can understand its structure, orders execution, the logic of other market players, news impact and many other factors. That’s where you can get advantage from - logic and understanding.
Brainwork - that’s what differs smart human from a monkey. A monkey could be taught how to trade using technical indicators. But it’s impossible to teach it to think logically, setting causation. A human can! Thinking is required.
Lack of verified actions algorithm.
As it’s already written in the section number three, many traders lack an actions algorithm. It should not be muddled with a trading strategy. They exist separately. Every trader needs to have an exact algorithm for every single action which you plan to make. It has to be written as detailed as possible, starting from the work schedule, opening the trading terminal, reading the news and so on. If a trader has such an algorithm in front of him during the trading process, any detail would not be missed. After some time, a person gets a habit to do all those steps in the correct sequence, then such an algorithm is not needed any more. The main stuff is the ability to execute it.
One of the most frequent questions is related to guarantees of making money after the learning process. The answer is always the same - once you’ll be able to execute your own rules and your own algorithm (and it’s different for everyone) then you’ll start making money. If you’re a slob and you can’t follow your own rules then nothing intelligible happens. It’s like traffic rules - you can violate as many times as you wish but that’s going to end up with an accident sooner or later. The trading has the same approach - if you’re able to turn on a robot in yourself, thinking and acting according to the algorithm, then you’ll make money.
Actually, that’s one of the key features of a trader. A trading strategy could be checked on historical data thanks to the algorithm, while that will give confidence in further work, calming nerves and emotions down, which are excessive in trading. A self-confident trader might get into a series of losses and that will not kick him out of the saddle as he knows that next deals will cover the losses and bring more profits. Such knowledge is available for those who have checked the actions algorithm and stuck do it precisely.
The key idea is not to be lazy and write down the algorithm on a piece of paper, describing every single detail and trade using it exactly without any exceptions. Any exception causes the algorithm’s malfunction.
Psychological issues, or how to console yourself.
And last but not least, the category of moaners. That’s a traders’ caste who scream that they have psychological problems and they're afraid to open a deal, that they’re unconfident in the trading strategy and lots of other reasons. First, it’s not psychology, it’s just emotions. If that was a psychological issue then you would rather visit a doctor and start curing the illness. Second, neurotics will struggle in the markets. Maybe it’s not the best place for them at all. A trader has to be calm like a boa. Always. Even under the water.
There are no psychological problems in the market. Yes, emotions persist. They could be seen on the price action as well. There are worries, panic, logic, a bit of mathematics, economics… But not psychology. If you are looking for a way to avoid emotional impact, you should read the previous chapter carefully. The algorithm is everything for you. Take care of your nerves and trade deliberately!