Traders Go Bankrupt
by Mark McRae of SureFire-Forex-Trading.com
I was thinking about an article I read some time ago that
90% of traders who ever trade lose their account and that
10% actually go bankrupt. If the first number doesn't scare
you then the second definitely should.
Why is it then that there is such a large number of traders
failing? It is not because they are stupid; in fact most
traders have an above average IQ and are above average in
most categories such as education and income. So why do
Lack of trading education!
By education I don't just mean learning how RSI works or
drawing lines on a chart. I mean thoroughly educating yourself
in all aspects of your chosen profession. Educating yourself
on the correct psychological approach to the market! Educating
yourself in the correct risk management techniques relative
to your account size. Educating yourself in the correct
entry and exit methods for the trading style that suits
This, my friend, is where I hope to be of some help. I
don't have all the answers nor do I profess to be some kind
of guru but I will do my best to point you in the right
Common Misconceptions Of New Traders
- They think they can trade consistently with an 80% accuracy.
- They think they can turn $1000 into $100,000 in six
- They think they can predict turning points in their
markets to within minutes.
- They think they can buy a system that is 100% accurate.
- They think they will quit their jobs and make a living
time after a few months of trading.
What's the reason that so many new traders believe that
trading is an easy way to make big profits? Propaganda!
We are continually bombarded in magazines, emails and the
general media with claims of making astronomical amounts,
just by applying the vendor's latest method or system.
Don't get me wrong, there is good stuff out there but the
vast majority is not worth the price you pay. At www.surefire-forex-trading.com
I also recommend products but I have at least read the ebooks
or courses and think they have some value to my subscribers
and they all have a refund guarantee.
Fundamentals Of Trading
Trading is not an exact science. You can't do X and get
Y every time. It is as much an art as it is anything else.
There is no magic formula. Trading is all about probability.
It is the art of correctly applying a set of carefully thought
out rules and allocating the probability of that event to
result in success.
Each trade is an independent event. The market does not
remember if you lost or made dollars the last time you traded.
The way you approach the market psychologically has as
much to do with your success as any trading plan.
Risk management is crucial if you want to have any hope
of becoming a successful trader.
Matching a method of trading with your personality is the
only way you will ever feel comfortable in the markets.
An adequately funded account is necessary - not only to
be able to take the trades you want, but also so you don't
feel every trade is a live or die situation.
The journey to the road of successful trading will make
you confront your deepest fears. Your armor on this journey
will be confidence, knowledge and belief in yourself that
you can achieve your dreams.
Never, equate your success or failure in the markets with
who you are as a person!
The Flaw In Our Emotions
As humans we have a natural tendency to try and influence
our surroundings and events we take part in. This is one
reason we, as a species, have succeeded but it is also one
of the fundamental flaws we all have when trying to achieve
success as a traders.
As traders we have to realize we have no control over the
market and if we accept that then we have to accept that
we can not influence the direction of the market.
The problem of course is we have a tendency to try and
succeed and when inevitable losses come, it is easy to let
those losses effect us emotionally. Becoming euphoric when
you hit a winning streak is almost as detrimental as becoming
depressed when you have a string of losses.
We as traders have to try and achieve the state of impartiality.
We have to accept that we will have losses as readily as
we will have wins. Reaching the stage where you can comfortably
accept loss in the knowledge that your method of trading
will produce profits in the longer term is the state we
have to aspire to.
Whenever I think of risk management I always think of an
article I read on 925 CTA programs between 1974-1995. It
essentially confirmed what I have long held to be true.
To summarize the report, of all the CTA's who managed funds,
the most consistently profitable were the ones with the
best risk management systems.
To trade successfully you have to take a long look at yourself.
Ask and answer the following questions.
How much equity do I need to start? How much should I risk
on any one trade? Am I undercapitalized?
Entry And Exit
As a trader you will probably fall into two main categories,
traders who like to trade the breakout and traders who like
to join the trend once established. We could also add congestion
traders, reversal type traders and mechanical signal traders
but for the vast majority of traders you are going to fall
into one of the two categories.
If you are a trend trader, you like to define a trend and
then find a way in. This may be with the aid of fibonacci
retracement levels, moving averages, Gann or one of the
other many indicators available today. Your goal is to enter
the trend as early as possible with the least amount of
Breakout traders like to enter the market on the breakout
of a previously identified range. This may be support/resistance
areas, rectangles, triangles or one of the many other chart
patterns. The secret to this type of trading is to determine
a valid break.
In future lessons we shall begin to look at the more technical
side of trading and how you can apply technical analysis
to the markets to increase your probability of success.
During this lesson I have tried to give you a glimpse into
the world of trading. I have also taken a slightly negative
stance, as I don't want you to get unrealistic expectations
of what to expect.
On the more positive side, trading is a fascinating world,
which will allow you to really exercise your brain. There
is no other arena where you get to play with some of the
best minds in the world on a level playing field.
Once mastered, if you can ever use that term then the possibilities
are endless. Hopefully I can help you achieve your goals.
Mark McRae, author of the Sure-Fire Forex Trading e-book,
a no BS method of getting in and out of the FX market with
the minimum risk and the maximum gain.