10% Of Traders Go Bankrupt
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 are 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 they fail?
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 aspect of your chosen profession. Educating yourself on the correct psychological
approach to the market! Educating yourself in the correct money management techniques relative to your
account size. Educating yourself in the correct entry and exit methods for the trading style that suits you.
This 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 direction.
Common Misconceptions Of New Traders
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They think they can trade consistently with an 80% accuracy.
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They think they can turn $1000 into
$100,000 in six months.
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They think they can predict turning
points in their given market to within minutes.
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They think they can buy a system that
is 100% accurate.
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They think they will quit their jobs
and make a living full time after a few months of trading.
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What's the reason that so many new
traders believe that trading is an easy way to make money? Propaganda!
We are continually bombarded in magazines, emails and the general media of claims of making astronomical
amounts of money by just 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.
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 money the last time you traded.
The way you approach the market
psychologically has as much to do with your success as any trading plan. Money 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, Never equate your success or failure in the markets as to 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 as a species we have succeeded but it is also one of the fundamental flaws we all have when
trying to achieve success as a trader.
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 loses come it is easy to
let those loses effect us emotionally. Becoming euphoric when you hit a winning streak is almost as
detrimental as becoming depressed when you have a string of loses.
We as traders have to try and achieve the state of impartiality. We have to accept that we will have loses 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.
Money Management
Whenever I think of money management I always think of a report conducted on 925 CTA programs between
1974-1995. To summarize the report it essentially confirmed what I have long held to be true. Of all the
CTA's who managed money the most consistently profitable were the ones with the best money management
systems.
To trade successfully you have to take a long look at yourself and ask and answer the following questions.
How much money do I need to start?
How much money should I risk on any one trade?
Am I undercapitalized?
During the course of our lessons we will help you answer these and other questions.
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
trading and mechanical signal traders but for the vast majority of traders you are going to fall into one of
the two categories.
Trend trader likes 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 risk.
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.
Conclusion
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
Good Trading
Best Regards
Mark McRae
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