The Problem of Trying to Outwit Your Trading Plan

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Three Reasons Why Most Traders Fail

Three Reasons Why Most Traders Fail

Hello traders, I’m back with another educational post after receiving a lot of positive feedback. Today I’m going to break down three reasons why most traders fail!

Yes most do, it is believed over 90% of new traders fail (this is an ongoing debate) but why is that? I personally believe it comes down to these three reasons.

1. Trading without a plan

The very first step in achieving success is to create and follow a trading plan , one that is specific to your personality, lifestyle and goals.

Many new traders try to rush the process and simply do not plan for success.

“If you fail to plan, you are planning to fail”. – Benjamin Franklin

A successful trader works within a well-structured plan, just like a business. Every plan should include trading related goals, a trading strategy and risk management rules.

You need to be extremely disciplined when trading and follow your trading plan down to a T.

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2. Emotionally Dictated Trading

As you may know 90% of trading is purely psychological and I firmly believe this is the main reason why so many traders fail.

Allowing adrenaline, fear, elation or greed to compromise their analytical ability .

Traders who make emotional based decisions show indecisiveness, close positions too early and do not follow their trading plan . *FACE PALM*

Experiencing a consecutive series of losing positions will test your patience and confidence.

Many traders will never overcome their inherent emotional biases, therefor you should seek to understand the range of emotions you may experience as an investor and how it affects your interactions within the market.

You can learn what emotions you may face by checking out my idea “The 14 Stages of Investor Emotions”.

3. Over Sizing Positions

Traders should put as much focus on risk and money management as they do on developing strategy.

Over sizing positions is nothing new, I see it all of the time with new and amateur traders. They cannot help themselves and want to trade big, they want the lottery win!

As you all know seeking out a lottery win in the forex market ends in disaster, accounts end up blown and dreams shattered. At this point many individuals give up and decide trading isn’t for them or it doesn’t work.

The most effective way to deal with this problem is to lower the leverage and risk a maximum of 2% per trade.

I am available via private message for any questions you may have.

Reasons Why Forex Traders Lose Money

Michael Grabois/Getty Images

A commonly known fact is that most forex traders fail. In fact, it is estimated that 96 percent of forex traders lose money and end up quitting. The forex website DailyFX found that many forex traders do better than that, but new traders still have a tough timing gaining ground in this market. To help you make it into that elusive 4 percent of winning traders, the following list shows you some of the most common reasons why forex traders lose money.

Befriending the Market

The market is not something you beat, but something you understand and join when a trend is defined. At the same time, the market is something that can shake you out if you are trying to get too much from it with too little capital. Having the “beating the market” mindset often causes traders to trade too aggressively or go against trends, which is a sure recipe for disaster.

Low Start-Up Capital

Most currency traders start out looking for a way to get out of debt or to make easy money. It is common for forex marketers to encourage you to trade large lot sizes and trade using high leverage to generate large returns on a small amount of initial capital.

You must have some money to make some money, and it is possible for you to generate outstanding returns on limited capital in the short term. However, with only a small amount of capital and outsized risk because of too-high leverage, you will find yourself being emotional with each swing of the market’s ups and downs and jumping in and out and the worst times possible.

You can resolve this issue by never trading with a too-small amount of capital. This is a difficult problem to get around for someone that wants to start trading on a shoestring. $1,000 is a reasonable amount to start off with if you trade very small (micro lots or smaller). Otherwise, you are just setting yourself up for potential disaster.

Failure to Manage Risk

Risk management is key to survival as a forex trader as in life. You can be a very skilled trader and still be wiped out by poor risk management. Your number one job is not to make a profit, but rather to protect what you have. As your capital gets depleted, your ability to make a profit is lost.

To counteract this threat and implement good risk management, place stop-loss orders and move them once you have a reasonable profit. Use lot sizes that are reasonable compared to your account capital. Most of all, if a trade no longer makes sense, get out of it.

Giving in to Greed

Some traders feel that they need to squeeze every last pip out of a move in the market. There is money to be made in the forex markets every day. Trying to grab every last pip before a currency pair turns can cause you to hold positions too long and set you up to lose the profitable trade that you are trading.

The solution seems obvious here, just don’t be greedy. It’s fine to shoot for a reasonable profit but there are plenty of pips to go around. Currencies continue to move every day so there is no need to get that last pip; the next opportunity is right around the corner.

Indecisive Trading

Sometimes you might find yourself suffering from trading remorse. This happens when a trade that you open isn’t immediately profitable and you start saying to yourself that you picked the wrong direction. Then you close your trade and reverse it, only to see the market go back in the initial direction that you chose.

In this case, you need to pick a direction and stick with it. All that switching back and forth will just make you continually lose little bits of your account at a time until your investing capital is depleted.

Trying to Pick Tops or Bottoms

Many new traders try to pick turning points in currency pairs. They will place a trade on a pair, and as it keeps going in the wrong direction, they continue to add to their position being sure that it is about to turn around this time. If you trade this way, in the end, you end up with much more exposure than you planned, along with a terribly negative trade.

It’s best to trade with the trend. It’s not worth the bragging rights to know that you picked one bottom correctly out of 10 attempts. If you think the trend is going to change, and you want to take a trade in the new possible direction, wait for a confirmation on the trend change.

If you want to pick up a position at the bottom, pick up the bottom in an uptrend, not in a downtrend. If you want to open a position at the top, pick a top when the market’s making a corrective move higher, not an uptrend that’s part of a larger a downtrend.

Refusing to Be Wrong

Some trades just don’t work out. It is human nature to want to be right, but sometimes you just aren’t. As a trader, you just have to accept that you’re wrong sometimes and move on, instead of clinging to the idea of being right and ending up with a zero-balance trading account.

It is a difficult thing to do, but sometimes you just have to admit that you made a mistake. Either you entered the trade for the wrong reasons, or it just didn’t work out the way you planned it. Either way, the best thing to do is just admit the mistake, dump the trade, and move on to the next opportunity.

Buying a System

There are many so-called forex trading systems for sale on the internet. Some traders are out there looking for the ever-elusive 100-percent accurate forex trading system. They keep buying systems and trying them until finally giving up, deciding that there is no way to win.

As a new trader, you must accept that there is no such thing as a free lunch. Winning at forex trading takes work just like anything else. You can find success by building your own method, strategy, and system instead of buying worthless systems on the internet from less-than-reputable marketers.

Five Most Dangerous Problems in Forex Trading.

Problem One: Overtrading.

Many retail traders with little capital often exceed the risk limits and open too big orders hoping that they could live by trading. This is sometimes a part of their trading plan actually.

This is what we call overtrading – it is the simplest way to losses and/or burning down your account even amongst the most experienced traders.

Therefore if you eliminate the possibility of overtrading (i.e. by a proper construction of your trading plan) – you will minimize the possibility of experiencing losses. This is applicable throughout your entire career as a trader!

Overtrading has two aspects:

1. Unjustifiable large amount of opening orders.

2. Large number of hours in front of the screen.

As the research show, most of the problems in trading comes from those two reasons. The third reason is opening too large trades compared to the capital trader has got. I will talk about that later on.

Too many hours in front of the screen can weaken you intellectually (so your ability of proper analysis of the market and consciousness gets lowered drastically) and emotionally (when there is nothing going on, there is a pressure to do anything, even if it makes no sense).

High number of entries, especially made by beginners, create highly stressful situations, that result in impairment of concentration and proper analysis.

Overtrading leads to both mental and emotional exhaustion, and the worst case scenario – it leads to a trauma.

The belief that emotions are a main source of problems in trading is a . myth.

The whole thing is the other way around: overtrading causes emotions, and those lead to wrong decisions.

After some time trader is trapped: wrong decisions cause emotions and those cause other wrong decisions. Losses are inevitable then.

Emotions are a consequence of faults in trading, not the reason. If you want to eliminate emotions, eliminate possibilities of overtrading and you will eliminate the reason.

The second myth is a quite common idea that only losses cause bad emotions. That’s not true – emotions caused by high profits are even more dangerous. This is because euphoria blinds us, it makes us feel that we are invincible. The feeling itself is quite pleasant, but it makes us forget about our market analysis (well, we know everything about the market, right?) and we start opening too large positions.

Good decisions are being made when we are fresh and after a good night sleep, and the level of our emotions is low or moderate.


1. The best learning process is steady and systematic development with no grave trauma (heavy losses) or euphoria (big profits).

2. This is possible when you start trading with a micro account – when you encounter real trading situations, but neither profits nor losses cause heavy emotions. So try to keep it balanced: avoid standard lots so both your profits and losses are acceptable.

3. We all love to win, but in order to getting to your steady profits fast you have to stay away from high stakes. and high profits.

4. Winning trades are far more dangerous: they infatuate (so they take away your perception and analytic approach).

5. Separate your trading and your training. When you learn new stuff your mind should be eager and open. High level of stress blocks your ability to learn. Emotions caused by unreal profits (or losses) handicap your capacity of proper analysis.

6. When you are emotional, you cannot stick to your trading plan and you are not disciplined. Therefore lack of discipline is a consequence of grave emotions, not the cause.

7. When you are emotional, you cannot use the advantage your system gives you and this chaos is a straight path to failure.

8. If you noticed those issues in your trading you can do at least those three things:

* Stop trading for some time (a few days minimum),

* Lower your stakes down to a level that does not cause grave emotions,

* Use therapeutic ‘tools’ – relaxation and/or meditation.

The best way is to use all three the same time.

“After a whole day, you just do not know what you are looking at any more, and you make mistakes. It is better to carefully select trades and wait patiently for a trade that you know “has your name on it.” People try to take every trade that comes along because the greatest fear in the market is that of missing a trade. The fear of missing a trade is far more powerful that the fear of losing money. Aspiring traders think that each particular trade might make them wealthy. So they take every trade in case it is “the one,” instead of carefully selecting the trade.

Sitting and trading all day long, or trying to take every trade that comes along is also an almost guaranteed way to failure. I have not met many traders who can sit all day in front of a screen and still remain focused. Those who have studied such things agree that the less you trade the more money you make.”

Joe Ross in “Conversations with Forex Market Masters”

“There is only one signal during off hours – stay out.”

Jimmy Young, trader with over 20 years of experience.

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