A frequently repeated statement about trading is the high failure rate which data suggests to be at least 95%. Whether this number is too high or a little lower than the reality, it’s safe to assume achieving success in this industry is challenging, judging by what we see online.
With this realization, it becomes crucial for traders not to have survivorship bias. For every winning trader, there are probably a dozen losing ones. Such a distinction is true in many other fields, prompting a serious study into what separates success from failures.
Part of what makes a truly great trader is accepting the nature of trading for what it truly is. Although forex is the most liquid market, it doesn’t operate in the way most people would like it to be.
Some realizations this article will explore are bitter but are necessary to acknowledge the realities of the game. More importantly, readers will hopefully learn the right mindset to adopt as a solution.
1. There is no holy grail
For someone with no trading experience, realizing there is no magic system, indicator, or strategy with no losses can be challenging to accept. The implications, however, are paramount. Many traders never remain consistently profitable in the long run because of the shiny object syndrome where they hop from one strategy to another.
Humans are wired to take pleasure and avoid pain. Therefore, the thought of a holy grail sounds enticing as it implies trading is simple, and with enough intelligence, it is possible to never lose.
Sadly, there is always an imminent unpredictability factor for every position because of numerous variables at play. Despite the amount of evidence that may suggest a trade is likely to win, it can still go wrong. No single person technically has any control over prices.
Trading is about probabilities and not certainties. A prudent person will use language that is conscious of their prediction is never to lose possibly wrong. Therefore, losses are inevitable even for the most skilled and experienced.
Moreover, the reality is profitable traders might lose at least 50% of the time. Even if we accept no holy grail exists, it’s rare for the average investor to have a 90% winning percentage. So, what’s the solution?
Traders should never ‘bet the farm’ on one position. Profitability isn’t derived from an individual trade but rather over a long series of positions with constantly big wins and small losses.
2. Don’t expect to make money every day
Theoretically, the market will always have a profiting opportunity, but it doesn’t necessarily mean it should be traded every day. Unfortunately, some traders treat trading forex similarly to a typical nine-to-five job.
An employee technically earns for every day they attend work. A stable job provides this benefit of predictable income. Forex trading works in an entirely distinct manner mimicking more of a commission-type endeavor.
Traders aren’t necessarily paid by the hour or day. Their income is somewhat sporadic because no one can really predict when their next trade will come and whether it will be profitable or not.
The main attraction for day trading and scalping is the belief in constant daily profits. This is not to say such traders don’t exist, though only a few can profit consistently because of the challenges.
Many aspire to become so-called full-time traders. Although this goal is achievable, it isn’t necessarily full-time in the way having a nine-to-five is. It also depends on numerous variables, one of which is the size of someone’s account.
A big drawcard with forex is bringing additional income while someone maintains a day job or primary career. This is a much easier and realistic route for the average person and alleviates the pressure of relying on trading alone for consistent gains.
3. It takes money to make money
Ultimately, trading is a business. Although leverage in forex acts similarly to a business loan, it still takes some level of capital to make sizable gains. While the barrier to entry has been lowered drastically, psychological differences exist between a $50 and a $5000 account.
Yet, the issue of capitalization is also two-fold. Most traders still believe they will become profitable only with a larger account. The ability for someone to profit isn’t dependent on the size of their equity but their skill and experience.
A psychological shift is present between a $1000 and a $10 000 account. However, if a trader can 10X a $10 account, they should do it with a bigger balance. The key is to start small and grow consistently from that point.
New investors make the mistake of committing too much without having mastered the skill first. So, money is an important consideration for any serious trader. Though in the same breath, it’s better to begin growing a lower balance into a larger one over time than beginning with the latter too soon without the proper experience and ability.
4. It will probably take several years to achieve mastery
Fundamentally, the concept of buying and selling currencies is a simple one. However, the skill required to know exactly when to buy and sell is akin to obtaining a three-year degree due to the complexities involved.
Trading forex is very much like a career requiring several years of study before someone reaches a point of competence. Hence, patience is one of the key ingredients for any serious person in the industry.
Some things can only be picked up with some years of experience looking at charts, observing patterns, and just having a feel of how markets are moving. Many people struggle or give up altogether due to a lack of knowledge, which really takes time.
Ultimately, it boils down to someone’s commitment and passion. Some prefer to use signals, copy trading, and PAMM for additional income to prevent learning the craft from scratch.
These methods have their pros and cons and are better suited for those who really don’t want to learn the skill of trading. For others who desire to trade on their own, success will not come overnight.
Final word
Proper money management is one of the few factors separating the professionals from the amateurs, and it’s also one of the only real things traders have control over. If one loss becomes substantially larger than normal, it can lead to a blow-up or make the recovery process longer.
When the failure rate appears so high, coming out on top concerns dealing with the realities instead of reinforcing unrealistic expectations.