To some extent it’s quite understandable that 90-95% of traders fail. Let’s for a moment forget how some traders can’t control their emotions, are greedy, don’t keep a journal, don’t set Stop Losses and Take Profits. Lets forget about the fact that most of them don’t spend enough time on a demo account to practice and weave out a strategy for themselves. How else can we see some reason why most of the traders fail?
I have been thinking about this for a very long time and came to the fact that the reason may be not so obvious but also very simple. Let’s take for example, a normal person who wants to probably win the Wimbledon and walkover pros like Novak Djokovic, William Renshaw, Pete Sampras, Roger Federer, etc. These handful of guys, are the pros and the few that make consistent profits in the market. The spectators, the crowd watching are the dreamers who would want to play and win that big prize money. Those large crowd are the newbies and that’s well over 95% of people who can’t win the Wimbledon, not now at least, but after years of hard work and constant training and practice. I hope you get the analogy so far. So like any venture that’s being started fresh from the ground up, it’s most likely the stakeholders are going to fail. This is only natural and something forex traders (especially those coming in with a couple of months/years experience) have to accept. Forex trading is like any other profession. The vast majority who fail at it probably don’t even consider it as such. These people are only gambling, and you know what happens at the casino, 9.8 out of 10 times, you lose your money.
Foreign exchange is like all other traded commodities and I’m not quite sure why people treat it differently. Let’s consider one more thing. We know someone like Warren Buffet as a renowned investor. The word here is investor as wikipedia describes him with. I am not sure investors like him stare all day at screens (“unnecessarily”) day in day out to make money. Their speculation are not based on big monitors filled with charts to study. But how many forex traders follow the economic news of the respective currencies they trade? A large number of traders don’t take time to know what moves the market on the fundamental level. I am not sure there’s any normal person who would trade Google (NASDAQ: GOOG) stocks just by staring at charts. To buy/sell these stocks you only react on news. Google wanting (consumer speculation) to give up on Google+ doesn’t sound like a good thing. If this has a big impact on Google stocks, you’d want to be selling. Same things happens with the foreign exchange market. The economic calendar provides us with a daily list of important event that move the market, and only if most of the traders will observe and understand these news events, I believe that high losing percentage won’t exist or will reduce drastically. This is not to say technical analysis should be cut out.
I find it disheartening that most new traders enter the market with no knowledge of where and how to find fundamental news. And I know some may say people are trading the foreign exchange market and making consistent profit using only technical analysis, while this may be true, I believe strongly that one way or the other they employ fundamental analysis (without) knowing it indirectly. Proof of this thought is found in the plethora of forex expert advisors (EA) littered all over. Those EA’s have no idea what Non-Farm Payroll nor what the the Federal Open Markets Committee is and how they release news and how their minutes affect traded commodities. And that’s why no EA is profitable consistently if some of them are at all profitable in the first place. Trading technicals, which most traders do is like saying it was 10°C thirty years ago today, so today will be 10°C not taking into account climate change (news about it, in this scenario). Trading technicals alone is nothing more than trading with statistical data. Pattern reading without fundamentals is bullshit in my opinion.
Of course this shouldn’t seem like forcing some trading methodology on forex traders. Every individual has their way of thinking and looking at things. This is how I look at the idea of why and how most traders lose. I would like to hear your thoughts on the comments below. If you liked this post please share and do not forget to subscribe to my email list above.