Why Do So Many Traders Fail To Make Money?

It is commonly quoted that 90% of all retail traders loose their money. Some believe the number is actually much higher. Most trading educators claim that “poor psychology” is the culprit. I don’t accept that. For a more experienced trader, psychology is an extremely important issue, but for the beginner this approach is putting the cart before the horse.
It is commonly quoted that 90% of all retail traders loose their money. Some believe the number is actually much higher. Most trading educators claim that “poor psychology” is the culprit. I don’t accept that. For a more experienced trader, psychology is an extremely important issue, but for the beginner this approach is putting the cart before the horse.

“Most men make money in their own business and lose it in some other fellows” –Richard Wyckoff

I believe that most beginners fail because they do what all beginners do: they don’t read the section of the manual that shows you how to calculate leverage, they open a small account (probably with less than a thousand dollars) and then proceed to trade with full size lots. Within the space of three or four bad trades they have blown up their account. The beginner walks away head hung low and repeats the process with a different broker. This would more easily account for the high rate of failure. Most new traders don’t understand leverage or how to control their risk exposure using money management.

For the few souls who survive this process and learn about leverage and the basics of money management, they often drift for months or even years of trading with little more to show than a breakeven result. Sure every now and then, the market trends and they make some cash, but then it corrects or it consolidates and they give most of it back again. You will recognize these individuals on forums. They will usually write a posting along the lines of: “Woe is me – I have been working really hard at trading for months now and I still can’t make any money”. The key issue here is that the beginner hasn’t got an approach to trading with a positive expectancy and they don’t know where their edge in the market comes from. They are effectively gambling in a casino and playing on the roulette tables where it is fundamentally impossible to have an edge. If they only changed their game and gambled on the Texas Hold-em table where it is possible to build up an edge they might do better. Just like in gambling, a trader needs to find a way of playing a game where there is an edge.

Once you have a positive expectancy system and your money management strategy sorted, psychology is the last problem to contend with. If you have a low expectancy system and poor money management, it doesn’t matter how many Anthony Robbins seminars you have been to, or how many Zen Koans you have cracked, you will fail. On the other hand if you have a reasonable system and a reasonable approach to money management, psychology related issues can easily undermine your performance.

Finally, once you have all the big issues sorted around money management, positive expectancy systems and psychology, the big thing that separates an “ok” trader from an exceptional trader, is the attention to the millions of small details that really help you capitalize upon your edge.

Macrotactics is a blog devoted to recording a part time trader’s journey into the world of trading currencies. In my day job I work as a manager in an Information Technology company. I live in sunny Queensland, Australia with my wife, a cat and a baby on the way. I have been banging my head on this trading thing for at least 3 years now and the deeper I dig into the topic of trading, the more I realise there is to learn. Trading for me has

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