People talk about why most traders lose money when trading. Many traders have assumed a consensus that the main reason is greed. Well, I could buy that theory in the case of over leveraging/over margining accounts. That’s surely a folly that will lose you money quickly and if it happens to you I hope you consider it a good learning experience and discipline yourself accordingly.
However, most traders who’ve learned from that experience still lose money…so is it really about greed? I think not. Now, you can take my point of view on this a treat it with a grain of salt but you should not.
You see; it’s not about greed at all. Most small cap traders would love to have just a little gain every day but nonetheless a consistent gain. You could hardly say that’s being greedy.
Still traders lose and I’m not just talking about small cap traders here; so too do macro accounts and hedge funds. To me I have difficulty understanding how, with all of that so called trading knowledge and savvy how anyone could lose as much as billion dollars in one quarter or in one year trading forex…yet it frequently happens.
The word greed has been tossed around here and there but I suggest it has been supplanted by the real reasons, which are any combination of impatience, anxiety, inattentiveness but failure to recognize one’s one physiological limits is also high on the list. We’re all humans and have human limitations insofar as our lifestyles and abilities to endure the rigors of staying on top of the 24 hour marketplace are concerned.
Yet there’s one other reason. Even if you are a machine and don’t need to be concerned about lifestyle and physiological limitations, if you’re trading with the wrong information you’ll still end up losing.
I took a poll some time ago and asked a rather simple question:
Do most traders lose money because of the lack of proper education or do they lose money because despite proper education because most traders are dumb?
The vast majority of responses were that most traders are dumb.
I disagree completely.
As I stated before, even a machine that has no limits on time and no physical restraints can get it wrong most of the time. The reason is not that the machine is dumb. The reason is that the machine has been given the wrong information. Yet people who trade this market are conditioned to believe they are dumb if they don’t succeed.
Let me make a suggestion to you. I am a person who wholeheartedly disagrees with almost all conventional trading ‘wisdom’. In fact I think that for the most part it’s bunk.
Refresh your trading outlook by not focusing on small charts. What I mean is; don’t expect to make the right decisions from what the smaller interval charts are looking like; they’ll usually fool you.
Start by going to the daily charts to get a sense of direction. Compare the current sequence with the previous sequence to determine if there is any reason to think that any directional changes may occur.
Once you determine whether trend is likely to resume of not, than go down to the smaller interval charts and locate a dip in the trend if indeed the larger daily charts indicate continuation of trend.
There are so many factors which are risk inducing when trading. Don’t let your inability to understand the overall direction of flows be one of them.
In summary, it’s not about greed unless you make it about greed by over leveraging/ over margining your trading account. It’s about lack of understanding what’s on the road ahead and whether the road is about to change direction or not. Remember as well; even hedge funds make massive errors. The reason they do is the same as the reason small scale traders make small scale errors; lack of proper direction which stems from lack of proper information. You can execute a trade with stunning accuracy but even the most sharply honed executional skills won’t get you anywhere if you’re executing in the wrong direction. Start by understanding in which direction the majority of flows are moving by carefully examining the larger interval charts; hone that skill first and foremost before all else.
However, most traders who’ve learned from that experience still lose money…so is it really about greed? I think not. Now, you can take my point of view on this a treat it with a grain of salt but you should not.
You see; it’s not about greed at all. Most small cap traders would love to have just a little gain every day but nonetheless a consistent gain. You could hardly say that’s being greedy.
Still traders lose and I’m not just talking about small cap traders here; so too do macro accounts and hedge funds. To me I have difficulty understanding how, with all of that so called trading knowledge and savvy how anyone could lose as much as billion dollars in one quarter or in one year trading forex…yet it frequently happens.
The word greed has been tossed around here and there but I suggest it has been supplanted by the real reasons, which are any combination of impatience, anxiety, inattentiveness but failure to recognize one’s one physiological limits is also high on the list. We’re all humans and have human limitations insofar as our lifestyles and abilities to endure the rigors of staying on top of the 24 hour marketplace are concerned.
Yet there’s one other reason. Even if you are a machine and don’t need to be concerned about lifestyle and physiological limitations, if you’re trading with the wrong information you’ll still end up losing.
I took a poll some time ago and asked a rather simple question:
Do most traders lose money because of the lack of proper education or do they lose money because despite proper education because most traders are dumb?
The vast majority of responses were that most traders are dumb.
I disagree completely.
As I stated before, even a machine that has no limits on time and no physical restraints can get it wrong most of the time. The reason is not that the machine is dumb. The reason is that the machine has been given the wrong information. Yet people who trade this market are conditioned to believe they are dumb if they don’t succeed.
Let me make a suggestion to you. I am a person who wholeheartedly disagrees with almost all conventional trading ‘wisdom’. In fact I think that for the most part it’s bunk.
Refresh your trading outlook by not focusing on small charts. What I mean is; don’t expect to make the right decisions from what the smaller interval charts are looking like; they’ll usually fool you.
Start by going to the daily charts to get a sense of direction. Compare the current sequence with the previous sequence to determine if there is any reason to think that any directional changes may occur.
Once you determine whether trend is likely to resume of not, than go down to the smaller interval charts and locate a dip in the trend if indeed the larger daily charts indicate continuation of trend.
There are so many factors which are risk inducing when trading. Don’t let your inability to understand the overall direction of flows be one of them.
In summary, it’s not about greed unless you make it about greed by over leveraging/ over margining your trading account. It’s about lack of understanding what’s on the road ahead and whether the road is about to change direction or not. Remember as well; even hedge funds make massive errors. The reason they do is the same as the reason small scale traders make small scale errors; lack of proper direction which stems from lack of proper information. You can execute a trade with stunning accuracy but even the most sharply honed executional skills won’t get you anywhere if you’re executing in the wrong direction. Start by understanding in which direction the majority of flows are moving by carefully examining the larger interval charts; hone that skill first and foremost before all else.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates
Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.
GBP/USD softens to near 1.3600 as BoE hints further rate cuts
The GBP/USD pair loses ground to near 1.3610 during the early Asian session on Monday. The Pound Sterling softens against the Greenback amid growing expectations of the Bank of England’s interest-rate cut. Traders will take more cues from the Fedspeak later on Monday.
USD/JPY drops back below 157.00 on Japan's verbal intervention
USD/JPY has come under moderate selling pressure below 157.00 in the Asian session on Monday. The Japanese Yen lost ground to near 157.70 following Japan’s ruling Liberal Democratic Party's outright majority win in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi. However, JPY buyers jumped back and dragged the pair southward on FX verbal intervention by Japan’s Finance Minister Katayama.
Editors’ Picks
USD/JPY drops back below 157.00 on Japan's verbal intervention
USD/JPY has come under moderate selling pressure below 157.00 in the Asian session on Monday. The Japanese Yen lost ground to near 157.70 following Japan’s ruling Liberal Democratic Party's outright majority win in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi. However, JPY buyers jumped back and dragged the pair southward on FX verbal intervention by Japan’s Finance Minister Katayama.
Gold holds gains near $5,000 as China's gold buying drives demand
Gold price clings to the latest uptick near $5,000 in Asian trading on Monday. The precious metal holds its recovery amid a weaker US Dollar and rising demand from the Chinese central bank. The delayed release of the US employment report for January will be in the spotlight later this week.
AUD/USD: Buyers eyes 0.7050 amid upbeat mood
AUD/USD builds on Friday's goodish rebound from sub-0.6900 levels and kicks off the new week on a positive note, with bulls awaiting a sustained move and acceptance above mid-0.7000s before placing fresh bets. The widening RBA-Fed divergence, along with the upbeat market mood, acts as a tailwind for the risk-sensitive Aussie amid some follow-through US Dollar selling for the second straight day.
Bitcoin Weekly Forecast: The worst may be behind us
Bitcoin price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Weekly column: Saturn-Neptune and the end of the Dollar’s 15-year bull cycle
Tariffs are not only inflationary for a nation but also risk undermining the trust and credibility that go hand in hand with the responsibility of being the leading nation in the free world and controlling the world’s reserve currency.
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