Trading is one of the highest-paying jobs in the world. What’s more, you can scale up results to earn even more.
That being said, based on statistics, over 70% of all traders lose money in the market. Not everybody who started their journey in trading made it all the way. What’s the reason behind it and how not to end up the same way as those who left trading for good?
In most cases, this is explained by the fact that the traders are unable to earn consistently.
The list goes on. However, all of the above statements are nothing but an aftermath and not the actual culprit. Trading failures often fall within the scope of psychology and are tightly linked to false beliefs and unrealistic expectations. When they aren’t met, the traders call it quits and leave the market once and for all. Let’s examine the key reasons for this misfortune scenario and ways to eliminate them.
At first glance, trading may seem like a no-brainer job: just buy the asset when it’s cheap, then sell when it goes up in price, and vice versa. That makes the novice traders buy into an idea that they can make loads of money quickly without having to dive deep into specifics.
1. Trading is just like any other job. First, you need to put time and effort into acquiring relevant knowledge and skills, then practice. In the course of it, sure, you may face failures. It’s a normal part of the learning process and you should treat it accordingly. You also have to analyze your mistakes and find ways to correct them.
2. Gaps in knowledge and mistakes lie at the heart of losses.
3. Experience comes with time. You need to stay determined and patient.
This is why you need to get rid of illusions when embarking upon a trading path. You should be ready to put some serious effort into it. That way you can avoid major disappointments in the future and your hard work will pay off.
Another trading misconception that often stops traders from earning consistently is the quest for Holy Grail that doesn’t really exist. Many people fall into this trap. At one point, I also hoped that I would find some magical strategy that would produce 100% winning trades.
I was looking for a secret strategy, indicator and robot that would generate profits on their own while I would just sit back and relax. But the reality is that drawdowns still happen with the majority of profitable trading strategies. There is no such thing as 100% profitability! Don’t let it fool you.
Newbie traders need to drop the idea of finding a secret recipe and accept the fact that success comes to those who are able to build a system and stick to it. In essence, it includes a profitable trading strategy, an elaborate risk and money management, as well as psychological aspect. Each of these elements require thorough calculations, measurements, testing, mistake analysis and elimination, and overall self-improvement. None of it can obviously be done overnight.
I realized where my mistake was after I had purchased yet another heavily-advertised “bullet-proof” strategy from some trader and lost almost all of the money I had in my trading account while I was using it. That’s when I came to realize that I needed to enhance my skills and experience first, and create my own strategy instead.
Of course, you can borrow it from someone else but if you do, you need to at least customize it so that it works for you personally. There’s no one-size-fits-all Holy Grail in trading. Since I really liked the world of trading, loved the sense of independence and the realization that I could also affect the currency market along with the coolest world banks, I decided to complete proper training and work on my strategy. I’m glad that I was able to quit looking for the Holy Grail before it was too late.
So, if you are a newbie trader, here’s what you must understand—there are no shortcuts to success. You will have to put time and effort into creating your own system that will produce profits. Everyone who has been trading in financial markets consistently for many tests will tell you the same thing.
1. You need to find or create a trading strategy and test it out. If the expected value is positive, you can use it.
2. You have to outline the rules for money management i.e. what volume to use to enter the trade, what risk-reward ratio should be and how many trades can be opened simultaneously.
3. And finally you should test it all out using a training account (demo or a small live account). Identify the pain points and get rid of them.
But it’s easier said than done when it comes to real-case scenarios. Taking seemingly simple steps doesn’t always come easy. You either sabotage yourself or emotions force you to violate your own rules.
Why? This is where psychology comes into the picture. Why are simple steps so hard to take? Because of the fear of losing money. Because of the impatience and greed. People wish to make profit without breaking sweat but that’s not how it works. As a result, impulsive trades lead to big losses.
This is why addressing own fears, damaging self-narratives and self-sabotage is an essential part of the trader’s journey. You can do that either by yourself or with assistance from professionals and coaches.
So, how do you become that trader who makes money in the market for many years without becoming disillusioned, getting burned out and eventually quitting it all? Every experienced trader has their own tips for that.
1. Be ready to play the long game. Arm oneself with patience and determination.
2. Do not let the failures discourage you. Mistakes are a natural part of the journey and a way to grow and improve. What’s important is to analyze and not repeat them.
3. Work your way up slowly. One major leap forward leaves you drained and burned out. Keep in mind that you can reach your goal by making small steady steps. Consistency is a key.
4. 50% of success is your surroundings. Stick to successful traders who motivate you to keep going.
5. Seek help from coaches and professionals. The best way to achieve your goals is by having an encouraging mentor by your side. Do not hesitate to consult with professional psychologists if you are unable to tackle your emotions on your own.