Tag: active trader

  • Most Traders Fail When Trading Stocks, Why?

    Most Traders Fail When Trading Stocks, Why?

    Most Traders Fail When Trading Stocks, Why?
    Lack of knowledge is the biggest reason behind unsuccessful trades. Searching the internet can give you some clues but also a poor education. The consequence is that you’ll be among 90% of losers. 

    By Guy Avtalyon

    Most traders fail when trading stocks, why is that? The stats are cruel. Only 10% of all traders make money permanently. That means the rest of the 90% of traders fail to make significant success. To break it down and be more precise, 80% suffer losses, 10% give up over time and only 10% are profiting permanently. 

    How is that possible, why do most traders fail when trading stocks? We have to find out the reasons behind because everyone wants to be in that 10% of successful traders. It doesn’t depend on gender, age, nationality, it simply depends on how much you are resolute to dedicate your time and effort to achieve success and make money on the stock market.

    Since the stats show that most traders fail when trading stocks, why do the majority simply copy losing traders? Why don’t they do just the opposite? The information is all around us thanks to the internet, but how can some inexperienced trader know what to use, what to do? 

    So, let’s start and explain why most traders fail to make money on the stock market. Also, we’ll give you some hints on how to avoid unsuccessful trades.

    Why most traders fail when trading stocks?

    Because they neglect the rules.

    If you want to become a successful trader you’ll need knowledge, experience, and hard work. Only when you gain all these three ingredients you may count on success eventually. You have to forget the luck factor. Trading the stock market isn’t a lottery game. You can’t just pick a ticket and pray. Trading stocks is a serious job so you’ll need to study a lot and acquire knowledge. When you acquire knowledge, you can start developing experience. You’ll walk a thorny path but if you put some effort you’ll reach your goals and finally enter in that 10% of successful traders. 

    But you’ll need time. Some surveys show that you’ll need form three to five years of learning to obtain experience. You have to go out the whole way, there are no shortcuts. The good news is that trading stocks aren’t rocket science so don’t be afraid of it, it isn’t complicated. Keep in mind that most successful traders like to look as they have the key to a great secret. They are acting like they revealed the Philosopher’s Stone. 

    Nothing is that complex and mysterious on the stock market but some traders are frightened by the attitude of successful traders. Remember, knowledge and experience are something that they obtained over time. They aren’t born with that.

    Of course, you’ll find numerous agencies offering instant solutions with no knowledge and experience required. Just don’t trust and avoid them. the only thing they want is your money.

    Most traders fail when trading stocks because of lack of knowledge

    This is the biggest reason behind the unsuccessful trades. Where do you try to learn more about trading stocks? You’ll need to learn from the respectable investors, they wrote so many books. Searching the internet can give you some clues but if you rely on that only it is more likely you’ll end up getting a poor education. The consequence is that you’ll still be among 90% of losers. 

    Are you impressed with graphs? How much do you really understand what you are looking at? Do you have a trading plan? What do you know about risk or money management? 

    Successful traders know how to develop an effective trading plan. The fact that you are buying a stock and selling it, doesn’t mean you are a trader. 

    Okay, to put more pain into your life we have to ask you. Let’s assume you have a trading strategy which means you are not that much inexperienced. Do you know why your trading strategy stopped working? How do you know it stops working? 

    What is an outstanding strategy for trading stocks?

    Most traders fail when trading stocks because of different reasons but the most common reason is that they are constantly seeking an outstanding strategy. So, what will happen when they find it? Will they use that one single strategy during the whole trading career? What a dangerous mistake! When trading strategy stops working you have to adjust it or replace it. There is no other way. But first, you have to understand why your strategy doesn’t work anymore. 

    As being a trader you know that the stock market is changing. One single strategy cannot be suitable for all market conditions. The trading strategy must be in sync with these market changes. It has to be adjusted for the new condition in the market. If your strategy stops working that means it is unable to meet the current market.

    The good news is that you could adjust your strategy and reduce failure.

    How to recognize that your strategy doesn’t work anymore?

    We are pretty sure you have a great strategy that passed all backtesting. Also, we believe you made money with it. But what if your strategy suddenly doesn’t work and you have a sizable drawdown? Will you get panicked? Well, don’t! That is part of trading. Sometimes you’ll even not be able to notice that but sometimes it will cause great losses. And you’ll start to examine your trading strategy. How will you know that your strategy doesn’t work anymore?

    The problem is that you can’t know if it is temporary or permanent. Some experts suggest setting stop-loss on the whole strategy level. So, when your strategy nails that level, you’ll stop trading it. If your strategy starts working again be patient and wait until you see that the continued strength isn’t temporary. Also, there are some tests to help you to assure that your strategy is still working. For example, in-sample and out-of-sample testing can be very useful to check the validity of your strategy. Check it by the training tools firstly, and then confirm on the validation set.

    The idea behind this is that real market performance will continue on both sets. Random market noise will not be registered. Use walk forward analysis to perform differently in and out of sample tests. Forward testing is also a good method to examine how your strategy will perform going forward.

    Most traders fail when trading stocks because they think their strategy isn’t working anymore and stop to use it.

    Poor risk management cause failure trades 

    You might have a winning trading strategy but if your risk management is poor your trade will fail. 

    Risk management assists to cut down losses. It will protect your account from losing the money. If you know how to manage the risks, you’ll make money. Most traders fail when trading stocks because of overlooked requirements for successful trading. One bad trade without risk management strategy can end up in great loss. 

    How to develop the best system to control the risks of stock trading?

    First of all, you have to plan your trading. Stop-loss and take-profit points are keys to planning. That means you’ll need to know what price you are prepared to pay and at what price you are ready to sell. If the return is fairly high, you can execute the trade. 

    Even with the best trading strategy in the world, without proper risk management, you’ll end up with poor trades

    Trading with poor risk management could reveal why most traders fail when trading the stock market. If you want to stay in this game, the best advice you can get is to learn everything possible on risk management.

    Most traders fail due to unrealistic expectations 

    Trading stocks naturally include some level of risk. But it is completely understandable why so many traders are taking high risks. A few books that you had read or one or two webinars are not guarantees for winning trades. There are no instant solutions in trading stocks. Also, if you think that using some complex strategy will bring you more profits we have to say you couldn’t be more wrong. 

    Unfortunately, traders are still losing their hard-earned money thanks to unrealistic expectations. 

    We already said that knowledge is extremely important in trading but proper implementation of it is more important. When you hear that someone had great trade during the bull market, for example, you have to know that it isn’t always thanks to great knowledge. It is easy to trade bull markets since they can cover the mistakes caused by a lack of knowledge. But what will you do when the bear market occurs?

    To define yourself as a trader you must have at least two or three years of continuous success. Don’t ask for easy and easy solutions. That is a blind way. You’ll be among 90% of unsuccessful traders.

    Trading is a professional career and as being that it takes years of dedication and work to be good at it. While learning you can do that from your mistakes but also, from other traders’ experience. That is the beauty of learning to trade. With the decreasing number of trading errors, you are closer and closer to become a successful trader. Most traders fail when trading because they avoid learning. And to be honest, that is the easiest part. The troublesome part is understanding your own psychology. That will determine how you will enter the stock market.

  • Profitable Forex Trading By Using Two Approaches

    Profitable Forex Trading By Using Two Approaches

    Profitable Forex Trading By Using Two Approaches
    Forex is short for foreign exchange, but the actual asset class we are referring to is currencies.

    By Guy Avtalyon


    If you want to be a profitable forex trader and have profitable forex trading, you have to follow some rules. You have to either win more often than you lose. The must is to win more on each trade than you lose.

    Or better yet; do both.

    Doing both is truly the hallmark of a professional trader. It can be very tricky though. As you are a new trader, it is probably best to focus on one approach. See where you can go from there.

    I want to show you the ins and outs of each approach and help you decide which method suits you the best.

    What is the relationship between the win rate and reward ratio in forex trading?

    Before everything, you have to understand the relationship between a trader’s win rate, their reward ratio, and profitability. Assuming a trader risks an average of 10 pips on a trade to make 10 pips of profit. They will need to get 50% of their trades right in order to breakeven. Only if they win more than 50% of their trades, then we can speak about profitable forex trading.

    What happens if you risk 10 pips to make 20?

    You are trader forex trading with a positive reward ratio and therefore you will not have to win as many trades to breakeven or turn a profit. The opposite is true for a trader who trades with a negative reward ratio e.g. risks 10 pips to make 5. Such a trader will have to win more than 50% of their trades to breakeven and even more to turn a profit. There is an inverse relationship between a trader’s win rate and reward ratio. The larger your reward ratio, the fewer trades you have to win, and the more trades you win, the less you need to win on each trade.

    What is profitable forex trading?

    Forex trading with a positive reward ratio is a good place to start as a beginner. Why?

    Because chances are if you are just starting out, you don’t quite yet have a talent for accurately predicting markets. Say your goal is to make twice as much as you are risking on a winning trade.  We have to do some math. If you have such a goal, then your breakeven rate drops all the way down from 50% to 33% and any wins above 33% are pure profit.

    If you aim for 3 units of risk (3R) on a profitable trade, your breakeven requirement drops even further to 25%.

    This advice is offered by market makers with educational background. This advice is reliable, but what they ignore to tell new traders is that it’s actually harder to make 2 x risk (2R) than it is to make 1 x risk (1R). Anyway, this approach is still a great place to start as a new trader, we just believe in an open and honest approach to forex education.

    What is forex trading with a positive win rate?

    Trying to score profitability via a positive win rate isn’t the best idea for new traders, because you are not yet experienced enough to get the market right more than half the time. Aiming for one unit of risk in profit has a higher chance of success than aiming for two. The other option is trading with a negative reward ratio, such as aiming for less than a single unit of risk on a profitable trade.

    But there is the problem with trading forex with a negative reward ratio: the more your reward ratio drops, the more trades you need to win to turn a profit. If for example, you only aim for half a unit of risk on a winning trade, your breakeven rate rises from 50% all the way up to 66.67%. Then again, there is a higher probability of profitable forex trading and success on trades with negative reward ratios.

    Automated systems and forex signals

    When looking at automated systems and forex signals, you often see systems that appear great because they are forex trading with extreme negative reward ratios. These systems will risk a hundred pips or more in order to make 5-10 pips. This can work for a long time, but eventually, volatility picks up and the stop losses start getting hit. Every stop-loss that triggers wipes out a bunch of winning trades and you start seeing sharp declines in the system’s equity curve. The characteristic of these systems is win rates above 90%. If you see a system with a win rate that high, look a little deeper. You’ll like to examine how exactly this unbelievable win rate happens.

    Currency is known as an “active trader” opportunity. This type of opportunity suits brokers. That means they earn more due to the agility that accompanies active trading but it is also promoted as leveraged trading. Hence it is easier for a forex trader to open an account with a little money than it is required for trading stocks.

    How to use forex trading as a hedge

    You can use currency trading to hedge your stock portfolio too.

    For instance, if some trader builds a stock portfolio in a country where there is potential for the stock to increase in value. But there is a downside risk in terms of the currency. For example, you might own the stock portfolio and short the dollar against another currency such as the Swiss franc or euro.

    This means, the portfolio value will increase, and the negative effect of the declining dollar will be neutralized. This is good for those investors outside the U.S. who will eventually repatriate profits back to their own currencies.
    With this profile in mind, this suits the best day trading or swing trading.

    The other strategy of trading currencies is to understand the fundamentals and long-term benefits.

    It is useful to a trader when a currency is trending in a specific direction. That means it offers a positive interest differential. Hence, it provides a return on the investment plus an appreciation in currency value.

    This forex trading strategy is a “carry trade.”

    Good timing is the essence of profitable trading. In both cases, as in all other trading activities, the trader must know their own personal attributes. In order not to violate good trading habits with bad and impulsive behavior patterns.