We all know it. Ninety five percent of all forex retail traders lose their first trading account. But we all know that doesn’t apply to us, right ? We are smarter, we are more intelligent, we have sharper minds… What could possibly go wrong ? Everything !
Have you ever considered what the average forex trader is like ? Yes, he/she is just like you ! Average forex traders are not stupid people, most of them have some level of higher education and many of them have the will and drive to learn about the market and earn an income by trading the foreign exchange. The why do most of them (with a high probability of you being included here) lose money ?
The answer is a mixture of things. I have found that new traders are mainly impatient, draw down intolerant and emotional. This of course, are some really big red signs in the forex market. But these “qualities” as you may have guessed, are very natural to humans and indeed, very difficult to suppress. Even when using automated systems, these defects prevail, reason why the most sold and used systems are really the ones that are not profitable, people really cannot bear the consequences of using the profitable ones !
Let me explain. One of the main aspects of being profitable in the forex market is being not. What ?!? Yes, I have found that regular profitable traders and profitable systems are subject to a draw down (being open or net) proportional to their average monthly profit percentage, with this being about 30% draw down for each 10% consistent profit. Of course, some people manage 30% a month with a 5% draw down, this people are amongst the top 0.05% traders and their cash is extremely difficult to tap (if you have a treasure in an island the treasure will remain the same no matter how many people have the map).
So, people are very keen on things with small draw downs and dump strategies or systems when their draw downs go beyond a certain point (usually too small) for systems to show any recovery. Don’t get me wrong, not all systems with draw downs are profitable and this is what causes traders to change them. They feel uncomfortable with draw downs and would do anything to change that ! (so their natural behavior is to change the trading system)
My advice… Simple ! Find something that has worked for some time for someone and follow it even if your gut tells you sometimes not to. Remember, most people follow their gut about systems but you don’t want to be like those other 95 people that lose their money ! If you are not very keen on manually trading please consider buying my automated trading ebook which is a guide to currently available automated trading systems or subscribe to my weekly newsletter in which I analyze experts each week…. If you liked my website or the article but don’t want to buy anything, please buy me a cup of coffee following the link at the left bottom side of the webpage :) Thanks.