The Sacrifice to Be Profitable: Five Things You’ll Need to Accept to Become a Long Term Profitable Trader

A good reason why most traders fail can be seen when we analyze the clash between new trader expectations and what the market really has to offer. Aspiring traders come to this world wanting to achieve things which are highly improbable (not to say impossible) by simple common sense. For example newbies in the world of Forex want to make a lot of money, consistently, fast with no losses and without doing any work. Obviously this is what we all would ideally want but since everyone is after this same thing it becomes obvious that its achievement is simply not possible and in order to really become long term profitable certain sacrifices will need to be made and certain market realities will need to be accepted as part of a trader’s life.

Through today’s post I want to talk about five different aspects of trading you’ll need to accept if you ever want to become a long term profitable trader. Failure to accept these facts of trading as part of the market’s reality will lead you into holy grail quests which will inevitably end with a lot of wasted time and financial loss. You should realize that there is no free lunch in trading and that becoming a long term profitable trader requires the acceptance of certain things which are simply (seemingly) demanded by the market. These things are very hard to accept and the sacrifices difficult to make for a large majority of people, reason why they are in the end so few long term profitable retail traders (according to my research about only 1 to 10% of Forex traders are long term profitable). These are the five things you’ll need to accept if you want to become a profitable trader:

1. Even a small long term edge requires a LOT of hard work. In order to match the long term statistical performance of audited market players (as those published on the Barclay Currency Trader Index) you’ll need to do a LOT of hard work. By work I mean that you will need to spend a lot of time doing statistical analysis, market analysis and probably learning programming and statistics. If things were as easy as most new traders would want them to be then everyone would be profitable (and most people have to be unprofitable for anyone to make money). Accepting the fact that you cannot just “buy” profitability (by getting a commercial EA and doing no work) is an important step towards acquiring a true long term edge.

2. More profit always means more risk. Do not fool yourself into believing that you can simply achieve a very high average compounded yearly profit to maximum draw down ratio because you did some simulation and you got these results. In the market whenever you aim for high profit targets there will always be a higher implicit risk. Certainly you can attempt to aim for higher ratios but always control your maximum exposure through adequate worst case targets determined through Monte Carlo simulations. There is no “sin” in attempting to beat top market performers but always do so with adequate risk thresholds determined by formal statistical methods.

3. Possible and realistic are two different things. In the markets everything is possible and therefore you should not confuse possible with realistic. Is a 100% weekly return possible? Yes, absolutely, there is a defined statistical probability of achieving this profit even across years of trading. However this is not realistic as the probability of achieving this across just six months is below the possibility to earn that same money through the purchase of lottery tickets. Realistic things are those which have a REAL probability of happening (which means that this long term performance has been achieved) and realistic long term market performance seems to be “capped” through a maximum average compounded yearly profit to maximum draw down ratio. Is going above top market performers possible (from a profit to draw down ratio perspective) ? Sure!

4. Draw downs will eventually be long and deep. Through my whole trading career I have always seen that long term market performers (those with track records of 5 or more years) have always had to withstand long and deep draw down periods at some point. When using algorithmic systems this has also become evident with all portfolios usually having draw down periods in excess of +100 days and in some cases even draw down periods of more than +600 days. If you are to become long term profitable you should realize that losing months and even years will be a part of your trading. The key here is to know the statistical characteristics of the methods you trade in order to understand what is expected and what implies a failure of your method’s statistical characteristics.

5. Every piece of missing understanding and every “hope” is a weapon against you. Trading is a business and any lack of planning and understanding will take a toll on your long term profitability. For example if you develop a strategy with the “hope” that X scenario will never materialize you have doomed yourself to failure as every scenario is likely to materialize at some point in the future. If you trade without knowing anything about Monte Carlo simulations or any formal method for risk estimation outside of your simple backtesting results you will pay a price. Every piece of knowledge you ignore which other profitable traders have is a weapon against yourself. The cure is understanding and planning. As the old saying goes, fail to plan, plan to fail.

Of course, accepting the above won’t make you a profitable trader and for many traders true acceptance of the above mentioned concepts will only come when all the “fuel” inside the grail quest “tank” has been spent. However I encourage you to do your own research and get your own trading experience so that you can see that the above mentioned facts are primordial for the achievement of a long term edge in the financial markets. Profitable trading is a business that requires a lot of effort, analysis and an in-depth understanding of what is being done. Fail to treat Forex trading like a business, fail to plan and fail to base your analysis on formal statistical methods and you will most likely end up as one more trader within the endless conveyor belt towards the wipe out “furnace”.

If you would like to learn more about the analysis of algorithmic trading strategies and how you too can start treating your trading like a business with adequate risk planning and analysis please consider joining, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach towards automated trading in general . I hope you enjoyed this article ! :o)

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