- March 23, 2020
- Posted by: NetPicks
- Categories: Basic Trading Strategies, Trading Article
Succeeding at trading is reserved for a small percentage of people.
Successful traders are a different breed of person who’ve managed to battle the psychological pitfalls but have also found a trading edge that they are consistent at trading.
It’s an older statistic but when Forex brokers were surveyed, it was revealed that 80% of their account holders lose money in the prior quarter, which means that their actual losing rate is even higher.
When we survey people new to NetPicks, the number of people losing ranges from 88% – 92% at the time when they first come to us. They come to us because they want to succeed at trading and obtain whatever goals they have set for themselves.
Long-term success is not impossible for the disciplined trader.
Successful Trading Is An Exclusive Club
I actually feel it’s a positive to have high numbers of losing traders. That might make little sense considering we’re in the business of training successful traders but I realize, for those of us who are successful, there has to be others that struggle. It’s a reality of trading.
Not everyone can get it right, and if it were so easy everyone would be doing it and statistics show they are not.
Day trading, where many start off, is a challenge especially for new traders. Whether it’s Forex, Futures, and even Options and the Stock market, a new trader can become overwhelmed by the flashing lights of their computer screen.
Without a solid trading strategy, a trading account funded where they can handle risk, understanding risk controls, and other variables, these traders end up being on the losing end over time.
Traders will head to the standard technical analysis approach covering technical indicators and price action, but if common wisdom worked, would losing traders make up the bulk of those who’ve ever traded?
I think everyone who dives into trading should limit what influences them and start with an understanding of how markets move. You may find that your trading approach can be much simpler than you are making it.
5 Things You Can Do To Help You Succeed
Learning what most do (most fail) and doing it differently is a common approach to improvement. On the flip side, copy traders who’ve come before you and you will find that they also do the opposite of what the trading masses do.
In todays world, you can pick up a good day trading book written by a successful trader and follow some of what they do.
Let the 88% – 92% lose – we want to be on the successful side and these five items are something we talk about a lot to our Inner Circle traders. It’s repeated because many long term traders still have issues following them.
Day traders are not the only traders who miss these five items. Swing trading has it’s own complications but what we are going to cover covers all different styles of trading.
Look for a 65% Winning Percentage
We call it “two thirds/one thirds” – this means the odds will always be in your favor to win on a trade, but you are accepting the fact that if you go for too high of an accuracy level (80%, 90%, etc…) your risk levels will be unacceptably high.
I’ve seen plenty of people trade with 90%+ win ratios, only to wipe out weeks or months of gains with out-sized risk.
This “two thirds/one third” has ruled the day for us for many years and we will continue to repeat this for many more.
Sure, it sounds great if you could have success 80% of the time or more, but it’s not going to last. I’m giving you a goal and an objective that can stand the test of time.
Accept reasonable average win to average loss ratios
You read about how you should risk $1 to gain $3, etc. It sounds so great on paper but in reality I don’t know many traders who really, truly succeed with that. It just sounds good to say but tends to be un-achievable for most.
A closer reality?
Reward/risk ratios from as low as 1:1, which is perfectly acceptable, up to about 1.5:1. Which means $1.50 target for $1 risk. And that’s at the top end of the scale.
With our winning percentage falling into the 65% range,, a simple $1 risk and $1 reward can work beautifully. Too often people think they can get that 2:1, 3:1 or better, but then their winning percentages fall too low – well below that 65% we discussed above. It’s asking too much of markets that are volatile and they’ll do their best to shake you out.
The whole “look for a 3:1 reward to risk ratio” is something that has been hammered into new traders but markets don’t care about your ratio.
There may be a time you get a perfect setup below a pivot area (some would call it resistance – I call it potential resistance) but a trader looking for a 3:1 RR will skip it. That same trader will then see price rip through the level and be on its way to higher levels.
The issue this can cause an undisciplined trader to go “off book” and start chasing trades. This is often the beginning of the end for them.
Embrace the Power of Quitting
If you’ve been with us for any length of time, you know what this means. You have to find a way to stop over-trading. You should only trade during the ‘prime time’ of the market you are tracking and always have your quitting point.
For us when we day trade, it tends to be 2 winning trades + positive results = Quitting Time.
If we get two winners but are still negative, we continue until we reach a hard stopping point, which is always time-based. For example, most US futures markets tend to be valid to trade the first 2-3 hours, then fall into a rut and are not worth the effort.
Crude oil futures work well from 8:50am EST – 10:30am EST (you should see our crude oil inventory release trades) and even if we’re not positive, that is our hard stopping point. This will make your life so much easier, plus smooth out your equity curve considerably.
This applies to all day trading in particular – Forex, futures and stocks. Swing traders, you need to limit your trades as well.
You must accept regular losing trades
People hate to be wrong. You will be wrong – a lot – no matter how good your strategy performs.
If a single trade is that tragically important to you, you find yourself sweating, cursing, pacing – then you are simply way over-leveraged or need to do a lot of soul searching before you continue. You need to look at successful trading as how you did over 50 trades, 100 trades, or much more.
One trade, two trades, etc. means nothing win or lose. Remember, all markets get streaky – good and bad. You have to be able to outlast the whims of markets you cannot control.
Looking at this chart, even with an 80% win rate, you will have at least 2 losers in a row with an average of 3. You can see that there is a possibility of 7 in a row which should highlight the need for an understanding of risk management in trading.
This spins back to why we have the power of quitting plan. By trading only in the hours where the market moves, we lean on our trading edge during the best times. This can help alleviate the risk of taking too many losing trades in a row.
Can you trade your system correctly 25 times in a row?
I can almost guarantee you that virtually none of you have traded whatever trading plan you are following, in a demo account (but live in the markets), 25 times in a row following your trading rules perfectly.
You must demo trade, without putting real funds on the line, and do it 25 trades in a row without error.
It’s no problem to have losing trades. The point of this exercise is that I guarantee you have not mastered the trading rules by watching a video or reading a book. Until you start to train your mind and develop some habits and instant instincts, you will lose money.
If you can get through 25 trades following the strategy as documented, you may be ready for real money. I say “may” be ready because you should also do a personal inventory of how you felt during this time.
Writing in your trading journal about how you felt during the trading session, goes a long way for you to truly “know thyself”.
You will be able to pinpoint issues such as feelings of revenge trading, thinking the next trade will be a big winner, log distractions that pulled your focus from trading.
Most will never follow this but you should ask yourself if being in the same club as professional traders is truly important to you. If so, the question “how can I succeed at trading” is partially answered in this trading post.
The bigger question is: are you up to the task?