Trading is a 50/50 chance, why do so many loose money? Learn the real truth!
Profitable trading strategies can be created by using only math and logic, its really not that hard. But if this is true why do 90% loose instead of win or at least break even?
Market direction is 100% random because nobody and nothing controls all participants´ decision making and since nobody can predict the future, for us traders price movement is random and that's a fact! This implies that without a so called "edge" on the markets, in order words an advantage against your opponent you will earn as much as you loose, less commission. And while the casino always wins, some players understand to win more than they loose BECAUSE other players loose more than they win. And the reason why some players trading returns are worse than a 50/50 result is human lack of discipline, poor decision making and emotions. When it comes to playing the game of the games, these behaviors are destructive to your investments and the truth is this will never change!
How can I have such a pessimistic opinion? Well first of all, its a matter of standpoint. For profitable trader this is an optimistic opinion. In a 0 sum game there must be a looser to have a winner. Furthermore, my claim that there will always be losers is based on observation of human behavior in general. Quitting smoking or loosing weight is in theory incredibly easy but in praxis awfully hard for many because of their lack of managing their emotions. The same is true in trading, which is used by us profitable traders in order to create and advantage over other unprofitable traders. Without those loosing players it would be a whole lot harder to make money trading, in theory still possible but really A LOT harder.
But the number of loosing traders is not 90% as many claim. Its 30% to 40% at best. In fact, by looking at quarterly reports published by banks and brokers on the profitability of their customers you realize that 5% - 10% are highly profitable, 10% - 15% are profitable, the majority so 40% - 50% are more or less break even and 30% - 40% are continuously unprofitable.
Those who create price movements, buyers and sellers, follow certain rules which leads to some structure in price movement. You can use this structure as guidelines in order to categorize price movement, then you can run several statistical analysis and find yourself several "edges" so better than 50/50 chances. Understanding structure of price movements is achieved by learning technical price reading.John J Murphy´s book, TECHNICAL ANALYSES of the FINANCIAL MARKETS still is a great starting point. Then deepen your knowledge on harmonic market behavior analysis by studying the Elliot Wave theory in combination with the Fibonacci theory. Technical indicators work as well but since I was never using any I cannot recommend them. Creating a profitable strategy is relatively easy once you understand how to structure it and where to look for an advantage. But that strategy is no more than a tool. You still need to be able to apply it and that´s the next big hurdle and one of the main reason why so many fail.
Only you can change your mindset and your behavior.
In my experience, people either have what it takes to be a profitable trader/investor or not. This is even true when using Algorithms, trading Robots or investing into profitably managed investment funds. Some are continuously lead by their emotions to make mistakes and turn potential profit into loss. I recently read that knowledge is not power but potential power. Knowledge applied the right way is power.
But here is the optimistic FACT with which I would like to close this article; We as conscious minds potentially change all the time. You are not exactly the same person in 5 years that you are now. With every new experience that you make in your life, your brain will either enforce certain aspects of your character and behavior or weaken them. That´s how it works. So the real holy grail is working on your mindset every single day by copying behavior of successful people and step by step forcing your brain to adopt this mimicking and change it into your very own behaviors. And here your emotions will help you, since your brain considers information as more important if it comes with a high state of emotions. You will almost never forget highly emotional situations or experiences but as a matter of fact you forget 90% of everything else. So be excited about learning and be excited about following successful people until you become successful and lead others.
