Why 97% of Traders Lose Their Money?
Scientist discovered why most traders lose money
"97% of all traders fail" is the most commonly used trading related statistic around the internet. But no research paper exists that proves this number right. Research even suggests that the actual figure is much, much higher.
In the following article we’ll show you 24 very surprising statistics economic scientists discovered by analyzing actual broker data and the performance of traders. Some explain very well why most traders lose money.
Scientists have been researching as well as analyzing the performance of traders as well as broker data for the purpose of discovering the reason as to why 97% of traders lose their money.
QUITTING Statistics have shown that 80% of all day traders quit within the first two years. Consequently, there are quite a few reasons as to why, highlighting the factor of the lack of trading knowledge. Most new traders do not want to spend the time or the energy learning a few basic elements such as technical analysis and fundamental analysis for example. The first, (technical analysis) can help an individual find the best spots to trade while the second, (fundamental analysis) is vital for understanding the movement of the market. Another major reason comes down to money. To elaborate, the vast majority of traders do not have enough money to put in their initial investment, thus playing with the market leverage which constitutes to a huge risk. No one should ever trade in the market if they are not financially stable or at least have a decent investment to begin with.
FEAR Narrowing it down to personal reasons, the lack of confidence lying in a person can definitely lead them to quit. If an individual doesn't believe in himself enough to be able to trade the market, then who will? It is no secret that everyone loses quite a significant amount of money during their first months of trading but this should never result in the breaking down of someone's confidence. However, confidence does not come easy, meaning that there should be bravery involved along with hard work. In addition, a forex trader experiences three types of fear during his trading experience; fear of failure, fear of missing out on any likely benefits which may occur and lastly, the fear of losing everything. These negative feelings can come in response to various things occurring such as when the market is moving against a trader or when he finally loses for instance.
ABILITY & ERROR There are thousands of traders in this world who have up to a 5-year negative track record and despite this, continue to trade. This statement suggests that even those who receive negative outcomes and a negative signal regarding their ability, are still persistent in trading in their own way. This is not only a condiment of arrogance but shows the unwillingness of some traders to learn and develop much more profitable ideas and strategies which will, hopefully, result in a positive outcome. Learning through your errors is a very expensive way to learn the market, indicating that the best option for understanding the forex market is by overshadowing a highly successful trader.
GOALS There isn't a single person in this world who starts trading and does not have a dream goal in the back of their mind. However, people whose existing economic conditions differ immensely from their aspiration levels, are in much greater risk of losing. This can rely on the fact that they are blinded by the amounts of money that they have the possibility of receiving and therefore trade carelessly and primarily, without a strategy in mind and unfortunately never reach their dream level. Most importantly though, they trade too rapidly, sometimes over 10 times a day without thinking the trade through and just going through with whatever is in front of them with the hope of winning.
POOR MONEY MANAGEMENT Money Management speaks for itself, stating that it is how an individual handles all aspects of his finances by either making a budget for setting long-term goals or by choosing investments that help to reach those goals. Money management isn't cutting down on any purchases but reaching a point where the plan that you have developed allows you to say "yes" to the things that you need. Most individuals, however, trade in the forex market without any protection and without using stop losses for the fear of being stopped out in advance. Experienced traders know exactly how to divide their accounts into separate risk and return totals, using only a small section for high-risk trades.
MANAGING LEVERAGE In very simple words, leverage is one's capability of using something small for the purpose of controlling something big. Speaking more specifically for the forex market, it is the ability to have a small amount of money in your capital and being able to control a greater amount in the market. The forex market provides a variety of different leverage such as 1:100, 1:200 and 1:400 for instance. A common leverage used by most professional traders nowadays is 2:1 by trading just one standard lot which is $100,00 for around every $50,000 in their trading accounts. Now that this is explained, an explanation of why this leads to failure should also be explained. The reason as to why is because most forex traders are undercapitalized in regards to the size of the trades that they are making. To give a simple example, at a 1:100 leverage, it takes merely a -1% change in the price to result in a complete loss. This loss manages to reduce the complete account balance and increases the leverage ratio even more. In addition, leverage is also known for increasing the transaction costs, meaning that the value of the account suddenly drops.
LOW TIME FRAME TRADING Low time frame trading in forex is known for gaining rapid profits by plunging in and out of the market quickly. Although this means that the quantity of the money is rising, this eventually leads to the lack of quality in forex trading. The risk in these situations increases significantly due to the very tight stop losses. To sum up, trading with the low time frame will most probably result to the loss of your money due to the high chances of your stop loss being hit, the very small return on investment and the high amount of trades opened.
RELYING ON INDICATORS Forex indicators are used by technical analysts to help interpret price data and generate tradable buy and sell signals. However, they really should not be relied on and are also known for performing quite poorly due to the various "mathematical" calculations they are made of, making the indicator very slow to respond to the current price movements. They are infamous for providing false signals so traders will try to filter these poor signals by adding yet another indicator which will supposedly disprove all of those bad signals the first indicator had. However, even this second indicator comes with poor signals, leading to a confused trader who has a chart which is not readable.
RISK MANAGEMENT Risk management can be known as the combination of multiple ideas for the purpose of controlling your trading risk. It is the key to surviving as a trader in the forex market. It is all about keeping your risk under control because the more controlled it is, the more flexible you can be when you need to be. By limiting your risk, it ensures that you will be able to continue to trade in the near future if things do not go to plan. Using the correct form of risk management differentiates if an individual will become a professional forex trader or an amateur.
One aspect of risk management is to be able to control your losses and know when to cut them on a trade. This can be cut down to two simple forms; a hard stop, which is when you set your stop loss at a certain level before you begin your trade, or a mental stop which is when you set your own limits for how much pressure you are ready to take on for the trade.
Even though knowing how to set a stop loss is not as easy as it sounds, the main point is that it should be in a way where the risks in your trade are reasonable and not too high. Since many people fail to put this into practice, it results in the definite loss of their money. Another aspect that most people don't do but should, is learn how to track overall exposure. Even though it is a good thing to use reduced lot size, it will be of no help if you happen to open too many lots or do not have a full understanding of the correlations between currency pairs.
To give an example of this, if you go short on EUR/USD and long on USD/CHF, not only does this automatically mean that you are exposed two times to the USD but also in the same direction, equating to being long 2 lots of USD. If the USD then happens to be going down, the loss will hit twice as hard. Concluding, by keeping your overall exposure limited, it will help reduce your risk as well as keep you in the game for a longer period of time.
Conclusion: Why Most Traders Lose Money Is Not Surprising Anymore
After going over these 24 statistics it’s very obvious to tell why traders fail. More often than not trading decisions are not based on sound research or tested trading methods, but on emotions, the need for entertainment and the hope to make a million dollars in your underwear.
What traders always forget is that trading is a profession and requires skills that need to be developed over years. Therefore, be mindful about your trading decisions and the view you have on trading.
Don’t expect to be a millionaire by the end of the year, but keep in mind the possibilities trading online has.
SOLUTION As we have previously written above, there are 9 major reasons as to why traders lose their money nowadays and if a trader is guilty of even one of those 9, then he is not eligible to trade by himself in the forex market. The team of Masterforexsignals, through their experience and through their studies as well as any of their previous experiments, offer the solution to all of the above.
All a trader has to do is simply copy one of our many strategies which will immediately save him a lot of time and money. As we have mentioned in the past, strategies 1,3,6, and 9 not only present you a monthly profit, but are also a complete combination of the triangle of success that we offer for every account. To elaborate, the triangle of success consists of a)solid strategy, b) advanced money management and c) stress-free psychology.
Further below, we would like to give you an example in detail of how we use and suggest our parameters in our trading BEFORE we trade. Example: Trader A decides to trade by himself in forex trading and before he does, he dreams that he will become a millionaire in a very short period of time.
As he starts trading, he focuses on some currencies and then successfully starts his trading for 2 weeks when all of a sudden the market goes against him and he decides to trade even more to cover his losses. As a result, he loses everything by the 3rd week. Where is the advanced money management? Where is the thoughtfully planned out strategy? Where is the correct psychological state?
Why is there fear of loss and positions are still kept open? Trader A ( or TRADER 97.2%) IS NOT CAPABLE OF ANSWERING THESE QUESTIONS which is why he built a very poor strategy, has a fear of loss, a lack of trading, is full of anxiety and has poor money management. This is an example of 97.2% of traders in the world. This is why we have come to change these situations by giving and guiding existing and new clients with our knowledge and experience so they can reach their goals and fulfill their dreams.
Choosing one of our programs will not only provide you with an immense amount of profit but will also give you a free mind and the right path to success. To continue, TRADER B, who is using Masterforexsignals and copy trading, decides to invest an amount of $1000 in TRADE 1. BEFORE he starts trading, we set the below parameters for him so he can understand what is likely to happen in the near future.
Money management: Risk ratio 4% Leverage using for trading needed: 1:50-1:100 Strategy: TRADE 1, Trading on DAX, FRANCE40,UK100,STOXX50,EUR/USD,EUR/JPY,/GBP/JPY,AUD/USD,AUDJPY The methodology of the strategy and money management(Most important factor in forex trading): Trade1 strategy monthly net winnings based on previous results: 30-40 Trade1 consecutive stop losses based on previous results: 6 ( and then 11 straight wins), the client uses 4% ratio which means he can hold 25 consecutive losses!
Trade1 profit on minimum 30 net winnings: When a client uses 4% risk ratio it means he will have 100% profit of his initial investment in the next 25 net profits with Capitalization. The system capitalizes the trading balance of the account after every winning so the risk ratio is always set at 4%. At this point, we suggest to our clients not to withdrawal for 3 months because after 100 winning trades, the 1000$ will become 16000$. Concluding, as a result, trader B is a successful trader by using Masterforexsignals.com as well as by using our triangle of success.
With all these parameters set and our trade 1 program, you have the chance to get to know how the investment will go, how it will work and what the chances are of a loss to occur. By using any of our programs, you will be well organized and prepared to enter the world of forex.