Why do people lose money trading? There are only two ways the trade can go, for you or against you. All of the trading systems and fundamentals in the world amount to hundreds of thousands of dollars in training and education, and when it comes right down to it, it’s a 50/50 chance that your trade could win or lose.
I’ve heard it said that for all the people who set out to be retail traders, trading from their home computers, smart phones, and iPads, there is only a 3% rate of success. When the odds are 50%, why is the payout only 3%? Honestly, I could have become a professional poker player and had a better statistic for the past 11 years I have been on this venture.
Two thoughts come to mind – what is success, and how do we mess up the odds?
I want to share with you, because we’re all in this together. Traders are the most interesting group of people I have ever met, and I’m proud to spend my time in circles of people who are generally characterized by traits such as:
Honesty – The markets flush out phonies pretty quick. If you can’t honestly repeat your trade setup, you won’t be able to stack up a profit in your account over time.
Desire to be self-sufficient – Most traders would rather make a million dollars trading than buy a million dollar lottery ticket. There is a lot of satisfaction in creating our own wealth.
Hard working, long suffering, and patient – How many hours can you stare at a line on a chart? How many times did you go back to your phone or your computer to look at it again today? And do you get up in the middle of the night to pee, or do you get up to look at a line on a chart? (You know who you are!)
Smarts and hearts – In high school I had an English teacher (who was also my tennis coach) tell me that the average person only uses 2% of their brain, and if we gave it just a little more effort we could produce more amazing works in less time. We believed her, and we all produced essays, dialogues, poetry, and short stories for her to read. She told me later, with a chuckle, she was just trying to get some more interesting essays to read, and it worked. On the court she said we could either bend our knees and have faster feet, or we could just “decide” we were going to win. She was big lady who didn’t “look” like she should be a great tennis player, but no one on the high school team (boys or girls) could beat her. Was she on to some untapped brain power? I was prime for her manipulation and spent the rest of my life believing that I was capable of accomplishing great things. I recently tried to validate that statistic and could not, but I still believe there is some truth to the notion we have untapped potential. Some take a spiritual approach to this idea, and some more scientific, (like this cool blog I just stumbled upon, http://www.scientificamerican.com/article.cfm?id=do-we-really-use-only-10). Inspiration makes things happen. Is it heart or is it mind? I do not know, but it’s available to you and me.
I’ve also heard that most people only use 2% of their computer’s functionality. If that’s true, imagine what we could do with untapped potential in our brains and our computers, two things we use all day long as traders! That inspires me to think some new thoughts right now, and do something cool on my new 17 inch HP Envy! (I just justified killing an hour on my new toy!)
My favorite “smart people” are average people. I have been in trading circles with, (and I’m not kidding), brain surgeons, rocket scientists, mathematicians, and “moms” who never earned a college degree. How cool to be part of something so remarkable where all the brains have the same opportunity and ablity to figure out a trade and make some money.
Before I get totally off track, let me come back around and tell you about the question that I think can ruin your odds of being a successful trader. The answer is “I’m not going to tell you because it will damage your trading mind.” What is the question?
Everyone wants to know how much money someone else is making trading. Having lived through quite a few trading experiences both good and bad, both huge and tiny, both regimented and free-style… My experience tells me that the more important question is what is your trading plan and can you stick to it? Know what you’re setting out to do when you answer that question and you will be able to accomplish your trading goals. At the end of the day your brains are bigger, your bucks are bigger, and your sense of satisfaction is full. That’s my idea of success. If I set out to make 30 pips, and I take profit at 30 pips, I followed my plan and I don’t feel bad that it went to 50. One time I set out to make 500 pips, I made 794 pips, and felt like a loser because I didn’t hold it when it ran over 900 pips. That’s how you mess up your odds! Why? Because the next time you try to make that happen, you end up losing 500 pips. That’s the truth.
If you ask me what my biggest trade was the answer is 794 pips.
It was worth about $800. I cannot repeat it. It has no meaning to me.
My smallest trade ever was 3 pips.
It was worth about $1000. I could and did repeat it over and over, and it nearly ruined my life.
My greatest trade ever is worth 30 pips.
It’s worth about 1.71% of my account. I can and do repeat it many times every month. I can project my account growth and I will close this trading account and set it aside for retirement when I turn 50. (6 years). I don’t wish it was better. It’s perfect for me, and every day I know exactly what to do.
What’s your trading plan? Are you finding success? If not, try writing out exactly what you’re trying to accomplish, and see what happens when you just go with what comes naturally for you. Last night I watched a movie called Gifted Hands, based on a true story about a neurosurgeon named Ben Carson. It’s a story about unwarranted and unexpected success in the academic life of a man who was inspired by his impoverished and illiterate mother. She had no physical reason to believe, but believe she did that great things were possible and came from inexplicable places.
I hope you’re having a great year, and that all your trading plans are keeping you on track. Be calm. Be great. Have a wonderful day!