Why do traders fail?
There is a long list of reasons for trading failure that can probably go on forever. I can’t
go over all of them, but I will talk about the main reasons people fail at trading as well as a few
ways to avoid failure. I failed at trading for two years before I figured out that it was the same
old mistakes I was making over and over again that were causing me to fail. It was so simple to
fix these problems once I figured them out! I couldn’t believe it took me two years to learn
how to become profitable!
My breakthrough came one morning when one of my friends who was interested in
trading came over to watch me trade. He sat there and watched as my account went from
$400 to $1500 within a few hours. He couldn’t believe it! Then, before he knew it, my account
was gone. I told him, “That’s why it’s harder than you think! Did you see how fast I lost my
whole account?” His response ended up changing my trading career forever.
“Well, Joe… why the h*** did you blow your account? It shows right here in your rules
that you weren’t going to trade over 5% of your account per trade. It also says that once you
have two losers in a row you’ll quit for the day AND it says you won’t fight the trend. It looks to
me like you took five trades in a row that were losers, and if I saw correctly you were placing
puts (when you think it’s going to go down) during that huge bullish move (when the market is
moving up) The last trade you placed was 60% of your account… You didn’t follow a single one
of your rules!” I was astonished to realize that, even though I had my list of rules written out, I
was blatantly ignoring them!
There is no point in having rules if you are going to break them. If you’re breaking your
rules you’re basically playing a high risk gambling game and you might as well lose your money
at a local casino! Thanks to my friend I take the time to read my short list of rules as a refresher
before placing a trade. To this day, I have not broken a single rule. Learn from my mistake and
make this your number one rule: Don’t break your rules! It sounds like common sense, and it
sounds pretty easy, but it takes a lot of patience and dedication to do so. Just make yourself
get up an extra five minutes early to read your rules before making any trades. If you do, you’ll
have them fresh in your mind while you are making your trades. Remember, if you don’t follow
your rules, you are upping the odds of failure.
Once you have this first rule down, you have achieved a major victory. Congratulate
yourself! But don’t think you know everything just yet. There are quite a few more big errors
that a trader can make that can be just as disastrous as ignoring your rules. Here are some of
the major problems traders are faced with:
1) Having No Plan:
It is a known fact that most new traders don’t create a plan for
making trades. If you don’t write down you’re plan, which includes your rules and trading
strategy, how are you supposed to stick to that plan? When your emotions start going out of
control during a trade, you need a written plan that you can go back to. Without a plan you will
most likely end up like the other 95% of traders that never make it.
Having a plan is very important, but first you have to know what information goes into
your plan. The following are very good pieces of information to include when forming your
- What time of day are you going to trade? (What session?)
- When are you going to quit trading for the day? (After x amount of losers,
after a specific time of the day, after x amount of winners/profit?)
- What is your trading strategy?
- Money Management (How much are you willing to risk per trade)
That’s it! Keep it as simple as possible; if you make it to complicated it will be too hard
to follow. Make it short and sweet!
Most of the time when I lost money this was one of the biggest culprits.
If I had a single losing trade I would suddenly lose sight of my plan and let my emotions take
over which often led to bad decisions and more bad trades.
Traders all have two modes that we go into while trading: Reactive and Responsive. When I have a losing trade, I go into the reactive mode. While in the reactive mode you lose
your perspective and you have difficulty controlling your actions and decisions. You don’t think
before you act! If you’re like me, you have to walk away from the computer when you go into
reactive mode. For example, when I get a loser now, instead of forcing trades, I make myself
take a ten minute jog before coming back to the computer. If I don’t get away from my trades
while my emotions are taking over, I will blow my account!
When trading you always want to be in the responsive mode. When in this mode your
mind is relaxed and you can look at the bigger picture. This isn’t just for trading, but for
everything in life. If you start feeling yourself going into the reactive mode start taking charge.
Stop yourself! All you have to say is “I’m doing it again, I gotta stop that!” Once you realize that
you’re in reactive mode it’s much easier to get out of that state of mind. You just have to
To avoid letting your emotions ruin your trades, trade like a robot! You can’t let
emotions control you. If you have several winners in a row and you get cocky, the next trade
that you throw 50% of your account balance into will probably lose, because you were trading
based on your winning streak optimism and not your plan. And if you lose 50% of your account
because of a stupid trade, no doubt you will get angry and depressed and quickly slip into the
reactive mode. You might try to make up for your 50% loss by putting your remaining balance
into the next random trade at that point, and I can tell you that you will lose this last trade
almost every time. I can safely make that assumption because I lost money on trades like that
ten times! I never did win that last trade :). Just tell yourself that you will never be 100%
accurate, you simply have to accept your losses and move on. Once you can accept minor set-
backs you will be well on your way to achieving the freedom you’ve been looking for.
3) Over Trading:
When I first began trading I was in the get-rich-quick mode. I wanted
to turn my $100 into thousands within the first week. I was placing over 30 trades a day, and
was consistently blowing my account on a daily basis. One day I sat down and did the math. If I
could trade 3/3 each day making $1,000 trades, that would be $2,400 a day. Everything
completely changes when you start looking at trading like that. There is no reason to make
thirty trades a day. The key to success is consistency! Take the perfect looking setups and trade
a maximum of five times a day. Instead of trading with 59% accuracy trading thirty plus times a
day, trade with 75% accuracy with as few as five trades da y. You will make just as much
money, and log in less screen time. When you over-trade you have a lot more risk of losing
because the market isn’t perfect. The more trades you place, the more chances you have to
lose. If the setup isn’t perfect, stay out!!
I overcame the compulsion to over-trade when I made a checklist to use as a trading
guideline. Before I made my checklist, I would take any decent looking trade. With binaries
you can’t take “decent” looking trades. You want to take the trades that are going to win! By
making a checklist you HAVE to wait for those perfect looking trades. I printed out notecards
with a list of my strategies. If I can’t check each box on my list, I won’t take the trade. I can’t
believe how fast the cash started adding up once I created and utilized a checklist. If you have a
problem over-trading, I would highly recommend creating your own personal list to help keep
trades on track!
4) Making it Complicated
I think it’s impossible not to run into this problem at some point. When we all first start it seems like trading has to be harder than it really is. There’s no
way that it could be simple, right? We all go on a search for the holy grail of successful trading,
adding ten indicators at a time on our chart and trying out every different type of strategy just
because someone else is making money off of it. We think to ourselves, “If they’re making
money with that strategy, then it will make me money too!” even though that may not be the
In order to show you just what I mean when I say “making it too complicated,” I’m going
to show you one of my earlier charts from my first days of trading. Let’s take a look:
You might think that this chart is a joke, but that is what my charts looked like for over
six months. I tried any and every type of indicator because I knew that I had to find the holy
grail of trading. You wouldn’t believe how many traders have charts that look like this! The
problem with this method is that all of these indicators are conflicting. You don’t need more
than one trending indicator, and you don’t need more than one momentum indicator.
The biggest lesson I learned in trading is K.I.S.S. Keep It Simple Stupid! Figure out what works for you, and keep it simple. You often have to make trading decisions in split seconds, so
why would you have ten different signals conflicting with each other while you’re trying to
make your trade?
Now let’s take a look at a more recent chart:
This is my simple chart. No fancy indicators, nothing special. Everything I need is on this
chart. The moving averages show me the direction I want to be trading, the pivots show me
the support and resistance levels I want to keep an eye on, and the stochastics show me when
price action gets to extremes for a solid entry. Which chart do you think would be easier to
make a split second trade with, the first one or the second one? Hopefully you said the second
one. So many people make trading overly complicated. If you can’t see your price action, you
have a problem! You should never have more than THREE indicators on your chart at any given
time: Trend, Momentum, and Support and Resistance. If you can’t look at a chart and instantly
tell where to trade, you’re not doing it right.
5) Lacking Patience:
This is the killer of binary traders. Having patience and discipline is
the key to trading. If you don’t already have these skills, you must make the effort to master
them. If you don’t, you will inevitably make one mistake after another while trading. It took
me TWO years to master patience and discipline. Perfecting the ability to follow your rules
instead of making impulsive decisions based purely on your adrenaline rush is a lot harder than
it sounds, but it is necessary for successful trading.
As strange as it sounds, we want to make trading as boring as possible. If trading
becomes exciting and you start letting that adrenaline flow at critical decision-making moments then you are far more likely to make mistakes. If that chart you’re looking at doesn’t line up
100% with your rules, then don’t trade! When I first started trading I absolutely loved every
second of it. The fast money, the adrenaline rush, it was great! But I also lost all of my money.
🙂 When I started forcing myself to follow my rules and resist impulse trading, I started making
money. Do I enjoy trading now? Not at all! But does finishing a day with a $5,000 profit make
the lack of adrenaline rushes worth it? H*** yeah! Trading isn’t really meant to be fun, it’s
meant to make you money. If you have the patience and discipline to follow your trading rules
you will no doubt make money. Sometimes you won’t find a good trade for more than an hour.
You might not even find a good trade all day long. That’s why patience is the key to becoming a
good trader. Only when you find a trade that fits your rules 100% and you can hear it
screaming to you “TAKE THIS TRADE!!” should you invest in it.
I can’t stress this point enough, because when I started trading it was one of the biggest
factors in my constant money losses. I would often get into a trade knowing full well before I
made the trade that it was most likely going to lose. Why would I take a trade if I thought it
was going to lose? I still can’t answer that question, but I have a pretty good suspicion that I
just liked that trading adrenaline rush. In the end you have to ask yourself, “Is an adrenaline
rush worth losing my hard earned money?” Remember to be patient and disciplined. Without
these two key components, no matter how great your strategy is, you will fail in the long run.