Feb 12
20
Why Traders Fail
The following is a brief article I wrote as a prelude to my presentation at the Online Trading Expo Feb 27 at 3:00PM ET – Register HERE
It is said that 95% of stock and futures traders lose money. In the forex market, I have heard numbers as high as 99% of traders fail! A recent study done by a major brokerage firm uncovered some interesting data as to why the majority of their clients were losing money. It, surprisingly, had little to do with accuracy. In other words, they found that their clients were right in their analysis more than 50% of the time. In some cases their win/loss ratio was greater than 70%! Yet, despite the high win rates, the majority of their clients were losing money.
So, what’s the problem? Why do so many traders fail when they have more winning trades than losing trades? It all comes down to the golden rule of trading – keep your losses small and let your winners run. The majority of traders have a lot of small wins and a few big losses that end up wiping out all their gains.
In the study, the brokerage firm found that clients trading the EUR/USD, for example, won 58% of their trades. The problem was that they were profiting on average only 65 pips while they were losing on average 127 pips – almost twice the size of their winning trades. This is a perfect recipe for disaster in trading that I see being made over and over again by the majority of traders I come across. This is the number one reason why traders fail.
So, how can we fix this? Most professional traders have a process they go through before they consider entering the market. Some traders may word it a little differently but essentially it covers 4 basic steps. At MTPredictor, we call it our 4-Step Trading Process:
1. Find a trade.
2. Assess your risk/reward.
3. Determine your position size.
4. Control your exit strategy to maximize profits
This 4-Step Trading Process covers all the bases a trader needs to cover in order to lose small if his analysis is incorrect but win big when he is right. It will keep your risk profile consistent from trade to trade, market to market and time frame to time frame. Follow this process for every trade and start doing what 95% of traders fail to do – lose small and win big.
Example of a low risk/high reward trade setup taken by an MTPredictor client using the MTPredictor trading software for stocks, commodities, futures and forex.
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MTPredictor runner up 2011 Readers' Choice Award for best futures trading system.
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Read the MTPredictor article in the Sept/Oct 09 issueFeb 12
12
MTPredictor Weekly Market Update
The ES (S&P futures) continued its overall rally through earning season. We’ll see if we get some sideways action in the wave c resistance area once earnings season wraps up.
The NQ has also had quite a rally taking out its recent prior swing highs into a major wave 5 resistance area. We’ll see if that can slow the NQ’s rally.
The weekly MTPredictor gold long trade has hit its 100% initial risk line so stops there can be moved to break even for a risk free trade. The silver long stop can also be moved to its entry now that gold has hit its initial risk line.
Oil has rallied off of wave b and is just below $100. Watch this $100 level in oil as the Saudis have said they don’t want to see oil above the $100 level.
Check out the rest of the analysis featuring the MTPredictor Elliott wave and Fibonacci trading software for stocks, commodities, futures and forex.
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Today’s MTPredictor trading webinar focuses on the need for every trader to learn to manage risk. Unless you can learn to manage the initial risk, control your positions size, have an appropriate target that is at least twice your initial risk and allow the winners to run, you will be fighting a major uphill battle to trading success.
See how our 4-Step Trading Process in conjunction with the MTPredictor professional trading software for stocks, commodities, futures and forex can get you on the right side of the risk/reward equation.
1. Find a trade
2. Assess your risk/reward
3. Determine your position size
4. Control your exit strategy
View the webinar recording HERE
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The S&P and Dow continued to move higher through earnings season as expected. The ES came within a point from taking out the high made back on the week of July 27, 2011. This will be another critical level which also happens to be a resistance area.
The weekly MTPredictor gold and silver longs at 1632.5 and 29.75 are both risk free trades now with stops moved to their entries. The gold target sits at 1896 with DP resistance just ahead of that target at 1848. The silver target is a big one at 53, however, be aware of DP resistance off the wave b swing at 46.75. The point now is that these trades can’t lose. If they hit their targets they will produce very healthy profits.
Oil has pulled back into its daily wave b support area after hitting its MTPredictor TS3 long trade target at 103.46. We’ll see if it can move higher off this support area. The next resistance area is that same 103.50 area.
Goldman Sachs has been able to hold above the $100 line in the sand which is an indication that the broader markets will show strength. It has now come into a resistance area in this $115-120 area. If Goldman remains above $100 expect broader markets to remain positive. If it falls back below $100, expect the broader markets to follow.
Finally, on this Super Bowl Sunday, I will leave you with a great video documentary featuring Paul Tudor Jones. If you are interested in markets and trading it is a must see documentary. Listen to how PTJ explains what creates markets and think about it in context of our current debt based economy. His use of Elliott wave to pinpoint the impending crash of 1987 within a few months is fascinating to watch unfold.
Enjoy the game and enjoy the documentary HERE
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