Education: The 90-90-90 rule - Why do traders fail?

8 ม.ค. 2021

"Many are called, but few are chosen". Ever heard this proverb?

This is certainly true for trading, in fact, there is even a rule in trading about this, the 90-90-90 rule. So what does this rule say?

"90% of traders lose 90% of their money in 90 days"
😱😱😱

That's right, statistics show that 90% of people who start trading lose the majority of their money in less than 3 months. But why is that so? In this post I will try to lay out the reasons for failure, if you are a new or struggling trader, I'm sure you'll find this useful. Let's get into it ...

• 🤯 EXPECTATIONS
  Many start trading because they've seen or read about success stories, people becoming rich overnight, they might even have a friend who has been successful in trading and they think (to say it in Jeremy Clarckson's famous words) "How hard can it be?. With this approach, failure is imminent...
  
  
• 📐 NOT HAVING A PLAN
  "If you fail to plan, you are planning to fail - Benjamin Franklin. Trading without a plan results almost certainly in failure. Your trading plan should include the definition of your setup, entry, stop loss, profit taking, trade management, risk management and money management.
  
  
• 🔄 NOT TESTING YOUR PLAN
  OK, you have determined how you will trade, what defines your entries and exits, how much of your capital you will risk and how you will manage your trades. But do you know what is the expectancy of that plan? Do you know how much trades you will win on average, and how many you will lose? How much money can you expect to make?
  Backtesting your plan, executing it flawlessly time after time on historical data will give you that information and the confidence to execute your plan time and time again without hesitation.
  
  
• 😱 EMOTIONS - THIS IS THE BIG ONE!
  If did not take the time to create a trading plan and backtest it, you don't really know what you are doing and emotions will have the best of you.
  Fear, greed, hope, excitement, anxiousness, boredom and frustration will drive your hard earned capital away from you.
  Results of these emotions are : trading too much, letting your losers run and cutting winners short, revenge trading, overleveraging etc...
  I could write an entire post about each of the emotions and how they can affect you while trading, but it would make this post too lengthy. Just know that emotions are your biggest enemy when trading, for best results you should be in a stoic state when trading.
  
  
• 🕺 EGO
  "The market can remain irrational longer than you can remain solvent.". If you want to prove the market that you are right, you are doomed to fail. The market is always right, no matter what happens, so you better learn to accept that your analysis or prediction of what would happen was wrong and cut your losses. Fast!
  
  
• 📚 LACK OF EDUCATION
  It takes many years to learn a skill or a profession, trading is no different. If you think about making lots of money without putting the time in to learn and test, you pretty much guarantee yourself to fail.
  You wouldn't want a lawyer without education to defend you in court, or a self-proclaimed surgeon who learned on YouTube to operate on you, would you?
  
  
• 💰 STARTING CAPITAL TOO LOW
  If you're starting with a low capital, you will tend to try and make it grow fast, resulting in taking too many trades, too high of a risk, too high leverage. If you start with a low capital, you'll have to be OK with the fact that it will grow slowly and that it will take (a lot of) time to build up a sizeable account.
  
  
• 🚦 BUYING OR FOLLOWING SIGNALS
  "There is no such thing as easy money." You might think that you don't have the time to learn about trading, making and backtesting a trading plan. So why not follow signals?
  Ask yourself what you know about this service? How profitable is it (and don't just go from the claims they make)? Do you know anything about the reason for a signal, why was it triggered?
  Have you talked to other users who used the service, what do they think about it? Why is this person/company selling signals if they are so successful as they claim? Philanthropy ? 🤔
  
  
• 📉 INDICATORS OVERLOAD
  Indicators can help you make decisions for trading, but too many indicators can and will lead to opposite signals or "analysis paralysis.
  Most indicators are derived from price, so it makes sense to learn how to read price action and discover the story behind the candles.
  
  
• 🆕 THE NEXT SHINY OBJECT SYNDROME
  You took the time to develop a trading plan and even tested it, but you run into a drawdown... Rather than counting on your experience and the expectancy that you know is there, you look for a new shiny method of trading, until the same thing happens again with this new method ... Rinse & repeat, never giving the chance for your original method, which you know was working when you tested it, to prove its worth ...
  

Alright, I think I have provided the main reasons why new or inexperienced traders fail. Knowing why they (or you) fail is one thing, doing something about it is not a small feat. But with enough dedication, persistance and the right mindset, you can prove these statistics wrong!
Feel like reasons are missing, let me know in the comments below.

"Trading is a ruthless business that does not take any hostages, better come prepared. - Nico Muselle

So what is your story?

• Are you a successful trader now but recognize these reasons for failure?
  
• Are you a new trader? Was this helpful?
  
• What did/will you do to overcome this?
  
• What did/do you struggle most with?
  
  Help the TradingView community by commenting below.
  
  "Trading is a ruthless business that does not take any hostages, so you better come prepared." - Nico Muselle
  
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28 ก.พ. 2023

บันทึก

Bumping this for all new traders that have come online and have not had the chance to read this (yet).