The reason why 95% of new traders consistantly lose money

Hi

I have been trading forex fulltime on and off for more than 6 years. I have bought and completed several forex courses, read books, did online research and even tried out EA robots. The only consistent thing that kept on happening was that I was bleeding money. Sure, I would have one or two profitable months, but I mostly lost money. I have wiped out several trading accounts causing myself terrible heartache during this time.

I would bet that every trader reading this post can and is identifying with me.

Have you ever wondered why 95% of traders lose consistently? What is the most common thing that most traders consistently do? What is the most urgent mantra that is drilled into our brains while learning to trade? Can anyone guess?

It is using stops! CUT YOUR LOSSES AND LET YOUR PROFITS RIDE!

95% of all traders consistently lose money because they use stops. Big stops, small stops, trailing stops, you name it. Who of us can truly know which way the market will go? Even by using every indicator, being a technical or fundamental fundie, no one can predict market movement.
How many fib bounces did exactly work out as you hoped? How many times did the market take out your stops when you least expected it and turn around to go in the original direction you planned?

This is my theory. Traders that lose consistently, use stops. Forex trading is a guessing/ gambling game. The market makers indirectly participate in the forex market by finding traders dumb enough to actually trade and by trading I mean losing their money to the brokers' account. The brokers make money in forex not by trading themselves, but by having noobies trade for them and losing.

The traders who have become successful and that have stuck around long enough knows that no strategy using stops, consistently works and make money. So what have they done? These traders had to start thinking out of the box. Only by turning everything they know onto its head were they able to change their results.

Since I had this 'awakening' I have not lost a single trade. I have 100% consistent winning track record! No Bull! {Don't worry, I am not selling anything...}

Ok, so how does it work? Lets say instead of using stops to book your losses, you use stops to book your profits... Huh?

It is very simple... As has been said by another famous trader/ mentor, CUT YOUR PROFITS AND LET YOUR LOSSES RUN! If your stops are going to be hit anyway, why don't you allow them to make you money instead of losing you money?

This is exactly the opposite of the mantra every broker/ market maker drills into you. They make you believe that you will be safe if you cut your losses short and use stops to protect yourself. They make you believe that with some cool system you will consistently win more trades than you lose or win more money than you would lose by having the right risk/ reward ratio. These guys fully know that you will lose all your money eventually just like the other 95% of traders out there. You will be just another usual statistic if you trade like everyone else trades.

Now this is where gearing and money management really come in. If you use low gearing {1% of your account per trade} you can let the market swing very wide and very far against your position. If you now use a stop to take profits, it will eventually be triggered just like your stop for loss would have eventually been triggered.

Now look for possible turning points. I am sure you can find an indicator/ price pattern that does that. Only work on longer time frames, 4hr minimum, daily is good. Hedge your position, go long/ short at the same price with the same profit target both ways. You can also make your profit target bigger in the direction of the larger trend. Now your stops will definitely be hit no matter which way the market swings.

But, you might ask, what about open positions that really run away against you? No problem. As your account balance grows, you will still use 1:1 gearing. When your account balance keep growing by booking profits, the percentage drawdown of previous open positions with smaller lot sizes will shrink {in relation to total account size} because the current lot size you use now will grow too and so determine your bigger profits as well.

By using low gearing you consistantly book, say 1-5% profit on every trade. Your equity balance will fluctuate and your free margin balance will also fluctuate but at a relatively constant percentage of your total account balance. If you use larger gearing like say 5:1 and 10:1, your account might be wiped out because your margin will not be able to carry it if you have multiple positions open.

Now you have to think what is the reason for you trading? Is this a longer term investment strategy or are you suicidal? {I recommend you keep your day job, for now} By suicidal I mean, trying to scalp or using any other short term strategy that doesn't work in the long run and under various market conditions. Using longer time frames for this investment strategy is definitely better! It is a fact that when you close your account, using my strategy, in the end, that the negative open positions will then be closed as well and you will then book your first real losses.

This is not a big deal if your available equity has grown much larger than your opening balance when you close your account. I, for example, am currently growing my account by a minimum of 10% a week and this current week on the gbp/usd is up 23% so far. The power of accumulated growth is truly amazing! I have fine tuned this strategy to produce better results and started using it on a new account and I have so far doubled this account since 7 Jan 2008 {15 Feb today}.

I am not writing this to show off how brilliant I am, but to challenge the broker induced/ losing trader mentality that you have been taught that prevents you from becoming successful in forex.

If you can start with $1000 and grow it consistently over time, you will be able to show a spectacular return on your investment when you close your account even after taking the loss in the end from the accumulated losing positions. If you manage to make 10% accumulated growth per week on your capital over a year, your available equity in the end will be many times larger than your opening account balance. Work it out on paper and you will prove it to yourself.

The power of hedging is great. If, however, you only trade in one direction, {say the direction of the weekly trend is up} and you keep buying the dips/ possible turning points on a daily chart in the weekly direction and the market for some reason keeps going against you and you find yourself 1000p down, then you run the risk of wiping out your account because all your open positions will be negative and will grow until your margin collapses. By hedging every new position in this scenario, you keep booking profits on the way down and you can just wait for the market to turn around to go back up again and resume the weekly bull trend.

Now I am not trying to sell you a system and I won't give you my system either. I have suffered too much to just give it away. This is my intellectual capital and my trading edge. I have paid my dues to learn this game the hard way. I am sure you guys understand that. I do not care to prove myself to the skeptics among you so I will not post any of my results. You have to decide if you want to take me at my word or not. I merely want to make you consider what I wrote and to challenge you to start thinking out of the box. If you start working on it, you will find your own market beating strategy and have plenty of free time to enjoy your profits.

I have now become one of the 5% of traders who consistently win, without using stoplosses, and make good money.

Good luck


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