95% of Retail Forex Traders Lose Money Is
This Fact, or Fiction? Interesting Study by TOI:Indian Retail Investor/trader
lost 84000 cores in 18 month period. Thats a Huge sum of money lost by retail
traders, so what exactly lead to trading failure of retail traders in Stock
market.The difference between success and failure for a trader is wafer thin, Lets
elaborate with an example Amateur retail traders tend to think that the
professional trader or Institutional investor have some sort of secret
knowledge/system that enables them to make huge profit in trading. However, the
difference between a retail traders trying to make consistent profit and a
professional traders zeros down to the trading mindset and trading psychology.
Let us give you an example of what we mean. A relatively new retail trader is
given a profitable trading system having a trading strategy with proper stop
loss and target and the trading system delivers an average success rate of 60%.
The retail trader is exited that he has finally found something that will
ensure his success. Over the course of 10 potential trades using the trading system
it gives a perfect 60% strike rate. However, the mindset of the retail trader
can hamper his individual performance.
In
this example, the strategy starts out
with 2 winners, then 3 losers, then 1 winner, followed by 1 loser and
then
finally 3 winners so overall, it gives a good success rate. The problem
is that
the retail trader does not achieve these results for the following
reasons. *
After the first 2 winners, he is very pleased with trading system
performance
and is on the top of the world thinking finally i can earn profit in
stock
market. * But this happiness does not remains long as after 2 profitable
trade
he has string of 3 losing trades. These losses jolts his confidence and
makes
him hesitant of taking any more trades but has not lost hope on the
system.
Till now he has only 2 winners and 3 losers. * On the 6th trade, which
we know
in advance is going to be a winner, the new trader gets nervous and
decides to˜just watch this one to see how it gets on. When he sees it is
a winner,
he kicks himself for not taking the trade.
He takes the 7th trade which is a
loser and so his mind starts playing games with him again. At this stage, he
has had just 2 winners and 4 losers. * On the 8th trade, he could not bring
himself to hit the button and buy the shares even though he knew deep down that
he should strictly follow the strategy. Again, this one becomes a winner and
again the new trader kicks himself for not trading this time. * The 9th trade
he takes and wins on but he loses on the 10th trade because he placed his stop
in the wrong place (despite where he had been taught to place them). So
although we know the strategy delivered a 60% win rate over the course of 10
potential trades, the individual only managed 30% because he was trying to
second guess the strategy (if you just look at his percentage win rate from the
actual trades he took then his success rate was still only 38%). It is usually
the mindset of the retail trader that limits their level of success. Once they
understand the psychological aspects of trading and are able to be disciplined,
trading becomes that much easier and consistent profitability is now attained.
If you see an opportunity that meets your criteria for buying or selling a
share, do not hesitate as this type of trading is not the path to success.
Constant monitoring of trades and learning from any past mistakes is what
professional traders do and hence why they make it look so easy. So First Learn
the tricks of trade than earn. Educating oneself is the best investment one can
do. (re-produced note)
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