Why 95% of Traders Fail
How not to be one of them
You always hear this statistic: “95% of traders are unprofitable”. What’s more, the figures vary: sometimes it’s 90%, sometimes 95%, sometimes even 99%.
In short, whatever the percentage, the number of traders who fail and lose money is very high, that’s for sure.
In fact, most people who try their hand at trading stop after 1 or 2 years because they feel it’s not working for them. Yet I’m convinced that if you keep at it, you can become successful.
Let’s take a look at why most traders fail, and how not to be one of them.
Trading is not a hobby
Too many people think that trading is a hobby. That all you have to do is watch a few videos, put some money in an account, and make a few percent to make ends meet. These people don’t take trading seriously and inevitably don’t succeed.
Trading is a profession like any other. That means you need a minimum of study to succeed, and above all you need time. A doctor doesn’t become a doctor in 2 months. An engineer doesn’t become an engineer in 6 months. A trader doesn’t become a trader in 1 year.
You have to spend time on it, maybe even several hours a day. And for several months/years. When you say it like that, it sounds a lot less attractive, but it’s the truth.
The only difference between trading and a job is that trading has no barriers to entry and anyone can become a trader overnight, simply by opening an account with a broker.
So, if you want to become profitable, start by spending some time learning about trading, how markets work, economic events, etc. Also spend some time demo trading to gain a little experience, just as professional experience is necessary to progress in any profession.
If you have a 9–5 job, it can be hard to find time to trade. What’s more, if you trade outside your normal working hours, it may not fit in with the market’s schedule.
So that’s the first reason why most traders fail: they don’t have enough knowledge and experience, because they think it’s just a hobby.
You have to constantly improve
This is related to the previous point, but a little different. Traders who fail are traders who don’t seek to improve and learn more. They learn one or two strategies, they know one or two markets, and they trade one or two assets. When their trade doesn’t go through, they get upset and don’t trade the next day.
The key is to be consistent. For example, in school, you had to go every day. Even when you didn’t feel like it, when you were pissed off, or even sometimes when you were sick. It’s the same with trading. You have to make it a habit, and devote a little time to it every day, so that you learn something new every day.
Even when you start to make a profit, and you feel you’ve mastered the situation, don’t rest on your laurels. Keep learning, and over time you’ll increase your earnings, just as someone who works and accumulates experience becomes better paid over time (to use the parallel with trading as a job).
To take the comparison a step further, when you become a trader, you start with a base salary, just as you would for any other job. However, this base salary is negative. With experience, you’ll manage to increase this salary to the zero mark, and then never stop, because trading offers you almost infinite leverage on the money you can make, unlike another job.
Trading is all about discipline
Many traders simply have no discipline. They try one strategy, see that it doesn’t work, try another, then another, then another… What’s more, they misuse their strategies. Instead of sticking to the letter of the rules they’ve defined, they trade on instinct.
Of course, everyone knows that trading by instinct doesn’t work. And yet, many do it anyway. Traders who fail are traders who have no discipline. A disciplined trader loses money at worst, but knows why. He knows it’s because his strategy isn’t working.
And again, I’ve only talked about strategy execution, but everything in trading requires discipline. You want to develop a strategy: have you backtested your strategy? Have you done walk-forward testing? Have you run a Monte Carlo simulation? Have you clearly defined the rules of your strategy on paper? Very few people do, and very few succeed.
Risk management also requires discipline. Have you calculated your risk before opening a position? Have you considered the impact of your position on your margin? Have you calculated your liquidation level? Are you respecting the maximum risk you have set yourself for each trade?
Finally, we can also talk about discipline, but in terms of perseverance. Typically, if you’ve practised a strategy and you know it’s potentially good, but you can’t do it, persevere. Don’t change your strategy. To use our job analogy again, it’s like if you studied to be an engineer, but in the end you have to be a surgeon. Personally, I don’t want to be the person you operate on. A trading strategy is something you have to learn, and it takes perseverance and discipline to master.
Final Note
I’m not a successful trader myself, and in fact, I’d given up trading for a while. Writing this article helps me regain my motivation because I’m SURE that by putting in the necessary effort and learning every day, anyone can become a profitable trader.
Thanks for reading! Here are some links that may interest you: