Part 1: Reasons why aspiring traders and investors sit in the struggle bus
Part 1 of 2: In this article we examine critically the problems that new forex, futures, and stock traders have and work towards rectifying it.
Part 1: Reasons why aspiring traders and investors sit in the "struggle bus"
We should all be familiar with the cliché statistics that say about 80% to 90% of traders and investors never make money. So, you essentially have only two options: to give up on your dream of being free and focus on the stress of your 9 to 5 job or try everything humanly possible to figure out why people don't make money trading in the financial market and focus on being the 10% to 20% who actually do become consistently profitable forex, futures and stock traders.
You have to take a critical look at yourself and decide what would be suitable for you. Would you rather submit yourself to the slavery of a 9 to 5-day job or commit yourself to your freedom and building consistency in the only job that can guarantee you have your freedom forever.
The first thing to do is to try and figure out what the problem is and work towards rectifying it, while also making sure you avoid such issues.
Problem 1: Not practicing with a demo account before going live
You might be wondering how not demo trading first is a problem, but the fact is that you need to learn how the trading platform you are using works. It would be a totally unnecessary loss to lose money because you were not patient enough to learn how the trading platform you use works.
Also, trading and investing with your hard earned money in the financial market before you have thoroughly had a grasp of your Supply and Demand trading strategy is a sure way to lose your money. You need practice and time to get used to how the financial market works and also build consistency before you start risking actual capital.
We, as an online trading academy wouldn't recommend spending an excessive amount of time demo trading. Between 1 and 3 months (on average) would be the ideal amount of time to spend after learning your Supply and Demand trading strategy. However, before risking actual money, you definitely need to demo trade your account to help avoid unnecessary money loss.
We can't argue against the fact that live trading is the best teacher of all due to the presence of real emotions attached to money, but that doesn't mean rushing into it unprepared.
Solution: Learning in a demo account is the first step
We have some recommendations for that. Get used to the new trading platform and learn how everything works by placing some forex, futures, and stock trades using your Supply and Demand trading strategy. Moreover, pay attention to the demo account and treat it as you would a real account. The more dedicated you are to the demo account, the easier it would be for you to transition into trading with a live account.
Problem 2: Overthinking and overcomplicating trading and investing in the financial market
Another reason a lot of people don't make money trading and investing in the financial market is that they overcomplicate the whole process. People can overthink and overcomplicate any aspect of trading and investing, ranging from their trading strategy to money management or how often they check the charts. It is extremely easy to over-complicate forex, futures, and stock trading without even realizing it.
The very first thing the majority of beginners overthink and overanalyze is their charts, and they seem to assume that the more indicators they use, the better off they are. However, as we have always emphasized, indicators can actually ruin your trading account.
Once your chart starts to look messy and starts bearing a resemblance to a work of art instead of a Supply and Demand chart, then you’re overanalyzing. If you are extremely used to the lower timeframes, then you are also overcomplicating it, and if you are also staring at charts for hours or constantly reading economy-related news, there is a high chance you are also overcomplicating it.
Solution: Objective, rule-based trading approach based on Supply and Demand
Always remember that the fundamental data of all our trades and analysis is price. The first step to ensuring we don't over complicate things is to avoid covering up the most important detail, which is Supply and Demand. You need to learn and master how to trade Supply and Demand without indicators and fancy softwares.
Problem 3: Not understanding and accepting losses as part of the process
One major problem for new traders and investors is understanding and accepting that losses are part of the game and learning how to cope with it. A lot of inexperienced traders and investors find it hard to accept the fact that there will be some losing trades. They have to understand this and develop ways to deal with it.
Some people try to deal with it by not having stop losses or hedging, but such actions only lead to bigger losses and a quicker blowout of accounts.
Many forex, futures, and stock traders tend to react emotionally to losing trades; some become afraid and hide away from trades while others trade with extremely small amounts. Some have a totally different reaction and get a revenge mentality by trying to win back the money lost instantly. They begin to make reckless decisions and enter the market back immediately while increasing their dollar per amount of risk. Both of these emotional reactions are equally negative, and one prevents from making profits while the other leads to even more losses.
Solution: Understand, accept, and plan for losses
The only way to handle this is to understand that losses are part of the game and make plans to contain and manage it effectively.
It is important to know and understand that any particular trade could turn out to be a loss. Even if you have a 60% win rate, that still means you have a 40% loss. The tricky part is that you never realize which trade is the losing trade, and it can sometimes come as a shock. For instance, out of 100 trades, if you have 10 or 15 losing trades consecutively, could you handle that, or will it throw you off and make you give up? You have to mentally prepare yourself and also equip yourself to deal with it. You can read further on randomly distributed wins and losses.
There is something called good loss and bad loss, and it goes a long way to be able to understand what the difference is. You might be wondering how a loss could ever be good. A good loss can only happen as a result of you trading your edge with enough patience and much discipline. This means you entered a forex, futures, or stock trade that is in line with your predetermined Supply and Demand trading strategy, but it was a natural statistical loss. Your decision was good, but the trade was just naturally bad.
A bad loss, however, is the avoidable loss you incur due to an oversight. In most cases, it indicates overtrading or trading when your edge is obviously not present. Bad loss is the major reason a lot of traders and investors quit. Most people are often guilty of overtrading and are technically just gambling in the market. One obvious and well-known fact about gambling is that the house wins almost every time, and the house in this scenario would be other forex, futures, and stock traders you are trading against. These bad losses are the ones you have to consciously work to avoid by trading and investing only when your trading edge is obvious.
Problem 4: Focusing on money instead of trading and investing with a rule-based plan
It is a common problem that a lot of forex, futures, and stock traders get engrossed focusing on money and lose sight of the actual trading and investing, which brings in the money.
Do you think professional athletes are thinking about money during competitions or during their performance? They most definitely are not. They would be solely focused on performing excellently well and enjoying the game they love and are passionate about. They prefer to do what it takes and exact themselves to the work it takes to excel. Most successful athletes are always thinking about their psychology and the process.
If you are too focused on money that you forget about the mechanics of trading and investing in the financial market, you won't last in the market.
Solution: Always learn to focus on the process, not the results
Understand that making money, as a forex, futures, and stock trader is dependent on how well you can focus on trading and not money. You won't be profitable if all you think about is money. Focusing on the journey, which is trading is the only way to get to your desired destination (money) without crashing.
A lot of new traders and investors keep asking us how much they can expect to make at the end of their first month or how much they should risk, but these are all wrong questions. The question should be, "how do I trade properly?" "How do I understand and interpret charts correctly?" These are the questions worth asking.
Quite a number of people seem to focus on what they can get out of trading and investing in the financial market but not on how they can trade properly. The irony is you will not make money by focusing on money; you have to focus on the process and mechanics – Supply and Demand, that is the only way to succeed.
Problem 5: Not paying attention to higher timeframe charts first
A large percentage of new forex, futures, and stock traders dive into trading head first and try to day trade. They seem to have this distorted idea about trading and prefer to get obsessed with short timeframes instead of the high ones. We can't really blame them because there is a lot of misinformation out there, convincing them that it is the right and profitable way. It is very easy to get addicted to the movement sounds of 1 to 5mins charts. What you need to realise quickly is that short timeframes are just a waste of your time and resources.
The full picture can only be seen by zooming out and viewing the higher timeframe (daily, weekly and monthly) charts that give you more context and far more useful results.
Solution: Focus on trading only the higher timeframe charts from the beginning
The only way out of the problem is to focus solely on the higher timeframe charts. We have written quite a number of articles on why you should trade only the higher timeframes, and we advise that you read up on those as well. You need to learn how to understand the higher timeframe charts and understand that you will not be able to make money from the lower timeframes if you don't understand the context on the higher timeframe chart first.
If you intend to trade daily charts, then you have to be able to comprehend what the weekly and monthly chart means in terms of direction, and Supply and Demand imbalances. So the solution would be not only to understand the importance of the higher timeframe but also to master it.