Part 2: Reasons why aspiring traders and investors sit in the struggle bus
Part 2 of 2: In this article we examine critically the problems that new forex, futures, and stock traders have and work towards rectifying it.
Part 2: Reasons why aspiring traders and investors sit in the "struggle bus"
If you haven't read "Part 1" yet, please start reading here
Problem 6: Lack of proper money management
Poor money management is an enormous problem that destroys most investor's trading account before they even get a chance to get started. The major causes of poor money management can be narrowed down to two things, lack of information or inadequate knowledge about proper money management and greed. Many people are too blinded by greed to see that it is not wise to place too much money on a forex, futures, or stock trade. They end up raising their risk in the bid to make more money, and they end up losing it.
We have always pointed out that you should only trade and invest with money you can afford to part with. Trading and investing with money you are not ready to lose and risking more per trade than you are comfortable with can only end in a disaster. Not understanding how much you are mentally prepared to lose can be a huge part of this as well.
Solution: Understand and plan
The solution begins with understanding you can't trade and invest with money you are not prepared to lose. You will be doomed if you are funding your account with a credit card because you have no extra cash to trade with. You cannot trade with money that you need to use to survive, either. It will only end in tears if you do.
The first step is to decide if you have the money to put aside for forex, futures, and stock trading before you begin. Trading and investing in the financial market is calculated risk, and the only way to approach it is from a perspective of you knowing you could lose the money you are trading with. There is the probability of losing the money, but with proper training and discipline, that probability is reduced. However, you must still be mentally prepared to lose the money and be okay with it. Once we are mentally prepared for whatever happens, we put ourselves in the best position to make the right decisions and to win.
You have to stay committed to only funding your account with money you are comfortable losing and never to risk more than you are mentally okay with per trade. We always advise people to set their per trade risk (1R) to an amount that they would still be willing to trade with even if they were to lose 10 trades consecutively. If you want to know more about proper risk management, please read this article here
Problem 7: Overtrading – Putting Quantity over Quality
Trading too often is usually the number one account killer. Nearly every forex, futures, and stock trader has been guilty of this in the past. The ones who quickly realize what is happening are the ones who stay in the game long enough to enjoy their success. The unfortunate part is that many forex, futures, and stock traders don't even realize this until it has successfully killed their trading account.
Overtrading comes in when you trade without your Supply and Demand trading edge or enter trades, which don't meet your predetermined Supply and Demand set of rules. The only cause of this is greed and impatience. It is a legit desire to want to make more money, but the way to do that is not by overtrading. The three major factors that encourage overtrading are looking at lower timeframes, not having a proven strategy, and trading from a phone app. These three things can easily lead to addiction to the charts, which will only breed overtrading. Like we have said before, overtrading is just like gambling, and in gambling, the house always wins, and the house is definitely not you.
Solution: You need to slow it down
Slow down every aspect of your forex, futures, and stock trading. Stop trading from your phone and also stick to only higher timeframe charts using your Supply and Demand trading strategy. Spend nothing more than 2 to 4 hours analyzing charts per week. You need to apply a quality over quantity approach. In trading and investing, you have to understand and accept that less is more. If you want to know more about putting quality before quantity read here
Problem 8: Not understanding order flow in the financial market and how to read Supply and Demand imbalances
It should be obvious enough that if you don't understand how and why the market moves, the basics of filled and unfilled orders in the market, and Supply and Demand, there is no way you will make money from the forex, futures, and stock market consistently. However, we have frequently come across traders who have zero ideas about the mechanics of the market or Supply and Demand imbalances.
Here are some illustrations of this problem:
Making attempts to trade breakouts: This results in losses due to the fact they don't comprehend false breakouts. You are chasing price!
Entering when the market is in its extremes. Buying retail and selling wholesale. Again you are chasing price!
Trading the News! How can you achieve a level of consistency by trading the most subjective element in the financial market? Of course, you can have a lucky shot once in a while, but consistency is only achievable by having an objective rule based approach.
Not knowing how to use multiple timeframe analysis in your favor. You need to look at the whole picture, not just a section – viewing the charts from right to left and understanding what they are telling you, instead of focusing on one single chart.
Solution: Learn how to apply Supply and Demand properly and be watchful
We just have to apply the basics of Economics 101. Market price changes its direction at an area where Supply and Demand is out of balance. The greater the Demand, the higher price travels and vice versa. Supply and Demand imbalances give you extremely important information such as key levels of imbalances, and areas where banks and institutions are very likely to buy and sell. These facts have to guide us in making decisions in all of our forex, futures, and stock trades.
Problem 9: Absence of a daily / weekly / monthly trading routine
Without a routine, your forex, futures, and stock trading is going to be all over the place without a specific direction. The way you live your life is going to have a direct impact on your trading results. If you do not have a consistent trading routine and approach, you cannot expect consistent trading results.
The major cause of this problem is that a lot of people start trading without any form of guidance. No mentor, no one experienced to put them through. They think they can learn on their own and wing it, but this is just a recipe for disaster. There is no trading strategy that they've mastered, and they are just hoping for some miracle to make their decisions profitable.
Solution: Create a stable routine and consistency
Create a routine that has a balance of all the areas you want to focus on. We, as an online trading academy have published various articles on how to form a routine. Routines help build consistency. Once you have build your Supply and Demand trading strategy, dedicate a certain time in the week to look at charts in a serene environment without disturbance.
Problem 10: Trading without prior professional training
Trading without any form of professional training, going into the market without developing any form of skill, or obtaining any form of relevant knowledge is like going into a battle without weapons. This is one act that will kill your trading account faster than any other thing would.
It still amazes us how anyone would think they can become a successful trader and investor without learning how to apply Supply and Demand properly. Everyone needs to obtain the necessary skills and be able to read and interpret charts before hoping to make a dime in the market. Financial speculation is not for the weak, and you need real education and training before you proceed to risk your money in the financial market.
There is really no profession on earth where you can avoid training and still succeed. From boxers to wrestlers or doctors and lawyers, all train before they start performing their craft.
Solution: Learn from an experienced professional
Like we have already said above, there is no craft that doesn't require you to learn from a professional, and the only solution here is to submit yourself to training. Learn from someone who has already gone before you and has made all the mistakes you could possibly make. They will be able to show you how to avoid such mistakes and the right way to deal with it. Doing this will not only save you money but also help you prevent a lot of avoidable mental frustration.
The main point of this article is to give you the necessary pointers to know the reasons so many people fail at forex, futures, and stock trading and to show you how to avoid them. Our expert traders in our online trading academy have walked this exact same path at the beginning of their trading career, and we have been able to help others through this path as well.
At our online trading academy, we not only help you become aware of these problems, but we also help you know how to apply the solutions to ensure your success.