Why 99,9% fail

Discussion in 'Trading' started by college_trad3r, Sep 16, 2009.

  1. SteveH


    If I had to give advice to a new trader, first, I would recommend trading either the ES or TF e-mini futures contract, but preferably the TF. It doesn't require a lot of initial capital and you don't have to lose 10's of thousands to figure out if you're good enough or not.

    You've got to take baby steps so here's what you do:

    You need to find (through research/real-time sim practice) a simple scalping system which can give you a payoff ratio (avg win / avg loss) close to 1.0 and a winning pct of around 55-60%. You want to avg around 1 tick better on your wins than your losses. Here, you have a slight edge, but not a great one. You are relying more on overall your winning pct. than your payoff ratio.

    The important aspect of this is not to make discernible amounts of money at first, but to get you solid under the gun, taking lots of trades and sticking to your system. This kind of system is easier on the emotions because you don't win a lot and you don't lose a lot on each trade.

    In a little system like this, make your goal like an average of 8 ticks ($80) per trade and 7 ticks ($70) per loss [note: trans fees canceled out with the 1 tick difference to cover overall entry/exit costs]. This is not to say that you won't get some 1.5 pt winners ($150) or some 1 pt losers ($100...I recommend this is a MAX acceptable loss level...you don't ever need more than a 1 pt loss on the TF to figure out if you're right or wrong on a scalp. And sure, if you're up 5 ticks but not at your target of 8 ticks yet, you're moving your stop up to a breakeven and might take 3 ticks profit instead of scratching the trade. There's all kinds of combinations like this which can go on trade after trade but the important thing is that it keeps you highly focused on the price action of the market you're watching.

    All of this can be done with a decent real-time simulation environment like Interactive Brokers has just so long as you never count any trade in a sim environment where you got taken into the market by buying on the bid or selling on the ask. Only count trades which trade through your limit order by 1 tick. So start this way, build something which is repeatable over 100's of trades and then you're ready to try it out with real money.

    I wish that I had done something like this when I started trading the futures. What happens in the process of trading in a more confined win/loss spectrum like this is the following:

    1. You get used to taking profits and losses without thinking so much. This builds confidence over time.

    2. You are subconsciously building up a feel for the market's price action. You're going to learn when some of those trades you entered are far better than your modest profit target. This is going to give you a lot of good ideas for expanding your trade setups as you grow out of the newbie stage.

    It's not a bad thing to take 20 trades and find you're up only $100 to $200 for all of that effort. Because what you're also finding out is that you're not consistently losing because you are actually applying a consistent pattern of trading behavior to the randomness of the individual trade setups coming at you.

    In my opinion, this is the easiest way to learn whether you have what it takes to trade without costing you so much of your hard-earned and hard-to-replace savings.

    Next step? Do the same thing with 2 contracts, all-in / all-out. Now you've got more leverage and that will kick up your heart rate. Get used to this and try your best to perform at the same level as you did with 1 contract for the same amount of time.

    I think that if you get past this step, you're going to make it and I certainly won't have to suggest to you what to do next...you'll already know.


    This basic idea works in trends or sideways markets so you're never really on the sidelines for long. You can scalp either situation like this because your profit target is never too great (i.e. not more than 1.5 to 2 pts on your best scalps) to require a sideways market to turn into a trend before you reach that kind of target.
    #31     Jan 14, 2010
  2. lynx


    Thanks for your thoughts. I will look into that author you mentioned. I'm not sure what you are getting at when you say you have a name for each bar. I assume that's a way for you to classify them.

    My money management techniques have grown out a desire to be extremely conservative about not losing money. Probably too conservative, but I'm loosening up gradually to allow for larger profits. Basically, what I'm doing now:

    1. I favor reversal entries that naturally have fairly close stops.

    2. I move my stop up to break-even as soon as the price moves up to the next range level from where I entered. I sometimes move the stop closer a few ticks after a few minutes have gone by with no progress.

    3. There is one setup I take on the open that requires a large stop. I'm considering changing my entry so that I enter on the almost inevitable opening spike against me, rather than entering before the open. I'll have to go back and see how often that adverse spike actually occurs.

    4. If I have a larger stop and the price goes against me, I will close the trade before it hits my stop if I think based on price action that the reversal has failed. I do this because I got really tired of realizing my trade had failed, hoping it would turn good, and then watching as the price went down another 5 ticks before taking me out.

    I'm still a little uncertain with regards to profit taking. I variously:

    + snag a quick profit at +10 ticks on the YM.
    + wait for +17 ticks which is very commonly reached.
    + trail the stop by 10 to 20 ticks.
    + place a profit taking limit order at the next level of resistance.

    I'll vary the profit taking method based on the expected return of the trade. For example, when attempting to catch the 10:00 reversal, trailing the stop is probably the best bet, but most other times taking a profit at 17 ticks works better.

    I too end up taking a lot of 1-tick profits, but it doesn't bother me because it's better than losing money!

    One more thing I do is to start of each month being very conservative and grabbing quick profits. This enables me to build a cushion that so I can feel comfortable taking larger risks later in the month. I know that's not optimal; but it really helps me feel better about what I'm doing.
    #32     Jan 14, 2010
  3. lynx


    I don't think you were replying to me but your post is good advice and duly noted.
    #33     Jan 14, 2010
  4. Well said. Like the part about money management. It was not until I understood how to properly manage trades that I became consistently profitable. Yeah, it can take years - most who fail give up long before that.
    #34     Jan 19, 2010
  5. No.Heat


    I think most fail because trading is one of the most competitive hardest professions to excel at.

    The rest is a matter of semantics.

    No Heat
    #35     Jan 19, 2010

  6. 95% probably dont trade FULL TIME I'm sure there are more than we know, of traders with smaller accounts or even larger acounts that are profitable, but like the security of a job, and the pleasure of a 2nd income.
    #36     Jan 19, 2010
  7. They don't make it because they do not understand leverage and risk.
    Then they quit.
    Or they change their entries and exits.
    They never correlate risk and volatility.
    They get emotional.
    They measure their PNL by the day or hour rather than by the month.
    #37     Jan 19, 2010
  8. Why people fail (at any endeavor) ....

    Each entry is a cause of the the next one in the list:

    1. Overexcitement.
    2. Impatience.
    3. Rush.
    4. Skipping important steps.
    5. Mistake.
    6. Failure.
    7. Losing your energy.
    8. Turning back.
    9. Keep repeating the above process until the big turn:
    10. Loosing faith in what you are doing.
    11. Need to protect yourself against others criticism.
    12. Blaming others for your failure to protect your social rank.
    13. Depression.
    14. Worse...

    - Spydertrader
    #38     Jan 19, 2010
  9. Mr J

    Mr J

    Only basic maths skills are needed. No more is needed that what is needed for poker.

    To be fair to the OP, he didn't define failure, but then I suppose it should be taken in context with his other posts.
    #39     Jan 19, 2010
  10. krunchzzz


    Most people fail because they lack discipline, planning and never overcome that fear that's shut them down before.
    #40     Jan 19, 2010