One of our most requested Guest Bloggers is Mark McRae, author of Traders Secret Code, and today I'd like you all to welcome him back! I've asked Mark to touch on a subject that most seasoned traders know, and rookie traders don't want to hear...most traders fail and a percentage of those failures turn into bankruptcy! Please read the article, comment to Mark or about the ideas, and check out Marks Traders Secret Code.
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I was thinking about an article I read some time ago that 90% of traders who ever trade lose their account and that 10% actually go bankrupt. If the first number doesn't scare you then the second definitely should.
Why is it then that there is such a large number of traders failing? It is not because they are stupid; in fact most traders have an above average IQ and are above average in most categories such as education and income. So why do they fail?
Lack of trading education! ( INO TV will help solve this problem!)
By education I don't just mean learning how RSI works or drawing lines on a chart. I mean thoroughly educating yourself in all aspects of your chosen profession.
Educating yourself on the correct psychological approach to the market! Educating yourself in the correct risk management techniques relative to your account size. Educating yourself in the correct entry and exit methods for the trading style that suits you.
This, my friend, is where I hope to be of some help. I don't have all the answers nor do I profess to be some kind of guru but I will do my best to point you in the right direction.
Common Misconceptions Of New Traders
*They think they can trade consistently with an 80% accuracy.
*They think they can turn $1000 into $100,000 in six months.
*They think they can predict turning points in their given markets to within minutes.
*They think they can buy a system that is 100% accurate.
*They think they will quit their jobs and make a living full time after a few months of trading.
What's the reason that so many new traders believe that trading is an easy way to make big profits? Propaganda!
We are continually bombarded in magazines, emails and the general media with claims of making astronomical amounts, just by applying the vendor's latest method or system.
Don't get me wrong, there is good stuff out there but the vast majority is not worth the price you pay. At Surefire-trading.com I also recommend products but I have at least read the ebooks or courses and think they have some value to my subscribers and they all have a refund guarantee, much like the INO products.
Fundamentals Of Trading
Trading is not an exact science. You can't do X and get Y every time. It is as much an art as it is anything else. There is no magic formula. Trading is all about probability. It is the art of correctly applying a set of carefully thought out rules and allocating the probability of that event to result in success.
Each trade is an independent event. The market does not remember if you lost or made dollars the last time you traded.
The way you approach the market psychologically has as much to do with your success as any trading plan.
Risk management is crucial if you want to have any hope of becoming a successful trader.
Matching a method of trading with your personality is the only way you will ever feel comfortable in the markets.
An adequately funded account is necessary - not only to be able to take the trades you want, but also so you don't feel every trade is a live or die situation.
The journey to the road of successful trading will make you confront your deepest fears. Your armor on this journey will be confidence, knowledge and belief in yourself that you can achieve your dreams.
Never, equate your success or failure in the markets with who you are as a person!
The Flaw In Our Emotions
As humans we have a natural tendency to try and influence our surroundings and events we take part in. This is one reason we, as a species, have succeeded but it is also one of the fundamental flaws we all have when trying to achieve success as a traders.
As traders we have to realize we have no control over the market and if we accept that then we have to accept that we can not influence the direction of the market.
The problem of course is we have a tendency to try and succeed and when inevitable losses come, it is easy to let those losses effect us emotionally. Becoming euphoric when you hit a winning streak is almost as detrimental as becoming depressed when you have a string of losses.
We as traders have to try and achieve the state of impartiality. We have to accept that we will have losses as readily as we will have wins. Reaching the stage where you can comfortably accept loss in the knowledge that your method of trading will produce profits in the longer term is the state we have to aspire to.
Risk Management
Whenever I think of risk management I always think of an article I read on 925 CTA programs between 1974-1995. It essentially confirmed what I have long held to be true. To summarize the report, of all the CTA's who managed funds, the most consistently profitable were the ones with the best risk management systems.
To trade successfully you have to take a long look at yourself. Ask and answer the following questions.
How much equity do I need to start? How much should I risk on any one trade? Am I undercapitalized?
During the course of these lessons I will do my best to help answer these and other questions.
Entry And Exit
As a trader you will probably fall into two main categories, traders who like to trade the breakout and traders who like to join the trend once established. We could also add congestion traders, reversal type traders and mechanical signal traders but for the vast majority of traders you are going to fall into one of the two categories.
If you are a trend trader, you like to define a trend and then find a way in. This may be with the aid of fibonacci retracement levels, moving averages, Gann or one of the other many indicators available today. Your goal is to enter the trend as early as possible with the least amount of risk.
Breakout traders like to enter the market on the breakout of a previously identified range. This may be support/resistance areas, rectangles, triangles or one of the many other chart patterns. The secret to this type of trading is to determine a valid break.
In future lessons we shall begin to look at the more technical side of trading and how you can apply technical analysis to the markets to increase your probability of success.
Conclusion
During this lesson I have tried to give you a glimpse into the world of trading. I have also taken a slightly negative stance, as I don't want you to get unrealistic expectations of what to expect.
On the more positive side, trading is a fascinating world, which will allow you to really exercise your brain. There is no other arena where you get to play with some of the best minds in the world on a level playing field.
Once mastered, if you can ever use that term then the possibilities are endless. Hopefully I can help you achieve your goals.
Good Trading
Best Regards
Mark McRae Traders Secret Code
tahnks Make i realy find it to be the best sujjessions as it help lot to me for my trade decision.a very best guide for any beginner. you must satisfy your self that what you are doing by doing a trade.Risk are allways associated but I should learn to manage the factor psycologically.. as you guided me a lot...thanks alot
Tehcsiang - Thank you for the compliment. I wish it
were true 🙂
zanti - Thanks buddy
lebos - Good analogy. People gamble inside the casino
but the casino never gambles. It realise on a
statistical advantage to win. We must think of
ourselves as the casino.
Sean - The number scare me 🙂
swamp - Thanks
Tim - Thanks for the comment. Some would say 20% is
very aggressive. I personally try and keep to 3% risk
max.
Steve - I particularly appreciate your comment Steve
coming from someone with your experience.
Manisha - Thanks
David J. - Good advice
managed futures - I wish I had some beginners luck when
I started 🙂
Thank to everyone who made a comment. I look forward to
submitting more articles when I am asked.
Regards
Mark McRae
MM is indeed a Mahaguru for traders like us.
Please enlighten us more.
Thank you.
MM is indeed a Mahaguru of trading.
Please write more to enlighten us.
thanks mark, good summary of all the ebooks I already read!
A well written article . I would like to read more from the author. Is trading not like gambling on horses after all if it was that easy wouldnt every trader be rich like every horsetrainer or jockey would be if they knew when their horses were going to win. I know because I haved worked with racehorses for over twenty years and have yet to meet anyone in the game who can honestly say that they have made money longterm gambling on their charges.
very well advice sir MM. my opinion is emotion sets in when one's see red colors on his or her portfolio. even if he or she is 50 yrs old but is not emotional matured for this kind of risk, he or she will end up having sleepless nights and unhealthy well being. and that's sad.
emotion i like.
very well advice. emotions set in you see you read on your ports. even if your 50 yrs old but is not emotional matured for this kind of stuff, you'll end up having sleepless nights and unhealthy well being.
emotion i like.
""I read some time ago that 90% of traders who ever trade lose their account and that 10% actually go bankrupt. If the first number doesn’t scare you then the second definitely should.""
This 90% are just rookie speculators not real traders. They might just as well play poker wih their account or spend their money in the casino. There is a big difference between a real trader and the great mass of speculators out there.
"Real" traders don't lose their accounts and certainly don't go bankrupt from trading.
Good article. Thank you. When euphoric, I look to sell. When frightened, I look to buy.
I had beginners luck in the 90"s!!---But then it was easy.You just went long and held on. Even when you took profit you just picked new stocks that went down and held till they broke out of their down trend.
Flash forward to 2003-2009-----extremely difficult, stops don't work,
trends don't work and holding anything (time wise) long or short---you can get burned.
I always say you should never risk more than 20% of your total trading
balance. If you have 100,000 then never put more than 20,000 on the line.
So what if the dow goes up 200 points and you had only 20% at risk.
Sure feels better when the dow goes down 200 points and you had only 20% at risk---Right?---That is if you were positioned right on both extremes.
Tim, what you did in the 90's was not trading. 20% is way too much to be risking on a single trade. 2-5% tops.
I like this article. I have traded for over 10 years with both my own funds and for managed funds. Any new trader must realise that you are learning a profession. be weary of anyone who tells you different, no magic bullet, hard work, education and persistance.
Also you hear a lot of taking the emotion out of trading. This is crap. we are human beings emotions are critical to our make up and cannot be removed you must however, learn to not let them influence your decisions.
Very realistic article. I can see myself in the description. Thinking to do big in very little time and going overboard with risk vs reward.
Would like to read more of Mark McRae.
Excellent advice, Mark. Trading can be learned, especially if guided by a knowledgeable mentor. Otherwise one may rely on experience, which can be costly and time-consuming. I have done some of each. Money, like love, can compel us to act unwisely because it can raise our expectations so blithely and reduce our self-image so ruthlessly. Hence, automated systems self-discipline can help reduce the greed and fear that inappropriately influence business decisions.
Most of those 10% probably had big gains or beginners luck in the beginning of there trading.