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In today’s episode, you’ll discover 5 reasons why you’re losing money in trading.
So tune in now…
Why You Lose Money with Technical Analysis
Hey, hey, what’s up my friend? In today’s episode, I want to share with you 5 likely reasons why you’re losing money in trading.
1. You’re not doing the work
I know this might sound funny, you might think it’s a no-brainer. You think you’re doing the work when you go to trading forums and check out what other traders are talking about or when you learn from Rayner and on a few trades and stuff like that.
Come on, let’s be honest. That’s not doing the work. That is the fun part. It’s the same as people who want to build muscles, who thought that doing the work means doing a few bicep curls, a few bench presses. Well, that’s for beginners.
Because if you’re a pro bodybuilder the work is actually your diet. Your diet is 70%, 80% of everything. You eat more food so that you can build more muscle, you don’t eat for the taste. That’s the grind. That’s how people bodybuilders, they build muscles, they do the work and it’s the same for trading.
Doing the work doesn’t mean going to forums to check out the analysis of other traders’ opinions and stuff like that. That’s the fun part, just like doing bicep curls. But the work here in trading entails verifying whether the concepts that you have come across work or not.
That involves forward testing, backtesting, developing a trading plan, journaling your trades, this is the work, this is the grunt work, just like how bodybuilders have to swallow down those chicken breasts that are being steamed for the sake of their competitions.
Same for trading. This is what separates winning traders from losers. If after hearing these and you still don’t want to put in the hard work, then all the best of luck to you.
You can continue surfing forums, jumping from strategies to strategies, and maybe one day you might understand where I’m coming from. Or maybe you might find success in another way that is different from what I’ve experienced.
2. You get swayed by news and opinions
Here’s the thing, when you don’t do the work, and when you don’t have any proven trading strategies, your beliefs are very soft, it’s like a jelly. It wobbles every time someone has a different opinion or there’s a news release which changes your opinion.
That’s because you don’t have a firm belief or foundation to start with. For example, maybe you are long gold because someone on the forum said gold is bullish and he backed that up with several fundamental statements and so you bought into gold.
Next thing, you watch CNBC and it says gold’s price is too high. Maybe a very famous macro investor said gold is overbought and is about to decline over the next two, three months and you feel scared, so you sell off your position in gold.
This is how you sway from one position to the next, getting swayed by opinions and news because it’s due to the first reason, you didn’t do the work. Without doing the work, you will be easily swayed by news and opinions, and your trading will be all over the place.
Your actions are inconsistent, and so you get inconsistent results. That’s number two.
3. You are trading without an edge in the market
This is especially for traders who think that to be a profitable trader, it’s all about the risk-reward ratio, the proper risk management or the trading psychology.
Well, I’m here to tell you that you can have the best psychology, the best risk management, or the most optimized risk-reward ratio but if your trading strategy doesn’t have an edge in the markets, then all of those are useless.
For example, in a coin toss, if heads comes up, you gain $2, but every time tails comes up, you lose $1. That coin toss is going to work in your favour because that coin box gives you an edge over your opponent.
If you flip it the other way around, every time the coin toss comes up heads you lose $2, and every time it comes up tails you win $1, you can see that even if you have the right risk management, the psychology, they’re still not going to help.
You must have an edge, and that’s the same for trading. You must have an edge in the markets. Your trading strategy must statistically prove to you that it makes money in the markets. That’s important.
4. You have the wrong expectations in trading
Many times people get involved in trading and financial markets because they want to generate another source of income, a passive source or source of income, or to make an extra $10 per day on to make 500 pips every week, etc.
Now here’s the thing, if you have these expectations where the market is like your ATM, thinking you’re supposed to make $50 every single day, then when your expectations are not met you find that you will be doing funny things to meet those wrong expectations.
For example, let’s say you expect to make 20 pips a day. Let’s say you got 20 pips on Monday, then on Tuesday you got 40 pips, that’s nice. But on Wednesday, somehow the market doesn’t seem to be acting in your favour.
You’re down by let’s say 20 pips. But instead of taking a loss, you tell yourself, “No I got to force out this 40 pips today.” And what do you do? You average into your losses, you widen your stop loss, hoping that the market would reverse back in your favour so you can earn 20 pips for the day.
But instead of losing 20 pips, you end up losing 100 pips on that day. That’s not even enough to cover the profits that you have made on Monday and Tuesday. You actually end up negative for the week.
Can you see how the wrong expectations of wanting to make money every single day could cause you to make decisions that are detrimental to your trading results?
The key point I want to share here is to not expect anything from the markets because the market will reward you when it wants to. The only thing that you can do is to control your losses.
You can’t control how much the market wants to give you. It will give you any amount it wants to give you. But the market doesn’t care about what you want. So the only thing that you can do is to control your downside.
5. You lack critical thinking
Maybe it’s due to the way we’re brought up, but many traders don’t think critically. We don’t ask enough “whys”, and we simply take everything at face value.
And that could be because of the education system that we were brought up in. Since young, there are always two answers, either yes or no. And in an exam, there’s only one correct model answer. Any other answers are wrong.
That way of thinking causes you to stop thinking deeper because after all, there’s only one correct answer, why bother finding an alternative since there’s only one correct answer.
So we take whatever that’s given to us at face value. However, the real world is not quite like that. Maybe it’s made of 60% yes 40% no, and there are grey areas like that.
It’s the same for trading. There’s no best strategy, or the best parameters or whatsoever. You simply have to develop critical thinking skills, and one way to do that is very simple. Just ask why.
I have kids now and they keep asking me why (till it gets irritating). But you can see that when you’re young and naïve, you ask a lot of questions and hence you get answers that you might not have thought of before.
The point that I’m trying to bring over here is that it’s the same for trading. You don’t want to take anything that’s being shared on YouTube, on forums, or what I’m saying here at face value.
You want to ask why. You want to develop critical thinking skills to think on your own, so that you can make the decision yourself, and not just make decisions based on what somebody says.
For example, let’s say I share with you a trading strategy that buys the 200-day breakout. You don’t want to think that the 200-day breakout is the best strategy for you to trade. You should ask why Rayner told us to trade the 200-day breakout.
Let’s say I have a 3 ATR trailing stop loss. The next question you want to ask yourself is why did Rayner go with the 3 ATR trailing stop loss? Because once you have that why in place, then you’ll go about looking for answers to the why.
So again, that’s where work is involved. You got to do your research, your testing and stuff like that. It all starts with not taking anything at face value.
This is important, especially when you are trading with your own money. You don’t want to just take any Tom, Dick, or Harry’s opinion and risk your money.
Here’s a quick recap…
These are the 5 likely reasons why most traders fail:
- You’re not doing the work
- You get swayed by news and opinions
- You don’t have an edge in the markets
- You have the wrong expectations about trading
- You don’t have the critical thinking skill
The good news is this is can all be fixed. It’s not permanent. So find out the areas that you’re lacking in, and do the necessary work to stop making those mistakes.
That’s it. I’ve come to the end of today’s episode and I will talk to you soon.