Are you losing money from Trading? Did you wiped out many trading accounts? Do you feel like giving up on trading? Or you just think trading financial markets is like gambling?
Well in this article I will tell you exactly why you are not making money, and what you need to change in your trading habits in order to make money. Furthermore, trading is not gambling, but it can be gambling if you are doing it wrong and have no clue what you are doing.
It is possible to make money from trading, consistently, the market is not a casino, but you should not be a gambler either, but a professional trader that knows what he is doing.
So here are the reasons, they might be shocking, so caution is advised!
( Credit: http://www.wall-pix.net )
1) Technical Analysis
Uhhh, this is very shocking, but yes, it is the truth. Technical Analysis is pure B.S. garbage. It is nothing more than wishful thinking, drawing some pretty lines on the chart, and hoping for the best.
It is a forecasting method just like reading tarot cards, reading from a crystal ball, reading fortune cookies, or forecasting from bones. You might even summon the spirits of the dead to forecast your price, it will have the same results.
I am sorry to pop your bubble, but this is the truth, you have probably spent many months studying fibonacci lines, trend lines, support and resistance levels, eliott waves, and the rest of it. It was all a waste of time, don't worry I have been through the same crap.
There are absolutely no scientific proofs whatsoever about their accuracy, in fact if I remember correctly one scientist even tried to quantify them, but found no positive results. For the most part it is hard to quantify because it is so subjective. It is wishful thinking. Nobody on Wallstreet uses them, certainly not Investment Banks or Hedgefunds.
I have wasted a lot of my time studying them as well, back in the 80s my father bought a book about chart patterns and gave it to me later. Looking back at it, it was really a huge waste of my time studying it. And it is pretty much a scam, if you think about it.
Everyone is selling the Magic chart pattern that will make you 1000% profit type of guides and books. The one's selling chart patterns make the real money not the one's using them. Even back in the 80's , people wrote books about them, and now if you type on Google, you find tons of websites and books dedicated to it.
It is pretty much a scam, at best, it's wishful thinking, for people that want a quick way to make money. It has more in common with art, than science. Drawing nice lines and patterns on the chart is a form of art, not science.
So if you really want to make money, you have to take the long road, abandoned everything you learned in TA, and start really analyzing the markets with REAL SCIENTIFIC TOOLS.
2) Poor Risk Management
You probably have a bad risk management as well. You are probably using huge leverages for trading like 400:1 and such, or you are a cowboy that bets 50% of his money on 1 trade.
All of them bad practices. You should never use more than 10:1 leverage, preferably using on your capital at 1:1 leverage.
You should also never risk more than 3% of your total capital, and have a good risk analysis of the market before getting in. This is a broad subject, I will talk about it more in the future, and you might want to read my portfolio series, where I have touched this subject:
- @profitgenerator/how-to-setup-and-manage-a-portfolio-pt-1-5
- @profitgenerator/how-to-setup-and-manage-a-portfolio-pt-2-5
- @profitgenerator/how-to-setup-and-manage-a-portfolio-pt-3-5
- @profitgenerator/how-to-setup-and-manage-a-portfolio-pt-4-5
- @profitgenerator/how-to-setup-and-manage-a-portfolio-pt-5-5
3) Discipline
You are probably undisciplined. Your fingers are itching to press that BUY and SELL button constantly. You either get too greedy when the market goes up, and go all in, or you are very scared when the market goes down like 0.1% and you get out fast.
Well those are not good practices, you have to tolerate some drawdown. Not all trades will be winner, and you might incur losses. If your profit is greater than your loss, then it should not be a problem, your profits should always cover your losses.
But also went the market goes up, you feel like buying more, and forgetting about your risk management. Don't let your emotions get to you, a real trader should be calm, and never excited about market movements.
You need to be disciplined when trading, there is just no other way, if you are not, you will either lose money, or win only little money.
4) No Strategy
Again, Technical Analysis is not a strategy. You need to understand how the market works. You need to analyze the market scientifically, and economically. You need to know how the economy relates to that market. You need to know the supply and the demand situation of the market, above anything else.
You also need to know what the risks are if you want to be involved in that market, and not just the market risk, but any other circumstantial risk.
You need to have some advantage, either some good information, or some time advantage to beat the other traders.
Remember this quote from Margin Call (2011):
There are three ways to make a living in this business: be first, be smarter, or cheat.
Smiley Image Credit: Everaldo Coelho