Losing money in the market- Causes Trading can be the mind game in the financial market, a loss for a person can prove to be the profit for another. As the study suggests, almost 90% people lose money in the market whereas only a few of the remaining people gain some profit. The next major talking point is the “Probabilistic mind game”. I.e. since the market in forex trading are spat and works as per the mass psychology, there is no certainty regarding the outcome of the trade. The mindset of people works as if the successful people always win but in truth that is a complete lie. Successful traders do lose but the fact that makes them successful is that they constantly cover up their losses by gaining more profit than losing it. As the market is full of uncertainty and unpredictable situations, the trader needs to learn to have a calm and focused state of mind in those circumstances. But in truth, most of the traders lose their calmness in the state of panic in the market and mixing the situations with certain emotions to make it complicated and as a result making the basic trading errors regularly. In truth, if you want to succeed any competitor in your field, you need to be better than them and the forex market is no different from everything else. There are several factors that you need to be worked upon to be successful which includes the discipline and a flexible mindset, money management and sound trading methods. Traders mostly look for the straightforward money instead of investing some key necessities like time and effort. The traders test their luck and the situation with unassured strategies with no particular methods for risk control or even dealing with emotional involvement and hence, the losses are imminent. Hence the person thinking about trading should reconsider that trading is not an easy thing to handle as neither the market nor the emotions can work our way. Components of successful trading The traders must develop particularly these 3 skills in order to be successful in the forex market: Winning psychology Money management Sound trading system Fig. 1: Components of successful trading As the mindset towards any work is the main aspect that can affect the outcome, we’re here giving preference to the Winning Psychology, followed by Money Management and Sound Trading System as depicted in the Fig. 1. Winning psychology Is the trader wants to be successful, he or she must have a winning psychology which can only be attained only overcoming the negative emotions of human nature that includes fear, hope, and greed. Fear is one of the most negative emotions in the human being and that can prove to be costly in forex markets. Fear can combine with the other destructive force of human nature and can lead to the feelings of hated, anger and revenge when given no particular care about, hence, making the fear more destructive than ever. The only way to overcome these situations is to accept the fact that losing and winning is just the part of any trade and the forex market also falls in the same category. There’s a trading rule that says “Never trade more than what you can afford to lose”. Never trade with scared money and only with ‘risk capital’ as losing the money would eventually lead towards the stress impacting your mindset and decision making. On to the next emotion, greed is one of the reasons that can affect your trading psychology and decision making. It is the result of a combination of over-confidence and desire to achieve more in the shortest time possible. Even if the short amount of greed is necessary for forex trading, the traders become impulsive in the decision making and get lured away in dreams of making more and more money. So the person gets involved in over-trading and risking more than their tolerance that in turn results in the greed overtaking and losing more than you can afford. The greed can work both ways, it can result in profit more than expected but can also lead to an excessive and unbearable loss. Even the series of win can lead them to be overconfident, so they jump into making the risky decision that in turn may not serve the intended purpose. Greed is the easy thing to gain but you’ve to analyze the situations and the market risks. And the last one is hope, which in real life can serve as the positive emotion but in the forex market, this can destroy the traders because it is just a wish that things turn out their way. Hoping for things to turn out their way more often than not results in the unbearable loss that can even damage the career of the traders. It is wise to follow another marketing rule that says “you should never trade based on hope and if you’re in doubt, then better stay out”. If you see hope as the sole reason to hold out a position, then stay out. Most of the times, after closing on the losing position, traders get the right clarity of the market. Since the trading is the event of possibilities, hence the trader must think in probabilities to rise above these negative emotions to succeed in the forex market. They need to be flexible and adjustable to the market and should accept the current situation of the market no matter what. The following are the some of the characters a trader should develop if they want to succeed in the forex market: Passion for markets Confidence and discipline Objectivity and flexibility Self reliant and take full responsibility for trading & results Calm and focus on present realities. Money management principles Money management skill is one of the most important parts of the trading business. It had led to the ending of careers of many traders but if you can adapt it right, it can make the huge difference to your work. You’ve to take small losses to stay alive in the business. You can afford to trade with the money you can afford to lose but not with the capital that you can’t afford or you’ve had it borrowed from someone else. Figuring out how to take little misfortunes is the principal/best lesson to stay and win the exchanging trade. Bringing about little misfortunes ought to be seen as paying interest to remain in the business. Else, one vast loss may conceivably wipe-out your exchanging record and end your stay in forex trading. At the point when your losses get bigger, the measure of the comeback has to be produced to break even increases. So it is wise to keep misfortune in an exchange as a little level of value. Loss in trade equity Return to be generated to bring back the equity to breakeven level 20% 25% 40% 67% 50% 100% 75% 300% 90% 900% The “2% for each trade rule” We have confidence in 2% for every exchange chance run for every one of our exchanges. Anytime of exchange, traders should not risk over 2% of their value. In basic words, a traditionalist dealer can keep going for 50 sequential losses while forceful broker manages 25 continuous losses. Example: the “2% risk rule” Trading account sum: $ 5,000 2% of $ 5,000 (trading account size) = $ 100 On any given trade, you should risk close to $100 which incorporates both commission and slippage. In the case that you exchange eurusd (Euro or US Dollar) current with 50 pips stop, you ought to have the capacity to exchange just 2 smaller than expected (10k) contracts only (excluding both the commission as well as the slippage). In the event that you don’t an add-on to a present position, yet your stop climbs alongside your exchange, at that point you are securing benefits and gains. When you secure profits with another trailing stop, your risk on this beneficial trade is not 2% anymore. Hence, you may now put extra trades. In this way, extra positions are just conceivable when your underlying exchange earns back the original investment. An informal investor ought not to lose over 6% of value in a day. In the event that he/she hits 6% loss, he should quit trading for the day. At the point when a trader loses 30-50% of capital, he/she should quit trading and re-assess the trading methodologies and tests the amended systems in practice account. At the point when traders get back the certainty on their framework and money management strategies, they can begin trading once more. Risk – reward ratio The risk to compensate proportion, the relative size of your benefits contrasted and your losses is another key money management tool. It is wise to have a 2:1 (or better) risk to compensate relationship when first putting on a trade. Be that as it may, this might be entirely hard to discover. It would be more reasonable to discover (or make) a trading approach that has a 1:1 risk to remunerate relationship; at that point, once you factor in your ‘trade management’ to the trades it turns out to a 2:1+ risk to compensate sort of trade. R/r must be connected over the span of a trade. Scaling in/out trading strategies Exchanging different parts will execute your exchanging methodologies in adaptable ways. The accompanying methodologies would be useful relying upon economic situations. Scaling in: it is the situation when a trader wishes to go into an exchange marginally ahead of schedule (to abstain from passing up a great opportunity the trade). He/she may consider entering half of the position early and half of the position after getting affirmation. Scaling out: scaling out framework includes booking half of the benefit of winning trade early and ride the example to the maximum using another half with a protective stop. Pyramiding: it is a forceful system to be embraced when a trader has gone into a pattern early. He may twofold the position in the win trade in the wake of getting more affirmation signals. Let your profits run This is the key guideline which is overlooked by numerous individuals. The separating mental quality winning traders have is that they let their beneficial positions run. The least demanding activity is to take a benefit. It gives moment fulfillment. Here once more, gainful merchants flip around typical human brain research. While most utilize the human feeling of dread in this example that the benefit will vanish and take the additions, winning merchants have an arrangement with benefit targets and trailing stop misfortunes. They don’t permit the dread of losing the benefit drive them to book the exchange. The vast majority of the traders who profit on a steady and long-haul premise make the greater part of their benefits in only a couple of trades a month. They enable their benefits to run. These tremendous benefits cover all the little loss and pay for their diligent work and sincerity. With winning mindset and capital administration aptitudes, traders require a strategy to give trading rules and flags to their exchanging business. Let’s talk about exchanging frameworks, the following mainstay of effective trading in the following section. Sound trading system An adequate exchanging framework should have more winning than losses over the long haul. It can be founded on basic examinations, specialized investigation, behavioral investigation, factual framework or mixes of these. An entire exchanging framework ought to give the followings at least; Setup conditions Trade entry Stop loss exit Profit taking exit The fundamental criteria to be considered in choosing/assessing exchanging frameworks are: Personality, trading style and risk appetite ‘Know thyself’ is the insight to be taken after while picking/assessing an exchanging framework for your exchanging business. You should comprehend your mind set and trading style first before beginning to scan for trading framework. There are numerous kinds of dealers who profit in business sectors reliably yet their trading styles and techniques are altogether unique. Swing trading may suit for a few people while energy for others. Maybe a couple can’t deal with the worries of day trading or here and now trading yet they might be alright with multiday trading. In the event that you are bad in enthusiastic administration, you may go for mechanical frameworks which dispense with passionate basic leadership. On the off chance that you have the psychological sturdiness to keep up objectivity and teach, govern based optional frameworks are probably going to suit you. Risk hunger likewise differs from individual to individual. There are assortments of exchanging frameworks which are intended for various risk profiles (generally safe, medium risk and high risk). It is essential to choose a trading framework that matches one’s mindset, exchanging style and risk craving. Win/loss ratio It is the proportion of a number of winning trades and losing trades. It is better if the proportion is higher than half. In any case, some trading frameworks take in substantial income even with win/loss proportion of 30%. They make enormous additions while they win. Likewise, consider your psychology while choosing this kind of frameworks with bringing down win/loss proportion. Numerous individuals can’t stomach back to back losing exchanges and tail them. Pay off ratio An average benefit per trade is an imperative measuring stick. A decent framework ought to produce a bigger number of benefits than the loss. A sound trade framework ought to be based on key capital administration idea ‘cut losses off and let benefits run’. The frameworks which are intended to create high likelihood and generally safe trading signals used to convey predominant outcomes. Trading opportunities The quantity of trades, the framework produces every month/year is additionally essential. Full-time dealers can’t bolster their business with a framework produces 3 to 5 trades for each year unless their trading capital is enormous. They require a framework that produces visit signals. Size of trading capital The span of trading capital is likewise one of the key angles in picking the exchanging framework. Some trading framework can’t bolster little-exchanging capital while greater trading capital may require broadened trading frameworks. Market type and major macro trends The traders are recommended to keep a check on the market in which they have planned to invest their money. Each kind of markets such as equities, futures, commodities, bond, and forex carries few key points. They must also configure that whether the system suits the type of market or not. Moreover, major macro trends are required to be taken care of. The mantra of ‘buy and hold’ worked really well during the era of 1980-2000. The systems that were built on the same theme worked really well and produced amazing results but failed miserably when the trends witnessed a major change in 2000. Another instance is the failure of the hedge fund, LTCM (Long Term Capital Management). Their good result producing plans started to fail when equity-bond markets inter-relationship got modified due to the sudden financial crisis in Asia back in 1997. They were finally bailed out in 1998 post the Russian financial crisis. When the flow of the wind changes, many of the trading systems will surely fail. So it becomes a major key to keep an eye on major macro trends while evaluating and choosing among various trading systems. Limitations Every trading system has got its own positives and drawbacks as well. Both the investors as well as traders generally search through various systems in order to get an ideal system that can never exist. In fact, the primary focus should be on getting a trading system with a higher winning rate and then study its limitations. They must learn when they system underperforms. They also need to study that few of the systems works really well in the range markets and some in the trending markets. Traders should note the strengths and weaknesses of their systems while making a research on their systems. Trading as a business If the plan is to make trading as a full-time career option and aspiring success, then you need to start considering trading as a business. You are urged to sharpen up your skills in order to stay in this arena. Major of the successful professionals spent major of the time in learning and practicing the skills of their profession before actually becoming a success overnight. Similarly, the trading business has got no shortcuts as well. In order to get success in this field, you need to invest both time and efforts to learn the skills. Keep the data of each transaction you make and make a document of all your trading in the trading journal and group up your observations in 3 parts – psychology, money management and system. It will make your path smoother and you can easily visit back and see what has actually happened earlier and compare it with the present scenario to make improvements. There is a requirement of regular pieces of training in order to boost up your skills in the forte of psychology and money management and also improves the trading system. It will guide you to maintain the success in the cut-throat competition of trading. If you want to make money like anything, then have winning psychology and money management techniques in addition to a sound trading system. We wish you the best regards for your future endeavors in trading business. Conclusive words on systems After the successful selection of the trading system that fits with the personality and requirements, one is ought to backtest it and practice as well to gain full confidence in the selected system. After getting the trust and confidence, you must learn it rigorously and sincerity. The traders who are successful stick with their systems in both good and bad times.