When I first started trading, I thought that the answer to making money was as simple a following a system from someone who is already a profitable trader.
After all, how hard could it be?
Does that sound familiar?
Over the years, through actual live trading and interviewing successful traders, I have come to understand that there is a lot more to it than that. Although I have not completely figured out the puzzle at the time that this is being written, I have learned some key concepts that I would like to share with you.
Why You Will Still Lose With The Most Profitable Trading System Ever
These are the 5 reasons that you probably will lose money, even if you know the most profitable trading system ever developed. Hopefully they will help you understand that there is a lot more to Forex trading than just having a great trading method.
5. Preconceived Notions
Although I try to enter any type of education with an open mind, I do find myself bringing in my own preconceptions. It's only natural.
But if you bring in too many ideas that you think are “rules,” then you may be shooting yourself in the foot. Take the time to consider that what you have learned in the past may have been completely wrong or you may have learned them incorrectly or conditions may have changed.
I never realized how much of a hurdle this can be until I worked with Rafael to create a course centered around his trading method. There were several students who thought they knew better, but never even tried the system in live market conditions.
They thought that since they learned some of the concepts on Baby Pips or wherever, they weren't learning anything new or they thought it wouldn't work. While Baby Pips is a great introduction to Forex trading, it doesn't actually teach you how to trade. Yes, read through the Baby Pips school again if you don't believe me.
So even if you did have the most profitable system ever sitting in front of you, your ideas of what will and won't work might muck it all up. Therefore, try to keep an open mind about learning any new system. Judging it before it has had the chance to prove itself to you is like sending a racehorse to the glue factory before it has even run its first race.
4. Lack Of Discipline
This is something that almost everyone struggles with at some point. Taking entries and exits consistently. Following the trading plan. Reviewing your trades. Not falling asleep while trading.
Lacking discipline will certainly mess up the profitability of even the post outstanding trading system.
I don't know if there is one good way to fix this. The only answer I have is that you need to want it bad enough. If you really are dedicated to becoming a consistently profitable trader, then you will find a way.
3. Doesn't Fit Your Personality Or Schedule
This is a tough one to understand in the beginning but it makes all the difference.
One component of choosing a system that fits your personality is finding out which market conditions you trade best in. Rafael learned that he is a better counter trend trader. I have found that I feel comfortable with either trend trading or counter trend trading.
Another component is time frame. Some people get impatient waiting for longer term trades to setup, so they might be better day traders. Others (like me) don't like to sit in front of the screen and watch price wiggle up and down. So we prefer swing or position trading.
You also have to take into account is how much time you have available to trade. If you have a demanding day job, then watching the 5 minute chart like a hawk probably isn't the best thing for you.
So even the best trading system ever created will not work if it doesn't fit your individual personality and schedule. Pay close attention to what works for you and what doesn't. Just because somebody else is killing it with a system, it doesn't necessarily mean that you will too.
2. The Education Myth
Human nature seems leads us to believe that there are magic trading systems that will take us by the hand and lead us to the promised land of fortune and glory.
Or is it really human nature?
If we dig a little deeper, it may be more a result of how we are educated. We are punished for getting answers wrong and rewarded for being able to recall the one or two “correct” answers. Think back to your tests in school or what your parents taught you.
Therefore, most people who come to trading think it works the same way. Follow one set formula and you will succeed.
Experience has shown me that just having their system is far from being a guarantee. I'm not the only one who feels this way. Many of the professional traders that I have interviewed feel the exact same way.
Sure, you do need to find a system that has had proven results. Yes, finding a mentor will help you much more than trying to do it on your own. But that is just the starting point.
So if you have tried trading systems in the past and failed to make money, consider that the answer may not be so black and white. There may be more shades of gray than you think.
1. Not Cultivating Faith
I'm not talking about blind faith. I am talking about faith that comes from having confidence in something that you have seen work with your own eyes.
This is an important point that came up in my interview with Kim Krompass. Even if you have the results of the trading system or even if the person who is teaching it trades for a living, it all comes down to if you will click your mouse and follow the system or not.
The only way that you will is if you have faith that the trading method does give you an edge.
But how do you develop this faith?
You can do three things:
- Trade with the person teaching the system, in real-time
- Practice on backtesting software like Forex Tester 2
- Trade it in a demo or small live account
Ideally, you would be able to do all three. But that isn't always possible. So do as many as you can, because with every additional trade you take, each one will give you more and more faith that the system works.
With faith in the system, you will have more confidence to click your mouse and take the trade. You will have more confidence to exit at the right time. And seeing your trading account grow is the biggest faith booster of all.
But without faith, it really won't matter what system you are using.
“I always say that you could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.”
– Richard Dennis
Take the time to figure out if a system that you learn really does fit your personality and schedule. Also realize that you may have to learn several different systems before you find one that works for you and what works for you may be a combination of different things.
So don't be discouraged if the last course you bought didn't work for you. Learn everything you can and figure out what didn't work for you and what did.
Then see if you can combine several concepts to create something that does work. Remain open-minded and disciplined while learning about your personality and trading tendencies.
No matter how profitable a trading method has been for someone else, just remember that any or all of the reasons above may make it totally unprofitable for you.
Control what you can and learn to work with things you can't control.
If others have figured it out. You can too.
Go make it happen.
Remember to keep your account as small as possible. So even if you do blow it out, you don't lose too much money and you can easily do things to build up a new one.