Trading is not for the naive.
I often get emails from people who are struggling with their trading, and don’t understand why they keep losing.
The thing is that for many retail traders, the reason for their struggle boils down to one simple point.
Ironically, it’s something so obvious that few people ever manage to figure out what it is.
Check Your Information Sources
First of all, think about everything you know about trading.
Where did you learn this from?
If you’re like most retail traders, most of what you know comes from articles, websites and forums that you’ve visited online. Typically, this is information that’s freely available to everyone.
After visiting many of these sites, you come to realize that they all teach the same things:
- Buy on a bounce off support
- Sell on a break below support
- Put your stop loss above/below the previous high/low
It’s the same ideas, regurgitated over and over again.
So you figured, “well, if everyone is teaching the same stuff, it must surely work!”
This, while comforting, is unfortunately just wishful thinking.
How To Lose Money And Frustrate Yourself
Just two weeks ago, we saw the EUR/USD test the daily support trend-line:
Shortly after, there was a clear break below the trend-line:
This is a textbook trend break, which indicates the end of the uptrend, and perhaps the start of a downtrend.
According to conventional trading theory, you should now SELL and set a stop loss above the previous high, like this:
At this point, everything looks fine and dandy.
But just barely a week later, look what happens:
You should know that this isn’t a hypothetical example.
This actually just happened three days ago.
Scenarios like this happen over and over again in all currency pairs, and in all time-frames… and the reason people keep getting lured into trades like these is because they follow what everyone is doing.
They don’t understand how supply and demand relates to market expectations.
Let me explain.
How To Make Money Trading
Look at it this way: How does a trader make money?
- The trader enters a sell trade
- Other traders come into the market and push prices down
- The trader then exits his trade for a profit
Notice how, in order to make a profit, the trader has to take action before and after the other traders push the market price in his favor.
In other words, he has to take action when few other traders are taking action.
The problem is, if you’re trading based on information that’s freely available, you’d be taking action at the same time as most other traders.
In doing this, you become part of the majority of “other traders” who help to push the market price in favor of the minority of traders who took action earlier.
Who Are You Making Money Off Of?
The point is, if you’re trading in the same way that most traders have learned to trade, the odds are against you.
After all, if you’re doing the same thing as everyone else, who are you making money off of?
As Warren Buffett said, “when playing poker, if you don’t know who the sucker is… it’s probably you.”
Common Sense Is Rarely Common Practice
So think about how you’ve been trading.
You already know that in order to make a profit, someone else has to take a loss. That’s common sense.
The question is, what’s your trading method based on? The same technical indicators as everyone else? Or something that profits off the predictable actions of those traders?