Why Do Traders Fail?

We enter Forex market with the desire to make a return on our investment, but why we all fail to do so in the end. The reasons that we often hear on social media are as follows:

· Bad capital management

· Fail to comply with discipline

· Poor trading psychology

· Bad trading method

So is the underlying cause exactly the same as what you have heard？

Risk management issues aside, assume that you are an extremely good Trader in compliance with discipline, you always enter orders with a reasonable volume and the risk is always controlled. So why is your account still unable to grow, even shrink over time.

First of all, let's consider the method you use to analyze. There are many ways of analysis in the market, but in general, we can refer to two main ones: Technical Analysis and Fundamental Analysis. When communicating with Traders, I often get the following feedbacks: “I follow Fundamental Analysis” , “I choose Technical analysis” or “I combine both”. But when I asked further if you are really confident that you can earn a living with this job, or whether the method you use really helps you to make steady profits on a monthly, quarterly, or yearly basis or not？ The answers I often get are those head-shakings and the justification that it is impossible to predict the market, it's all a matter of probability. So what is your probability of winning, the answer is usually unknown, it's all 50-50. Obviously, Traders (including me) have unintentionally admitted that all Analysis is just like a 50-50 challenge, and we have fallen into GAMBLING without even knowing it.

When I realized that I made these mistakes and struggled to find a solution, I was suddenly aware a harsh truth: I don't know anything about the market. I see myself a child no more or less being put in a Big Market with a piece of money with the task of performing sales missions so that the money increases over time. Quite a task that everyone can easily know the result that I fail from the very beginning. This got me struggling and it took me 3 years to realize the problem. And here are the basic errors:

Error No. 1: Do not understand the nature of the market

I first ask the question: Why prices move？ What factors affect it, how big the effect is, is there a pattern, and if so why I cannot discern that law？ This is an extremely difficult question and I was only able to answer when I started researching the Stock market. Unintentionally, when analyzing the Vietnamese stock market, I realized the relationship between the Underlying Securities (real stocks) and the Derivative Securities (betting on the increase or decrease of the index). I also began to realize a similar story about the US stock market. The surprising thing is that we all participate in the derivatives market and are mostly ignorant of the underlying market - where transactions are, in fact, the main drivers of exchange rates. It is the real supply-demand gap in this market that causes prices to move. So the question now is: What is the underlying market for Forex, and what characteristics does it have. Why We are all taught that: The Forex market is so huge, it is a decentralized market so it is almost limitless. Because of such thinking, we unknowingly admit that the market is too big for us to analyze and forecast. We lost right from the way of thinking.

As we all know: Each country will issue its own currency, which is traded on the Interbank market. And in order to control the supply well, the Central Bank will always have tools to regulate such as interest rates and open market operations (stimulus packages, money printing). So we realize one thing is, although the Forex market is very large, but in every stage it is always LIMITED. So as long as the market is limited, we can completely find its rules or more clearly, we can analyze and forecast.

Error No. 2: Do not know specific criteria when analyzing

Most of the new Traders fall into the eternal controversy that: Fundamental is better or worse than technical analysis. This is almost a drama story in the financial world so far and is also the main reason why traders increasingly move away from the original market and gradually lead to loss results. Perhaps the biggest reason that 95% of new traders are losing money comes from this. So why does everyone make this mistake. Now we will discuss what fundamental analysis and technical analysis are.

First of all, let's go back to the original principle of the market: Demand increases, price increase - Supply increases, prices decrease. So whether it is fundamental or technical, we also need to reach a common goal of finding out: What is Supply and Demand in the market？ To solve this problem there are three ways to identify:

Option 1: Based on economic information indicators, monetary policy or monitoring the political, military situation, etc. or any other factors that can influence the decision to buy and sell in the market to judge if Demand will increase or Supply will increase. Since then we make trading decisions, this way is called fundamental analysis.

Option 2: Instead of paying attention to the above indicators, we look directly at the chart, through analysis tools (candles, technical tools...), review them from the past to anticipate, report on how the Demand and Supply was in the market, thereby predict the future. This is the technical analysis.

Option 3: Apply both 1 and 2 to forecast the future.

The vast majority of traders in Vietnam choose option 2, but the problem is that they only depend on technical indicators, candlestick patterns or price patterns. Very few traders associate those patterns and indicators with the origin of the market, Supply and Demand. Those traders include me in the past, and when I see a technical indicator for a buy and sell signal, I ask myself this question: Does the indicator happen but whether Supply goes up, or whether Demand goes up. I myself at that time could not answer. It was so obvious that I was too dependent on the indicator, or rather that all I could see was just the surface of the problem, the tip of the iceberg. So when I win, I don't know why, even worse, when I lose, I can't explain the reason. This happened during the past few years, making me depressed, sometimes I wanted to give up and quit my job.

So, no matter what method you use to analyze the market, you understand that the goal is to see the nature of the current market, how the supply and the demand are. From there we will make a forecast for the future. Because we have reached the nature of the problem, where all market volatility starts. Of course, in the process you will get into wrong directions, and even more than right directions, but over time your experience will help you improve your analytical skills and trading skills. In the framework of this article I cannot give specific training plans, I will present in the next articles.

Error No. 3: Do not understand yourself

Most traders when approaching the market see the market as a big piece of cake, just rush in to get a good result. Moreover, the aura of others makes traders seem to forget that: Finance is a very fierce market.

Instead of Understanding and Controlling themselves with Market Analysis, they often do the opposite: Desiring to control the market and never consider their own expertise and financial ability. This leads their minds to no longer focus on the main goal: Safety and Stability. However, we understand that to reach the goal is a process, and you must have a well-defined roadmap along with a detailed implementation of each step. Usually, this process will be very boring, sometimes you cannot see any result out of it at all. Do not forget that this error number 3 occurs because you are in the process of fixing error number 1 and number 2. Just be persistent, when errors 1 and 2 are fixed, you will find this time period really valuable. It is the foundation for you to see the Path that can truly lead you to your goal: Become a Professional Trader.

My advice to you: The financial market is big, but it has its limits and rules. As long as you see the limits and understand those rules, Success will call your name. On this path you will find many bigger targets appearing and waiting for you to conquer. Remember: Success is a process, not a destination.