Reasons for losing in forex – stop losing money and teach profit

trading in any financial markets you may have seen ads talking about buying Lamborghinis in three months you may have seen people living in luxury apartments or renting luxury apartments and staying there trading from their laptops and making millions of dollars right if you’ve heard of the financial markets that may have been how you were introduced to them but right now I want to tell you the truth about any financial market you decide to trade in the truth is sacrifices will have to be made on your end trading in any financial market is no different than mastering any other career it will take loads of time and loads of effort from you so be ready for that before you venture into the journey of trading in financial markets today we’re gonna talk about what trading truly is instead of telling you that trading is you making a thousand percent a day a thousand percent a month thousand percent a year and becoming rich in the next three months six months one year down the road if I’m being completely honest it is going to take much longer than that unless you’re starting with a very very high account balance and you’re starting with a very very extreme amount of knowledge about financial markets which is both of those situations are pretty unlikely it’s not how I started either and that’s the reason it took me years in order to master financial success in these markets and let me tell you the secrets to doing so right now this is what trading truly is it’s finding a way to create an advantage or an edge over a financial market understanding that risk management is important and directly after that implementing discipline so that you stay consistent to that edge and let me explain all what all of this means in a metaphor for you so what I’m going to start with is the drawing of what I’m going to call the money machine what is the money machine this is a machine that prints money at a rate of it will have wins here will have losses let’s say this machine the money machine gives you a 40% chance of losing whatever you put in it boo right terrible or a 60% chance of winning whatever you put in it so you have a 60% chance to make $1 if you put a dollar in this machine and you have a 40% chance to lose that dollar so here you are and you are ready to start putting money in this money machine why are you ready to do that well because you know that this money machine gives you an advantage what do I mean by that well if we know that if we have a 6% chance of making money we have an advantage over the Machine overtime you should make money using this machine this is going to be our advantage or strategy slash system in trading this gives us our advantage let’s say it’s a 60% chance to win which is the scenario here with the money machine so if we have a 60% chance of winning every time we put money in the money machine every time we use our strategy or a system how often do we want to put money in this machine personally I would throw money in this machine until my freaking hand fell off like if I knew I had a 60% chance of winning every time I put money in here if I knew I had a 60% chance of plus one and a 40% chance of minus one I would continuously put money I would forget to eat I would put money in this thing all the time right so with this being the case why do traders fail what like what’s the problem here why why does why is there a 95% fail rate in this industry well it’s because something is missing from the side of the retail trader what’s missing a lot of times is the strategy the edge the 60% the money machine right the money machine is your system is the strategy that gives you a 60% chance of winning a lot of people don’t have a strategy why don’t have a strategy because they’ve never tested anything in the markets why don’t they know they have a 60% chance of winning because they’ve never tested anything in the markets the point of trading is to have a defined set of rules that you know for a fact through historical data has given at least an advantage of market of some kind it doesn’t have to be a bigger winning percentage it can be a bigger risk to reward today we’re gonna keep it simple with a bigger winning percentage so you want to have a definable set of rules and a definable strategy at a finable system that gives you an edge over the market you want to have your money machine that’s what that’s gonna be that’s gonna be your money machine you’re gonna put money in it it’s gonna give you money 60% of the time it’s gonna take the money you put in 40% of the time this is trading trading is in the game where you spend your total account balance one time and you become a millionaire in three months trading is having this advantage I’m going to talk about why it has to be slower than you know making a million dollars in the next three months and I’m gonna talk about risk management coming up really soon and it’s going to tie in really well with this analogy so we’re putting money in the money machine we have a six percent chance of plus one and 40 percent chance of minus one how much what if we what if we start let’s do this you’re starting with $100 okay so you have a hundred bucks you know you can put a dollar in this machine you know you can put a hundred bucks in this machine you but ten dollars a machine doesn’t matter the amount but you know every time you put money in the machine you have a 60% chance of making that same amount and a 60% chance of losing it are you gonna put and let’s move on to bits to risk management now because at this point you understand what the money machine is the money machine is your system your strategy however you define your edge of the market this system or strategy this money machine needs to be definable you need to be able to verify that it’s made money in the past so that you can be confident that it’s going to continue to make money it’s not set in stone this is just the best thing we have to measure by in order to accurately define whether or not we have an edge over the market so with historical data being all we have to go by the best thing we have to go by as technical traders that’s what we have to do so let’s say you have your definable money machine your definable strategy and you have 100 bucks we’re gonna move on to risk management now if you have a hundred bucks you have your money machine that’s giving you a 60% chance of winning how much are you going to put in the machine gives you a 60% chance of winning are you gonna throw a hundred bucks in there right now you’re gonna go $100 is that what you’re gonna do are you going to go which is a hundred percent risk are you gonna go with $50 which is a 50% risk you go with $10 10% risk or are you gonna go with let’s say $1 a 1% risk we’re gonna talk about why each of these may be a mistake or a good idea so when trading what we’re trading based on is our statistical advantage that is nothing more than a probability of success now there is a law called the law of margin of error and the law of probability these have been people way smarter than me that have studied everything in life not just financial markets but including financial markets psychology of human beings surveys have been done about this law of probabilities and what this law of probability states is that right here on this specific scenario we have a 60% chance of winning trades let’s take it back to trading right this is our 60% chance of winning this is our system if we have that what the law of probability states is that this probability is nearly irrelevant up to 40 instances Forex Trading.

Reasons for losing in forex

the 60% chance we have to win is based not only on our percentage chance to win but on a large sample size and the law of margin of error indicates that the larger the sample size the closer to the mean the closer to the actual advantage that we really have so what the law of probability states is up to 40 instances this strategy this scenario is going to be close to random for 40 instances until it gets up to about 50 instances that’s when you start to see the mean come come back that’s when you start to see an actual 60 percent chance of winning if you have a 60 percent strategy is after 40 right at 50 instances is what these studies have shown so if this is the case this is where risk management comes into play if we know that out of 40 instances our results are going to be near random what does that mean well random means that we could have 40 wins and 0 losses we could have 30 wins 10 losses that’s good scenarios but as traders if we want to let’s define risk management it’s risk management really anything more than preparing yourself for a worst case scenario well if we know that we have a 40 instances of randomness based on the law of probabilities that our probabilities really don’t mean until at least 40 to 50 trades then wouldn’t the best idea for risk management be to prepare yourself for a worst case scenario of course the worst case scenario zero wins 40 losses is it likely no not really is it possible well according to the law of probabilities you can have a 60 percent chance of winning and you can lose 40 trades in a row remember the probabilities start coming back around 50 real the margin of error actually shrinks down to about 15% at a hundred instances and at five hundred instances it shrinks all the way down to like five percent margin of error so if you lose 40 trades in a row you still have a possibility of winning 60 and and the margin of error is going to shrink even more if you go up to 500 instances and this is what it means when we’re trading and this is what it means for risk management that’s what we’re gonna stick to now I got a little off track there sorry about that so when it comes to risk management if we know our worst case scenario is that we win zero trades and we’ve lose 40 and we want to implement our worst case scenario into our risk management plan what does that mean we need to do that means that we absolutely cannot risk 100% of our accounts why because the law of probability states that there’s random results up to 40 instances and risking a hundred percent of your account means if you lose one time you lose the entire account value so that’s why you can’t risk 100% of your account even with a strategy that gives you an edge over the market it means that we can’t risk 50% of our account because that only gives us two instances of the probabilities being off and not even off at 60% chance you’re likely of losing two and Row is really really hot so can we risk 10% well let’s look at our worst case scenario our worst case scenario is 40 losses so if we have a worst case scenario of 40 losses and we’re risking 10% that means we’re gonna lose 400 percent of our account value that’s not possible so that means we definitely can’t risk 10% of our account value can we risk 5% let’s do the math again 5% times 40 means that we’re gonna lose 200% of the account so can we lose 200 percent of the account no so 5% would be out of the question now what is the most we could risk in this scenario the most we could risk is about 2.2 percent of our total account right that is the most we could risk possible and prepare ourselves for not going to zero in our worst case scenario or exactly zero right our numbers would be exact zero risking about 2.2 2.3 percent of our account value so risking let’s say 2% would keep us from going to zero but would leave our account balance at 20 let’s say 20 dollars if we started with a hundred bucks it would leave our account balance at 20 percent of whatever we started with if we risk 2% portrayed a scenario that is comfortable acceptable and this is why risk management’s important again law of probability states that if we have a 60 percent chance of winning no matter what percent chance we have to win there’s a scenario up to 40 instances that is possible for us to lose all 40 because the results are essentially random up to above 40 instances this is why you always hear in back testing that you want to test at least 100 traits personally after reading and studying about this I started testing between 200 and 500 trades per strategy prepared because the margin of error shrinks so much between 200 and 500 versus 100 at 100 there’s still a 15% margin of error right we’re at 200 to 500 that shrinks down to 10 5 to 10% margin of error so with our 40 losses a real good scenario is that we risk 1% of our account we have 40 in random instances which means that even our worst case scenario is our account drops about 40% and we still have 60% of our total account value to trade with this is the importance of risk management that no one’s probably ever told you this is the importance of risk management and for those of you who actually stuck around through this part of the video I know most of you like charts morning like this this is the most important part of trading if you don’t understand and comprehend these two sections and the section we’re gonna talk about in just a second which is discipline and why sticking to this is such a such an important thing then no matter what magic strategy you learn no matter how good you are technical analysis you’ll never create success in trading you’ll be spinning your wheels you’ll be a hamster inside of a wheel just running running running and going absolutely nowhere we’re gonna get you out of the wheel get you being a hamster running on an open road or in a forest running by trees wherever hamsters run I’m not really sure we want to get you to being that hamster not to being the one in the will in the way we do that is by you understanding that you need a strategy a system you need a money machine this money machine needs to give you an advantage or an edge he’s about winning more than it loses or you winning more money when you win then when you lose with a higher risk reward that’s what your money machines going to do after your money machine is created it’s important to understand the law of probabilities and understand that up to 40 instances .

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Reasons for losing in forex – stop losing money and teach profit

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