What's Stopping People From Making Money Trading? The Reality.

The Universe of Trading is a mess.

It is naturally very difficult to find those who know how to build a successful Trading Strategy and that are willing to share it. Also, in many cases, Traders simply do not possess the correct amount of capital necessary to make a living trading online. They expect to take their capital from a very small amount of equity and 10X it overnight. 

From this situation has arisen many studies and theories as to why people cannot make money from trading via leveraged funds. My experience is quite unique, because I have seen a reasonable amount of people make a lot of money, and also lose a lot of money. 

I also have a different perspective from my years studying / teaching betting markets and how to defeat them with value and variance models. I now currently incorporate a lot of this knowledge into my own trading and teaching on a daily basis. This is paramount to my strategy and something that relies purely on fact. It has absolutely no fictional basis, making it concrete.

Leveraged Trading via a financial services broker or any other means is necessary because the average Trader does not have access to enormous amounts of capital. Since moves in markets like FX are relatively small in actual terms, leveraged trading is necessary and becomes a viable service. All Brokers know that Traders who sign up continually will lose money. Their job is not to defend them from this but rather encourage them to deposit and trade because it creates a business for them, mostly, as entertainment rather than a means of actually making income.

Trading therefore, for many, is entertainment. It is not a serious means of making money and these Traders will always end up losing their money ultimately. The longer they trade, the more they are just going down a sinking hole. These Traders are ubiquitous.

So why is it that the average Trader cannot easily make money in the Markets?

It comes down to this, and this only; Probability and Variance. Any financial market will have both a probability and a variance structure as part of its inherent being.

- The probability aspect, is simply the chance of success on that occasion. High probability trades are likely to hit your take profit, and the opposite is true for low probability trades. Trades change their probability almost always based on how close your take profit and stop loss levels are placed. 

- The variance aspect considers how frequent something is going to occur and is linked to the probability. For example, trades with far away take profits will end up in large gains. Similarly, trades with high risk will end up causing big losses. These events may occur infrequently, but when they do they have larger effects.

These two factors rule markets, no matter what the market is. Probability and Variance are also natural parts of life. Everything that happens in the world has a probability and a variance aspect to it. Things are likely, things are unlikely. This is why winning the lottery is so extremely unlikely, but it happens. The chance of winning a coin toss is much more likely and happens much more frequently, should you comparably play the lottery 10 times, then flip a coin with a friend 10 times, betting on one side.

The problem for Traders in general, is that they cannot survive the swings of high profit and high loss. At some point, down the road, they will end up losing everything simply by Mathematical fact. It is not a case of being 'clued up', there is no real secret. People who make money trading are not superhumans. it is simply having a repeatable edge and some money management in between.  Professional Traders, Money Managers, Business investors and many other professions in the Business and Finance World always use a model that never relies on placing too much risk on any event. This is how companies bust and Banks/Hedge funds go under. Any careless over exposure will inevitably cause a bust at some point down the line.

Using my experience in the value betting industry, where I've made six figures already from my own betting, I ONLY stake money when;

A) My bet has a profitable edge because of the Payout VS the odds. 

B) My stake on that bet is low enough to protect me from busting and losing my entire equity, should I lose consecutively even though each bet has an edge (inevitable loss streaks).

This means that although I will experience times of loss continually, it will NOT cause me to bust and my equity be diminished. It does not matter what happens in this case, I will always make money in the long run. I am always making 'educated' guesses that are far from certain. I rarely ever even check the results of the bet. The outcome to me never, ever matters. I do not care what teams wins and how they do it. 

Applying the same theory to Trading, there will be times where you have consecutive losses between periods of high gains. If you can last these moments and ride them out, before returning to an overall up-trending profit trajectory, you will make money. You should equally not care whether one trade makes money and one doesn't. You are playing probability. You are taking the long term route for sustainable gains. Every individual trade is just another part of the vehicle to overall profits.

If, like most, you start to vary your entry sizes randomly, or on what you think are 'golden' trades to take, you will inevitably have an unavoidable patch of losses which cause you to experience a margin call. It does not matter have probable any given setup is, you will always experience swings of loss.

It is naturally unavoidable.  If you are caring about the profits and how much you'll make per trade, then your sizes will naturally rise. You'll fall into the realms of over-exposure because you are now looking for big wins that are sustainable as part of the natural variance cycle. Simply, by looking for a greater profit than what you'd normally get, you are buying into the idea that it matters what the outcome is. If you stopped caring about winners and losers, you'd keep your risk flat the same across all entries and/or drop your size, never put it up. Remember, over-exposure is the only reason why you cannot trade long term. 

Once you accept this fact (and reality) that no trade actually matters on the outcome, and start to create something that offers probability, with sizes to fit the potential swing against you at anytime, you can start to build a viable system, like the one taught at The Trading Mentor Academy. You can trade with confidence because you understand Trading is numbers, it is not about being right every single time.

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Will Sebastian

The Trading Mentor