Why most traders fail is not a matter of markets, timeframes or indicators. Instead, it is an understanding the edge that comes from your risk to reward and understanding what drawdown really is. In this video, first Gail reviews the profitable percentage of the binary option signals from April 2018 to present. Of course, the standard rules apply:
- Always use a two-hour binary option that has a minimum of six 15-minute bars remaining (an hour and a half), although some of the signals will only have five bars, they are still measured in the results.
- When the signal is sent, choose the ATM binary and set a limit order of $45 for longs or $55 for shorts.
- On the EURUSD, USDJPY, AUDUSD, AUDJPY, and USDCHF, if price moves two strikes in your favor, then consider taking profits (strategy takes profit).
- On the GBPUSD, GBPJPY, and EURJPY, if price moves one strike in your favor, then consider taking profits (strategy takes profit).
Why Most Traders Fail
After reviewing the binary signals, including the specific sessions (including London, US, and Asia), Gail reviews different risk to reward ratios and drawdowns. First, traders fail to understand that the ability to withstand a losing trade is dependent on the drawdown of the strategy. In this case, using different scenarios, the drawdown is between $600 to $700, unless you decrease risk and increase the reward. The drawdown then goes down to $200. Gail also explains that a trader using a $500 account could not withstand the drawdown (which is one reason why most traders fail). While they believe they can take a loss, can they withstand the drawdown is what matters. This is also known as being undercapitalized.
Then Gail goes on to show what the edge is for most professional traders – risk versus reward. Although the video is based on binary options, the same concepts apply to forex, futures, commodities, and even stocks. Once traders begin understanding the importance of risk to reward, then they begin to understand their true edge, especially as beginning traders.
CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.