I have heard a lot of numbers being thrown around about how many currency traders fail. Anything from around 75% right up to 99%. I have never seen a proper study done with a large sample of clients to get an accurate number, but I think most people agree that whatever the amount is, it is high.
But does this automatically mean you will fail or whether or not it is a waste of time? There are quite a few things we need to consider when looking at the failure rate. For the purposes of this article, lets take the number of 90%. I can see quite a few reasons why this number is high, and while there are no guarantees of success in any capitalist venture you can at least reduce your chance of failing as a currency trader if you’re aware of a few things.
Barrier to entry for currency traders
Take any skilled profession as an example, and consider the barrier to entry for it. By this I mean the requirements to not only get the job but also do the actual job. Imagine you applied for a job as a hotel manager for example.
You have no experience in the hospitality industry, you have no experience in management of staff or properties, you’ve seen a few hotels but probably spent fewer than 10 nights in one. Now how likely do you think you would be able to manage a hotel with 50 rooms. How about 100, 200 or more?
While I don’t have access to studies that would address this with accuracy, I am fairly certain that the failure rate of people being thrown into that sort of position would be incredibly high. I would not be surprised if the failure rate of completely untrained and inexperienced people being thrown into hotel management was around the 99% mark. A very good chance that currency trading would have been a better option for you!
Apply this to any skilled profession. Imagine you start out in construction. You’re given the tools, but no training and no one there to help you. Now you’ve been given the task of building a boundary wall. You see the bricks, the bags of cement powder, and various tools. But you don’t know how to mix the cement properly, and all the other things that is required to build a boundary wall that won’t fall over immediately. The barrier to entry for Currency Traders is significantly lower. You basically need a smartphone, laptop or PC and an internet connection to start learning. To open an account you need a couple bucks.
Advertising unrealistic results to beginner currency traders
This is a big issue. There are hundreds of sites and brokers advertising insanely high return on investments for Forex and Currency traders. I even saw someone on Quora recently saying that with just $5 you can earn a lot using a 2000:1 leverage.
This is the problem with marketing like this. It is completely unrealistic, and no one should ever need or use a leverage of 2000:1. There is a lot of debate as to what leverage Currency Traders should use, from 1:1 up to 100:1 in some rare cases. But 2000:1 fully leveraged is insane. But there’s nothing we can do about it because it is theoretically possible. When you see an advert that says you can double your money every day, it is theoretically possible. However, the chance of that happening for even the best traders in the world is astronomically low. It’s like suggesting the lottery as a good way to save for retirement.
“Simple strategies” for New Currency Traders
Let me just point out that I am a strong believer in not over complicating your life. I don’t think it is necessary to have a million indicators on your forex chart in order to trade properly. Quite the opposite in most cases, but this is determined by what sort of trader you are or will become. Traders who can make consistent profits don’t rely on just one aspect for trading the markets. You cannot load up a few indicators, call yourself a technical trader and start making consistent profits. Sure, you might make some for a while, but over the course of weeks or months you will slip into that 90% failure rate.
You don’t need a degree in finance or economics, but you do need to learn how to use other information besides just the chart in front of you. At least a basic understanding in Market Sentiment and fundamental trading. Those two will give you a basic idea on the bigger picture. Which way is the larger trend moving, and therefore which direction your trades are likely to provide more profit and have a higher chance of success.
But plenty of sites marketing to potential Forex Traders all want to tell you their “secret trading strategy” that is simple and easy. It’s all nonsense. There are no secrets or tricks. Everything is available to you, and it takes work and dedication like any other rewarding career.
Day Trading is not a waste of time
Finally to answer the question! If you consider a well paying profession with a good lifestyle a waste of time because its not easy to get into, then surely all professions with a steep learning curve would be a waste of time. Becoming a neuro surgeon requires massive amounts of time, money and dedication. At the end of the road it is incredibly rewarding. Both financially as well as having a rewarding job. While being a currency trader is probably a lot easier than a neuro surgeon, it does still require time, money and dedication to get into the swing of it.