What Separates the Retail Forex Trader from the Professional?
02/29/2016 9:00 am EST
Steve Nauta of Daticks highlights the five reasons for why he believes that retail forex traders aren’t as successful as professional traders and what can be done about this.
For years, I’ve heard that 90% of traders lose money trading and they lose it to the 10% who are making money. More recently, it seems that the numbers I hear are 95-5, so even worse.
FXCM recently released a report showing, according to them, retail forex traders received better executions than institutional or exchange traders. In my experience working for two FX brokers, they are exactly right. Retail traders get ridiculously great pricing and fills.
How is it that retail traders are getting better pricing, but they still lose on a higher percentage of trades than institutional and professional traders? I think there are five reasons why retail traders aren’t as successful as professional traders.
1. Execution of Trading Strategy
Through many years of working on a trading desk and talking to customers and banks, I didn’t see much of a difference in the actual trading strategies between our trading desk, the trading desk at a bank, our institutional/professional traders, or our retail trader. Everyone has the same access to charting, technical analysis and pricing analysis.
Professional traders do not simply limit themselves to technical analysis. They know their own trading very well: their tendencies, how much they are comfortable risking, how to minimize their bad trades while maximizing their good trades. It’s more than even that. Good professional traders have scenario analysis that gives them further analysis on their own trading: expectancy, confidence, equity moving average, etc.
Professional traders also tend to look at a potential trade through the lens of many different trading strategies and many types technical analysis. They also have a pulse on the fundamentals behind the products they are trading. They eat, sleep, and breathe the markets.
2. Big Picture Oriented
A professional trader and a retail trader might be trading the same strategy and looking at the same chart to make a trade, but the professional trader is looking at many other things to determine the viability of a trade before entering the trade. There is no fear of missing a trade. The professional trader lets the trade come to them…they are not chasing trades.
So what are professional traders looking at that retail traders often ignore? Professional traders are looking at long- and short-term charts and analysis…and they ask themselves what could happen…how could this trade go wrong…how much could I lose on this trade?
A professional trader looks beyond this trade and is more concerned with the overall market. What could hinder me from hitting my limit? What could cause the market to move against me? When might I need to cut my losses? They aren’t waiting until they are in position to think through these things…they are asking these questions before making the trade.
3. More Discipline
Enough cannot be said about discipline in trading (or any endeavor). The best traders, professional or retail, are all very disciplined. Looking at the last two things that make people better traders, the best traders do their research before entering the trade.
The best traders know why they are in a trade. They know when they are going to get out of a trade. They work orders. Why? Because they have seen what can happen when you don’t work orders. They work stops and let those stops fill if they are due to be filled. To read the entire article, click here…
By Steve Nauta of Daticks