Stocks & Commodities V. 32:5 (34-38): The Real Reason Traders Lose Money by John F. Ehlers and Ric Way

Stocks & Commodities V. 32:5 (34-38): The Real Reason Traders Lose Money by John F. Ehlers and Ric Way
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The Real Reason Traders Lose Money by John F. Ehlers and Ric Way

Darn Those Deviations!

Why do traders lose money? The answer may surprise you. Here’s a look at the core of the problem and how you can arrive at a profitable strategy.

Most traders lose money. The reasons given cover a myriad of excuses, from poor self-esteem to poor risk control to just having the wrong trading system. While any of these may contribute to poor performance, they don’t go to the heart of the matter. In this article, we will demonstrate the core of the problem using a pure mathematical approach.

We will not only show you the problem, but we’ll also show you mitigating techniques that don’t stress your capitalization requirements or your workload to arrive at a profitable trading strategy. In fact, depending on how you currently trade, your analysis workload can be significantly reduced.


To answer this question, we need to first define gambling and who the winners and losers are. In Las Vegas, there is no question that the house is invariably the winner. How else can they afford all the neon lights and at-tractions? They win because the odds of the game are in their favor. Take a simple roulette bet as an example. The roulette wheel has 36 numbers. Half are black and half are red. If you bet on red or black, the payout is 1. That would make it a fair game, all other things being equal. However, in American roulette there is also a green “0” pocket and a green “00” pocket. These two extra pockets are neither red nor black. Having two pockets that are neither red nor black changes the odds to be 1.111-to-1 that the house will win.

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