The 90/90/90 Rule

The 90/90/90 rule is really, really straightforward.

It stands for –  90% of Traders will lose 90% of their trading capital, in the first 90 days of trading. So why is this? How do we combat this? What traits are shown in an amateur trader that result in this happening? Most importantly, what mindset must a trader have to make sure this does not happen?  

In this video and written module we’re going to break this down into 3-4 steps where we see the majority of traders fall down and then also cover how we combat this as a ‘Social Trader’.

Applying too many indicators, Trendlines, fibonacci levels and overall cluttering your charts. 

So the first thing we’ve seen with our time at the Social Traders is seeing too many traders enter the community with charts that are basically impossible to trade with! Now, we totally understand that some traders, especially existing ones, would have learnt a different strategy prior to joining The Social Traders – and there is nothing wrong with that! 

However, we often see a parallel between incredibly cluttered charts and diminishing results leading to traders blowing their accounts.

Why is this? As an example – normally traders with lots of technical analysis on their charts see 2-3x trades all at once, They may have planned to be bullish on one pair at the start of the week, then swapped their bias to bearish due to a technical indicator being hit or broken, then switched back to their original bias towards the end of the week. So in the space of a week an inexperienced trader with highly cluttered charts would be entering potentially 3x as many positions as the trader that declutters their charts, sits back and waits for the trade to come to them. 

To combat this we highly recommend taking a step back with your analysis – ask yourself if you were not a trader, or if you were a beginner trader, could you look at your analysis and understand the nature of price action going into the future? 

Entering too many trades

Now this leads us nicely onto our second reason behind the 90/90/90 rule – ‘entering too many trades’. 

You don’t have to have too much analysis to over trade. Sometimes traders fall into bad habits and begin to enter too many trades at once or multiple trades across a week, even if they are in a really good strategy some traders still fall into a ‘gamblers state of mind’ and begin to overtrade. 

Now what is the best way to combat this? Habits are sometimes hard to break and may take a while to reverse – however, there are some good tips to help you get out of this. 

We highly recommend producing a trade tracker or written blog of your trades. This way, ever trade your place you will make yourself accountable. If a trade went against you, why did it go against you? What can you learn from this and take into your next trade? 

Before long, you will be seeing a clear trend on trades and will have the information in front of you to combat your mistakes. In all of our years trading we have 100% learnt more from our losing trades than we have our winning trades. 

Later on in the video and written course we will touch upon building out a trade tracker and how to effectively use one on the live markets. 

Trading the same currency across multiple trading pairs. 

Now this error ties in quite nicely with ‘over trading’ – trading the same currency across multiple pairs is a real ‘no no’ at The Social Traders. 

First of all what do we mean by this? When looking at the charts you will often see price action repeat itself in very predictable ways, that is the true beauty of the financial markets. Yes it is totally and utterly random in the way it moves – but it can also be fairly predictable at the same time, mass psychology of the market suggest that if a trade has played out from a certain region, Trendline, indicator or whatever technical analysis tool you want to use, there is a good chance that that financial instrument will play out again from the same location in the future (or at least that is the idea). This is how us traders capitalise on the market moves. 

However, the problem with this is that there is often a correlation between multiple currency pairs, so if a currency looks bullish on one pair, for example GBPAUD, there is a good chance that there is a similar setup becoming available on GBPNZD as both pairs are heavily correlated. What we often see is beginner traders enter two or more positions based on the same currency (or a heavily correlated currency) to then see the trade go against them. Yes, this could play really nicely into your hands and yes, you could potentially make more percentage on the trades but at the same time you are essentially doubling your risk. We stick to a 1% risk model. 

Again, this ties in really nicely with the use of a Trade Tracker, if you are using a Trade Tracker there is a good chance you will spot these patterns in your trading and have the ability to stop it before it becomes a habit. 

Chasing losses. Losing a trade, then entering again or opening up a stop loss to avoid being taken out.

Now THE single biggest factor for a trade to lose money is this – Chasing Losses. This when Trading effectively turns into gambling. Your edge, your strategy and your learning all goes out of the window and as a trader you go into a ‘gambling mindset’.

Making back the money you lost becomes the foremost reason behind your trading – everything you have been taught goes out the window. You will start entering ‘valid’ trades, which may look good on the charts and MIGHT play out for you but it doesn’t fit your trading plan and your strategy, you are simply hoping to capitalise on the market move to get back your trading funds. 

When the trade is winning you have a feeling of ecstasy and overemotional, you will likely be checking your phone every 15 minutes to see how the trade is going. But, if the trade starts to go against you, you will begin to feel even more rage than previously –  you’re now even further against your starting balance and the ‘pit you’re in starts to get bigger and bigger’. 

This is where the downward spiral starts and we guarantee it will eventually lead to you blowing your account, whether that’s through you risking more per trade and entering ‘sub par’ setups or whether you completely overtrade your account to the point where there is nothing left. 

Being part of the Social Traders means you will be only entering the best setups, we will be logging every setup we enter so at the end of every week we can look back over our trades and see a clear reasoning behind our entry. Even if the trades go against us, we have the mindset that it doesn’t matter that the trade went against us because it fits our trading style, our trading plan and will enter that setup every day of the week if it presents itself again. 

To combat this downfalls work to probabilities

We think the most important thing to take away from all of this is that trading is a random sequence of wins and losses. You could enter 3 trades that fit your trading plan and all 3 lose – but it won’t matter in the slightest. As a trader we work to probabilities and percentages. Yes we could have 3 trades that go against us in a row, maybe more? But it won’t matter because we know in the long run our trading ‘edge’ our strategy will play out over the odds of it not playing out. 

We always think back to the way casinos work and how, even though their business model is based off of gabling, they always seem to turn a profit and a lot of it! 

I guarantee before you joined TST you would have played or seen a roulette table before? Now a roulette table is super interesting, and bare with us on this one.. 

There are two types of roulette wheel. The European roulette wheel and the American roulette wheel, the difference being, the American roulette wheel has two zeros whereas the European roulette wheel has one zero. 

If we strip this back to probabilities, as a result of the two vs one zero – the American roulette wheel has a 5.4% house advantage whereas the European wheel is better for the player and has a 2.7% house advantage. 

This means that over the course of the casino being open it could lose, win, lose, win in any random order but over the course of the casino being open it wouldn’t matter, they know that they edge is a certain probability, either 5.4% or 2.7% in the example of the roulette table. As traders we need to think with the exact same mindset. Yes our trade may go against us but it won’t matter in the long run as we know that our strategy, our edge will eventually play out. As long as we stick to our trading plan! 

We highly recommend buying and reading these 3 books throughout your time at The Social Traders, take notes on them, read them more than once. These will be key to developing an excellent traders mindset.  

Trading in the Zone by Mark Douglas: https://amzn.to/2Wx92sS

Chimp Paradox by Dr Steven Peters: https://amzn.to/2y4GDAU

The Disciplined Trader by Mark Douglas:  https://amzn.to/2AAr7xP