According to research data from many brokers (European regulated brokers are required to prominently display client loss rates on their websites as a risk warning), roughly 90% of traders lose money over the long term. Some brokers report slightly higher or lower figures, but the overall statistic typically falls within this range.

There's also a popular saying in trading circles: "90% of traders lose 90% of their capital within the first 90 days of trading." This is the well-known 90/90/90 rule.

Here, we explore some straightforward methods to avoid this catastrophic outcome, especially for those still in the learning phase.

1. Conduct Chart Research and Backtesting Before Trading Live

Novice traders first need to establish "trading context"—clarity on the conditions for entering a trade. Studying historical charts, observing the patterns formed by historically top-performing stocks during their rise, and backtesting trading signals can help distinguish effective methods from ineffective ones.

Historical patterns don't guarantee future success, but they can significantly increase its probability.

During research, traders will discover that recurring patterns emerge in price movements due to the psychological behavior of market participants. The goal of research is to build a trading strategy—based on these cycles of trend and volatility—capable of profiting from price action or technical indicators.

2. Control Losses to Stay in the Game

A popular saying among Wall Street newcomers is: "You can never go broke taking profits." However, this isn't entirely accurate. If your profits are small and your losses are large, you will eventually lose all your capital.

The primary reason trading fails to be profitable is sustaining large losses repeatedly.

Letting profits run and cutting losses quickly is an inherent edge. Even with random entry points, proper trade management can lead to long-term profitability through an asymmetric risk structure.

After position sizing, the stop-loss is a trader's most crucial risk management tool. It's both a science and an art. You need to calculate the risk per trade by considering implied and historical volatility while establishing clear stop-loss principles, whether for individual trades or the entire trading system.

Ultimately, all trades should result in only one of four outcomes:

• Small Profit
• Large Profit
• Small Loss
• Break-even Exit

You should never incur a "large loss." If you can completely avoid large losses, the probability of long-term profitability increases dramatically.

3. Build a Trading Strategy Where Average Profits Exceed Average Losses

Another Wall Street classic is: "Let your winners run and cut your losers short." The core of this philosophy is building a positive return structure by making large gains and accepting small losses.

Using trailing stops on profitable trades and strict stop-losses on losing trades to establish a high reward-to-risk ratio is the cornerstone of profitable trading. Top traders achieve long-term profitability not because of a high win rate, but because they make more when they win and lose less when they lose.

Even with random entry points, this asymmetric risk structure itself becomes an advantage with good trade management.

A trader's or trading system's Profit Factor is calculated by dividing the total profit of all winning trades by the total loss of all losing trades (within a selected sample period). This calculation accounts for slippage, fees, and commissions.

The Profit Factor answers: For every $1 risked, how much is earned? It can be applied to backtest results or live performance, over monthly, quarterly, annual, or even career-long periods.

A Profit Factor greater than 1 indicates that the trader or system was profitable during the measured period.

For example, a historical Profit Factor of 2.00 for a backtested system means the total profit from winning trades was twice the total loss from losing trades.

Formula: Profit Factor = Gross Profit / Gross Loss

Intuitive Example of Reward/Risk Ratio:

Assume you use a 1:3 risk/reward ratio. Over 10 trades, your account performance might look like this:

✔ Loss $100
✔ Profit $300
✔ Loss $100
✔ Profit $300
✔ Loss $100
✔ Profit $300
✔ Loss $100
✔ Profit $300
✔ Loss $100
✔ Profit $300

Even with only a 50% win rate, you net $1,000! Of course, real trading is far more complex, but this illustrates the logic.

However, if you let losses run, hoping for a price rebound to profit, you'll quickly find yourself in trouble.

What happens if a stock you're trading drops from $30 to $29, you don't cut the loss, and it continues falling to $20?
Or, if the price rises to $31 and you rush to lock in profits, unwilling to let the winning trade run?

In such cases, your risk/reward structure is completely broken. Even with an 80% win rate, you could still end up a losing trader.

✔ Loss $1,000
✔ Profit $100
✔ Loss $500
✔ Profit $200
✔ Profit $100
✔ Profit $100
✔ Profit $200
✔ Profit $100
✔ Profit $100
✔ Profit $100

Despite an 80% win rate, you still end up losing $500!

If you realize your judgment is wrong before the stop-loss is triggered, you can exit earlier. At the same time, you must allow enough room in the trade for normal fluctuations and volatility, paired with a position size you can handle psychologically.

✍ Use trailing stops to let profits expand as much as possible. You never know which correct entry might evolve into a massive trend.

✍ Before entering, ensure the potential profit per trade is at least three times the risk. If it isn't, the trade isn't worth taking from the start.

4. Quantify Your Trading System

Objectivity means considering and presenting facts without being influenced by personal emotions or subjective opinions; it's based on verifiable reality.

Objective traders possess a quantifiable methodology, system, rules, and principles. They know precisely which signals trigger their entry and which price actions dictate their exit. They typically have a written trading plan as their guide. They rely not on feelings, but on historical price action, charts, probability, risk management, and their own trading edge. They respond to market changes with measurable, verifiable criteria, flowing with price action rather than being led by internal emotions.

You need clear, quantifiable answers to the following:

What are your specific entry signals?

Which technical indicators trigger your entry?

What is the basis of your entry edge?

Do you quantify this edge through backtesting or systematic trading principles?

How will you enter? Wait for price to move in the anticipated direction first, or enter immediately upon indicator trigger?

How do you adapt to different market environments and trends? Are pullback buys more effective in bull markets? Are rally shorts more advantageous in bear markets?

What is the reward/risk ratio for this trade? How much are you willing to lose if it fails? How much can you theoretically gain if correct? Is the trade worth taking?

Based on historical price data and charts, what is the probability this entry will become a profitable trade?

Given the known win rate, how large must your average profit be, and how small must your average loss be, for the system to be profitable long-term?

Where should the stop-loss be set? At what price point does it confirm your judgment was wrong, forcing an exit?

What should the position size be? Given the predetermined stop-loss distance and the maximum amount you're willing to risk on this trade, what size position should you use?

Is your position small enough that short-term price fluctuations won't emotionally interfere with your ability to strictly follow your trading plan?

When you open a position, considering other holdings, what is your total capital exposure risk if all trades move against you simultaneously?

Don't succumb to trading emotions, and don't tie your self-worth to a single trade. Strive to be a trader who maintains emotional distance from trades, observing the process with curiosity.

If you can find that space between yourself and your trades, your judgment will become more precise, and your profitability will follow.

When you can face the outcome of each trade with equanimity, stability, and calm, you've stepped into a higher realm of trading.

5. Maintain Discipline in Executing Your Trading System Over the Long Term

Trading discipline is the ability to force yourself to adhere strictly to established trading rules. Self-discipline enables traders to execute their trading system consistently over the long term with correct position sizing, stop-loss placement, and trailing stop rules, as originally planned.

Often, traders feel like "two people." When the market is closed, you might be calm and rational: researching markets, backtesting strategies, building systems, clearly planning entry/exit rules and position sizes. But once the market opens, prices move, and account balances fluctuate in real-time, emotions and ego surface, making it difficult to think clearly and causing deviations from the original plan.

The hallmark of a professional trader is the ability to consistently do the right thing, regardless of how you feel in the moment.

Here are typical situations where traders most easily lose discipline, becoming dominated by emotions, desires, or ego, along with coping strategies:

1) Hesitating to Enter Despite a Signal
When you have a clear trading signal but fear prevents you from pulling the trigger, this lack of discipline can be highly destructive because you miss your best opportunities. Fear often stems from: lack of confidence in the trading signal (insufficient backtesting), unclear understanding of your trading edge, or position sizes being too large. Losses are inevitable in trading—a reality you must accept to participate. If you feel excessive pressure upon entry, reduce your position size until you can execute trades with psychological ease.

"In my view, missing an important trade is far more serious than making a wrong trade." — William Eckhardt, Turtle Trading Legend

2) Fear of Missing Out (FOMO), Chasing Entries
Fear of missing out often leads traders to enter hastily after a significant price move has already occurred, resulting in extremely poor reward/risk ratios. Remember: In the next 100 trades, any single trade is insignificant. The market never runs out of opportunities. Missed one? Be patient; another will come.

3) Entering Too Early, Jumping the Gun
Entering before a signal fully forms, seemingly to get a "better price," actually undermines the discipline of patience. The danger of jumping the gun is that you're entering randomly, without any trading edge. The trading signal itself acts as a safety filter to increase your probability of profit. If you lack the discipline to wait for the signal, you hold no advantage over other traders.

"With no system, no rules, they cannot manage trades effectively. Do you think a company would perform well without a plan, business system, or rules? Because there are no rules to follow, nearly everything an undisciplined discretionary trader does is wrong." — Dr. Van K. Tharp, Trading Coach

4) Being Swayed by Personal Opinions and Market Biases
If you become overly attached to how you think the market "should" move or form strong subjective judgments about future price action, it easily interferes with the disciplined execution of your trading system. Traders must possess two abilities simultaneously:

Psychological Flexibility: Accepting that anything can happen.

Behavioral Discipline: Unconditionally executing the trading system.

Only then can you steadily capture real opportunities when they arise.

If your trading system has quantifiable profitability (positive profit factor) over a series of trades, or if you are a discretionary trader with clear rules capable of creating favorable reward/risk ratios, then your only task is: Maintain discipline and let the edge play out over time.

In trading, you are your own edge.

No matter how excellent a trading system appears, it cannot truly be profitable if it isn't executed consistently and steadily over the long term.

Discipline is the art of execution. Discipline stems from trust in yourself and in your trading system. A trading plan is not a "suggestion"; it should be your compass and map to profitability.

Trading is a high-performance activity. Like other industries, roughly only 10% of participants are profitable long-term, with the top 1% of traders achieving extraordinary non-linear success and immense wealth.

To reach the top, you must do what most are unwilling to do and act as top traders do.