5 Reasons Traders Fail
We've all been there. We google stock trading or Forex trading and all of a sudden, we are flooded with information on how easy trading is.
The overnight success stories. How your neighbor John made a million dollars and how easy it is now. Oh the shame.
Sadly, I started my journey with a similar naive view.
The truth is, the majority of traders will fail. This isn't an opinion, it's a statistical fact. So now you're thinking, hmm how do I avoid being a failed trader?
Well, the simple answer is figure out what failed traders do & don't do them.
"A smart man learns from his mistakes, a wise man learns from others mistakes."
Following on from that, I've compiled a list of some of the top reasons for failure -
- Failure to make a plan. This seems obvious, right ? You're all set to become a trader but you don't need a plan. It's all planted in your head and doesn't need to be written down. That is utter nonsense. If your plan is detailed enough, you'll have numbers for when your computer freezes, your account is frozen, you have a margin call issue, every possible scenario and there is no way you can remember all of that. Imagine being down huge on a position and not having any plan to look at to get yourself out of the situation. Or you don't have any rules for entry & exits, then you a doing nothing more than gambling which is fine if that's what you wish to do.
- Strategy Hopping - When I started, I must confess I did this. Literally every month I would be on to the new shiny trading strategy that's going to make me millions. The holy grail if you will. Imagine putting in all the work in finding your edge and then not giving it enough time to test it with stats you gather over time. Jack of all trades is not a profitable way of trading, specialists is where its at. Don't take my word for it, just read about Minervini. A successful stock trader who made millions. It's tough to stick with a strategy when its performing poorly, but if your edge is sound, over time you will come out on top.
- Breaking Trading Rules- If you don't have any trading rules, than everything you do is a mistake and needs to be addressed. But, traders (myself included) struggle with this all the time. You have refined your edge, you know the ins & outs of it, yet you decide, just once I'm going to hold this stock until I get back to even. This one error alone can be the difference in making a huge return on the year or going broke. Always have rules, always follow them rigidly.
- Position Sizing Mistakes - Quite frankly, you start out with a low capital base and need to push it to get yourself into some sort of a decent position where you can make reasonable money from trading. I cannot tell you how many times people have emailed me saying they margined their accounts to the max on a position and wiped themselves out. I'd rather have a slow steady consistent equity graph than no money at all. Again, if you are following some sort of a plan with rules, this should never happen. Why bet the house on one trade ? No trade is a guaranteed winner no matter what people tell you ( unless they are insider trading) in which case its illegal but that's another story.
- Poor Trading Education - Ah yes, the barrier to entry in trading is so low, we simply just set up a brokerage account and fund it and boom, we are fully fledged 'traders' This is probably the number one reason why traders fail. They think its supposed to be easy because of what they read online. Imagine a surgeon going into surgery with no training whatsoever ? Yet, in trading, people just assume it can be done with ease. Get yourself proper education and learn how to trade. Here is a good place to start learning if you are new and want to learn stock trading. There are plenty other options out there too.
Hope that helps and remember fail to plan, plan to fail. It may be an old saying but its so applicable to us traders. Happy trading.