My guess as to why traders fail

Discussion in 'Trading' started by shark, Mar 30, 2010.

  1. shark


    I'm thinking that the high failure rate among retail traders can largely be attributed to the following.

    -There is so much going on in the world at any given moment, that it becomes impossible to keep up with it. There is literally more news coming out at any given minute than one could even hope to read. The news doesn't even need to be relevant to have an effect. Nearly anything can have an effect on market sentiment. This makes otherwise clear market trends look like random nonsense.

    Price action trading seems simple enough until one has to take into account the 500 different things that just happened in the span of 15 minutes.

    It appears very important to reduce the number of variables that affect an asset's price. Hopefully someone else has tackled this problem. I just don't want some random irrelevant bullshit from South Korea or whatever to give me a hard time.

  2. The primary causes of the high failure are

    (1) - Undercapitalization
    (2) - (1) + lack of understanding risk management
    (3) - (2) + overtrading
    (4) - (3) + emotive trading

    and you can't do anythign about it. Few people can overcome those barriers. It takes times, discipline, understanding, investment and commitment.

    The rest is wishfull thinking.
  3. I have to say I pretty much agree with this. 1 is much bigger than you think... too many people think they are going to make it with $5k in an account trading ES futures. In my experience, the total learning curve takes between $150k - $200k and 2 years is more or less average.

    I would also add to this list not really understanding the nature of the markets and not understanding probabilities.

    Everything except undercapitalization falls under the heading of discipline too... something to think about.

  4. BartS


    Discipline is it.

    It is a vague word but lack of discipline is responsible for all the biggest issues a trader can face:

    -lack of plan.
    -lack of followthrough with plan.
    -cutting winners before targets are met
    -not cutting losers timely
    -entering trades in chopzones
    -not waiting for pullbacks
    -shorting bottoms and buying tops
    -averaging down

    Days I am 100% focused I make money 90% of the time.
    Days I try to be cute I take flats or lose.

    It's a mental game, and discipline is the only thing there is absolutely no way around.period.
  5. Gcapman


    Agree with everything except number 1.....

    Well I guess it depends on the trader...if a trader is disciplined enough, he can conservatively build up his trading account with a small account...however, if he is too aggressive then he will blow out his account very quickly....due to the subsequent 3 reasons....

    It takes a special trader to turn a small account into a large one

    But it **can** be done
  6. JScott


    So finding an edge - ie, a strategy that works - is not one of the reasons?
  7. I suspect most failed traders attempt some kind of reversion to the mean strategy . . . shorting tops and buying bottoms, whether on five minute charts or long term. If you ever followed the Ameritrade Index, the Ameritraders bot weakness and sold strength. What many people think is the smart strategy -- buying weakness -- is in fact the strategy of nearly every retail trader. If you look at academic studies, traders tend to sell winners to fund losers and buy weak stocks that are in the news. They will buy winners, but only when it looks like a "sure thing" -- it been going up every single day and won't go down. Look at SIRI at the end of 2004, and look at the volume - that was a true small trader frenzy. On one day, 95% of all Ameritrade trades were in SIRI. If you can do just two things - buy strength and use risk management, ie stops - you will do better than 99% of traders.
  8. 1 Not having a plan

    2 Having a plan and not following it.
  9. Discipline is not enough, nor is having a plan and following it sufficient -- there are plenty of bad plans out there.
  10. pwrtrdr


    Yes but, if you believe what intrdaybill has to say, you can take 5 k and turn that into 7 that into 10 that into 15 and so on......... not saying easy at all, but if you can trade 200 lots why cant you trade 3 ?
    #10     Mar 30, 2010