My guess as to why traders fail

maxpi,

I liked your analogy, made sense to me.

 

I agree with all except 1) under capitalization. I think this route is actually the best for anyone who is beginning to trade. Instead of trading simulations all day, throw $5-10k into a prop account and start trading live. You'll learn the effects of emotions, risk management, and wishful thinking. You either become successfully and slowly increase size or fail and only lose a small amount. I think the number one reason why traders fail is over confident and poor planning. I'm willing to bet that at least 50% never traded sim and dove in head first without any actual "System" or plan to trading. They just assume that the market is an ATM machine when its not. There is many factors that determine a successful trader.

 

Maxpi:

Great analogy;

I would add that as a trader you have the advantage over your opponent.

Although Mr. Market gets to choose the arena, you get to make up the rules. You can also change the rules if you like.

You decide when you will fight and you can decide when you will call a time out. You can sit on the sidelines and wait until you see an advantage and then strike. Mr. Market never gets to quit but you choose the time and conditions for you to jump in the ring and if you don’t like the results you can jump back out.

The only way Mr. market can score a knock out is if you decide to stay in the fight.

Hardly seems fair does it?

 

You're bound to fail, if you don't have a hedge against insider trading .

 

Maxpi's analogy comparing the market to a single opponent is weak. The market is the result of combined actions of many opponents. I prefer a poker analogy but instead of playing against a single opponent imagine a big poker table with 20 opponents - good luck beating that! The best strategy is leave the table - ask any poker player.

 

I like the poker analogy also. Especially online poker where you don’t see who your opponents are.

If you have a planned strategy, ie only play the top 10 starting hands, when challenged never call either fold or raise and only stay in the game when the pot odds are in your favor, you have a chance to win.

But you have the advantage when playing the market, you get to make up your own rules;

You don’t have to ante till you look at your cards.
You decide which hands to play
If you get bluffed out you can get back in if you so desire.
You decide how much you will lose on each hand.
You can’t control the cards but you do control the bet size.
The market can’t fold and has to call every bet.
Before the last card is dealt you can declare yourself the winner and take your winning out of the pot.

The only way to lose all your money once you are in the game is to sit and do nothing.

If you could find a game like that wouldn’t you pay to get a seat rather than leave the table.

 

No - because everyone else can make their own rules as well. In fact this would make the game even more complex than a "simple" Texas Hold'em game with 20 opponents, adding additional variables to consider. The more players there are, the more the game will get closer to a game of chance rather than skill. Subtract commissions and you have the answer why traders fail.

 

1. Can't handle risk
2. Can't find an edge
3. Lack of discipline

 

You are right about commissions. Once you decide to play you have to pay the house a little bit that you will never recover. A small price for bring able to make the rules.

The market has to play by your rules.

You make the decision of how you want to play.

You make the decision on how much of your money the market gets.

The market will never quit but you can.

That would be comsidered a decent edge in any game of chance.

 

I haven't come across one where I get to make the rules or quit while the game is ongoing and take all or part of my bet back.