(Why) do most traders lose?

Discussion in 'Psychology' started by kiwi_trader, Jul 25, 2006.

Why do traders lose?

  1. Undercapitalized

    23 vote(s)
  2. Trading Strategy: Entry

    20 vote(s)
  3. Trading Strategy: Exit

    26 vote(s)
  4. Psychology/Discipline

    137 vote(s)
  5. Money Management

    65 vote(s)
  1. Yes, that and simple ecology: most traders lose so that the remainder can make their living at it. It has to come from somewhere.
    #21     Jul 25, 2006
  2. eagle


    Lack of prudence and lots of ego.
    Greed clouds prudence and fear of being wrong shines ego. The greed makes sudden impulse to enter a trade without prudence while fear of being wrong makes to hold the bag too long because of ego for not accepting being wrong.
    #22     Jul 25, 2006
  3. I lose money daily :)

    Most of what has been said in this thread falls under discipline - especially the study, analysis and preperation comments. Most simply do not have the ability (in terms of giving a substantial effort) to take these steps, the lure of the "get rich quick" mentality is too strong for most to overcome. This is the case in many competitive professions.

    Also, most do not/cannot learn how to lose gracefully. They take it personally, they think the market is spiteful. It takes years IMO to learn how to take losses well and not let them effect your mentality. Taking losses quickly and objectively is a behaviour response that you become effective at through practice and will power. I would think most give up after a certain amount of self inflicted damage.
    #23     Jul 25, 2006
  4. Cause trading is hard. No real deep philosophical question :D.

    Why do most people who take up golf never get very good at it?

    It requires skill and emotional strength and the problem is that people think that all it takes is a computer and an account. People have no respect for the difficulty. Money management and all those words are nice but if you do not have the skill to do this, none of those will help you at all.

    Many traders fail because they should fail cause they do not want to put the time in, they have no respect for the risk, they know it takes years to become a good doctor or lawyer or golfer but assume trading just takes a few minutes to master and just have the wrong mental approach.

    Charts and tools are as useless to a poor trader as a $500 driver is to a poor golfer. The driver is not going to make you better just becausae you swing it.
    #24     Jul 25, 2006
  5. Despite the fact that I know this is not the generally accepted answer and perceived as immature, personally I still think entry is important to let the rest of the other stuff fall into place... you can fix the rest of the stuff with good entry but you cannot fix bad entry with the rest of the stuff. You can stone me now... :(
    #25     Jul 25, 2006
  6. Hmmm? Well, it's obviously several things that cause traders to lose money. First is probably lack of market understanding... don't ever try to "BEAT the MARKET" - you should think about "TRADING WITH" the market, do what the Specialists do (or become a Naz market maker).

    Then money comes in....the strategies that actually work well, and have long term potential, tend to be more capital intensive. When Goldman or Lehman are trading arb's, whether it be pairs or other hedges, they do so with a considerable edge. It's hard to trade arb's with a small retail account...it's hard to "make markets" with a small retail account, it's impossible to do automated strategies with enough size to make any real money.

    Stubborness comes in next, which ties to Discipline of course.

    Psychology comes in to play all the time....some take everything too seriously, some not serious enough. I try to teach our new guys to trade big enough size that they are "focused" but not so big that they soil their underwear when things go against them.

    Then, if you treat trading like any other business venture, learn all you can, have proper capitalization, surround yourself with other successful people...and don't be "afraid" to play the game, you have a good chance of doing well. This business provides for an unlimited upside potential, with a small downside (no franchise fees, no student loans, no need for partners, etc.).

    Anyway, my 2.567 cents.

    #26     Jul 25, 2006
  7. DannoXYZ


    Well, I think there's a difference between short-term "losing" which is part of the game, vs. long-term "failure". This is what I think Kiwi_trader meant when he made the original post. Failure can mean not meeting your end-goals in trading, be it self-sufficiency, or making X-percentage return a year for 10-years, or making Y-millions of dollars.

    I think it's the "failure" he means that drives a trader out completely and they have to go back to work behind a desk in a cubicle in some faceless corporation.
    #27     Jul 25, 2006
  8. I think you're right. The rest of the stuff is important, as others have said, but it all starts with a good entry.
    #28     Jul 25, 2006
  9. BSAM


    Too much time at the end of their money.

    (In other words they couldn't last long enough to achieve the things in the poll's list.) The average person can trade if he has enough time and dedication.
    #29     Jul 25, 2006
  10. fttrader


    Hmmmm! Let's see. I have seen many answers to this question, but the eye often does not see what is obvious and before it.
    What do you think would be the case if instead of 95 % of traders lose, it was instead 95 % of traders win and stay in the business for the long term.

    It is clear to me that 95 % or more have to lose. That's the way of the markets. Big fish eat little fish to survive. There are many more little fish than big fish. So, the majority of traders lose because they have to lose. The way they lose are many, not least of which are undercapitalisation, failure to do the maths, trying to reinvent the wheel, not having a loss management plan, and of course discipline.
    #30     Jul 25, 2006