I think I will put this in very plain words. Trading is educated gambling where we guess the price trend based on many different factors. Gambling is where you use probability to guess the outcome and/or just simply throw some money down and hope for the best. More or less thats what trading is all about...
Just got back from Las Vegas. If you are a trader, there is one place in Vegas that you must visit: Bright Trading Firm. It's only a few blocks from the Strip. Don is a very nice man, who graciously and generously talked to me (a total stranger to him) in the office where he and his brother trade. A few traders were working very quietly in a big room, I didn't see keyboards flying. I was expecting to see Lexus, BMW, or Masarati in the parking lot. Anekdoten consistently speaks words of wisdom. Any new trader who wants to make money must listen to him, get into his mind by reading his words. You may not be able to do it now, but after some screen time (a thing Anek insists on numerous times) you will realize how true his words are. He will shorten a new trader's learning process drastically, I think. Since he is giving it out for free on ET, a new trader may not know the value of his method. If Anek gives you a watch made in a European country, you may not think too much about it. If he puts the same watch in a glass cabinet and attaches a price tag of $5,499.99 to it, you will think it's really a good watch. So far in this thread traders have pointed out some common things traders should do: cut losers short, let winners run, and a few other things. If you do the opposite, you lose money. For those who are losing money, it's a good thing, because there are not MANY mistakes a trader will make. Thank God, we traders only need to focus on a few mistakes. See, trading IS easy! If you have finished reading 5 trading books, you will find some common advices. They may be rephrased in different ways, but they all mean the same. There are only a few things you need to concentrate on. See, trading is NOT difficult. If you give me one of those complex maths formulas to work on, I'll give up before I start, because I have little knowledge of maths. To me, that is DIFFICULT. Oftentimes I play chess on the computer if I am tired of doing homework. I play Level 5 (now you know how dumb I am). Sometimes after being beaten in chess, I begin to think I'd rather go back to trading stocks, because trading stocks is much easier than playing chess. It's so simple, isn't it?
Chess is a bums game. Amazing the amount of "traders" here who follow stocks that are touted on 'Fast Money', 'Mad Money' etc. They must think that when they are watching these shows the 'picks' are for them and no-one else. No wonder there are so many losers!
If you are competitive, or angry, playing chess is a good outlet, better than going out to shoot people with a rifle. The latter thing is not what I suggest. There are better things to do, such as making millions of dollars. The topic of the thread is about why traders lose. Successful traders identify the reasons as: fail to cut loss short, fail to let profits run. I have another one, but I won't tell you HERE. I'll dwell on the two rules: cut losers short and let winners run. I think talking about these two rules is sufficient to make the thread worth reading. You saw your neighbor just bought a Lexus, you asked him how he could afford the car. His answer is: I have a big bank account. You want a Lexus too, so you start increasing your bank account, hoping that one day you can also buy a Lexus. The problem is you don't know how to build up your bank account. Similarly, you saw your neighbor making millions of dollars trading stocks, you asked him how he did it. His answer is: cut loss short and let profits run. You want to be rich, so you start doing the same thing, but you just don't know how. By the way, good books in the market can only tell you this much, as much as your neighbor did. If you unlucky, you might have read the bad books, whose authors had no clue of trading. There are ideas posted on ET that are reflective of the origin of the failure of many traders (Discipline, fear/greed, control of emotions, control of yourself, mindset, personality). However, reflection of the origin is not the origin per se. I attempt to identify the origin ("Cocky," I heard someone say it. "Arrogant," I heard you). It's Saturday today, I have some time, it's been raining, the ground is wet and I will delay putting up the fence boards (I planted the fence posts before Xmas, the cement must be solid enough by now). Trading is a behavior or a combination of behaviors, like any other behaviors demonstraded by living organisms, it can be modified (Good news to traders!). If you are doing something wrong (how do you know? you are not making money!), you can change it! Let's say there are two correct behaviors in trading: cut losers short and let winners run. Different people say them differently: your first loss is your smallest one, sitting tight makes money (I cannot give you the exact words of Jesse Livermore, because I just bought the book, together with Enhancing Trader Performance by Brett Steenbarger, from Amazon.com and haven't read it. By now I am the proud owner of six trading books: 1. Trading for Dummies, 2. Day Trading Online by Toni Turner, 3. Trading in the Zone by Mark Douglas, 4. How to Make Money in Stocks by William O'Neil, in addition to the above-mentioned two books (5 and 6). O'Neil's book is useless to day trading, it's a waste of money. I guess I was deceived by the title of the book and the fact that so many people mentioned the so-called CANSLIM method. But if you run a 10-billion-dollar fund, that book may be useful. From the very beginning, I intend to make my thoughts random, so you have to bear with me. We human beings, like many other animals on the planet, are governed by two masters: pleasure and pain (sounds familiar?). In modern terms, our behaviors are determined by two outcomes: pleasant and unpleasant. If you accept trading as a behavior or a combination of behaviors, you should accept that trading is determined by pleasant outcome and unpleasant outcome. Fasten your seatbelt.
Ok the reality is that trading is not as well thought as most people imagine. The maxim "every battle is won before its ever fought" has never been so true. This battle is waged on a daily basis and it requires understanding before anyone can wage war successfully. Its also a funny game. You can be so gung ho and yet when it all comes done to it you can refuse to give up any useful information because the nature of the game is that its so inherently covert that only people of a deeply suspicious disposition ever get close and they are so tended towards paranoia and suspicion that there withdrawal from such boards as these will be pronounced and acute. Anyway the main reason traders fail is that its a profession that is practised succesfully by only a small percentage of those who try. It is recommended only for those who seek to understand the notion of trading in the fullest sense because at its heart it is so anathema to regular thought and feeling that all previous notions of society and the world understood or grappled previously is rendered obsolete. If that sounds overly dramatic then you know exactly how far youll need to stray before the full complexities of what your undertaking becomes clear...
Assuming that trading is determined by pleasant and unpleasant outcomes, we need to figure out what those two outcomes are. Let me start with an example. I heard on TV earlier tonight that a husband was trying to explain to his wife: "Honey, there is nothing going on between me and Susan." So, I'll use this as an example. A man sees a beautiful woman, wants to sleep with her (Don't disagree with me, otherwise I'll label you as a hypocrite), eventually he does it. His wife finds out and becomes furious. Confronted by his wife, he first denies it and then promises he won't do it again, showing great remorse.... But wait a minute, the man enjoys the beautiful woman (Talking about beauty, sometimes I find it very difficult to accept the results of beauty competitions like Miss America or Miss USA. Somehow, they manage to elect the ugly one to be Miss This or Miss That. I get puzzled especially when a different race is involved. We categorize humans into three or four races. Sometimes I think the difference among these four-limb animals is so huge that we might as well categorize them into different species. If a judge belongs to one race/species, he is in no position to appraise the beauty of a member of another race/species. Tell me, how can you, a human day trader, judge whether a pig is more beautiful than another pig? or a rabbit is more beautiful than another rabbit? Even if you try, other pigs or rabbits may totally disagree with you). Anyway, the husband enjoys the beautiful woman, it's pleasant to him. So it's a pleasant outcome. If the husband goes out to play golf and comes home, the wife would ask: "Honey, did you have a good time?" She would feel happy for her husband if he says: "Yes, I had a good time today and I enjoyed playing golf." Similarly, the husband should just come home and tell his wife: "I had a good time today and I enjoyed sleeping with Susan." And his wife should feel happy for him. After all, sleeping with Susan, like playing golf, is a pleasant outcome. Unpleasant outcome: The wife is furious because something is clearly unpleasant to her (talking about selfishness). Is it the possibility of getting a virus? No, on the basis of many movies, I don't think so. Not a single movie shows a wife's concern about a physical infection. It's invariably about the loss of attention/affection/love/security/something else at the psychological level. Maybe it's physical eventually, the loss of attention leads to the loss of monetary benefits. But the immediate cause of anger is clearly some sort of psychologically unpleasant outcome. If you don't believe the plots in those movies, you may do a convenient sampling and ask the women around you.
IMHO... Traders fail because of fear. Traders who trade with fear are not consistently profitable over the long haul. Those that can trade with a carefree state of mind are the most successful. You can study technical analysis until your blue in the face... but it will never completely conquer or manage your fears. I use TA to give me an edge... thats it. It serves nothing more than to define an edge -- the probability that the market will move in my direction. If it doesn't, I exit the trade when it hits my pre-defined risk and consider the small loss as the cost of doing business. I recently started trading full time and could only make the move from a good paying job as a software manager once I learned to eliminate fear from my trading. I'm consistently profitable and make more money than the job I recently quit. Learn to manage your fears, eliminate the stress and take advantage of the opportunities the markets make available every day. An excellent book I recommend is "Trading In The Zone". Once I read this book, I threw all the others out.
No offence but no insight there.You could apply all your points to any attempt to make money or to get to the top in any career. Have a plan, Stan. Keep your leverage small Paul. See that your risks are few Drew. And put discipline at the top of the pack, Jack. Summary: no savvy amongst the hordes of losers.
my cray never fails - even when its off which is most of the time - the research is making money. traders fail because they are human. if human pilots never had auto pilot then you would be asking why do pilots fail. of course you have to have confidence in your method or autopilot which only comes from experience that indeed it works.