Guys, i am a student currently in the process of carrying out research fro why traders fail as i have to complete a 10,000 word project on why they do. I've been searching and i have come across a few reasons for why they do, but these few will not be enough, if anyone could help me and reply with reasons to why traders to fail, it would be much appreciated. - Tradester123
The U.S. Small Business Administration (SBA) did a study on why small businesses fail. What they found, contrary to much that had been written, was the most common reason was that the owner lack the necessary skill. Lack of adequate financing was rarely the real cause. The same applies to traders. The ones who don't make it lack the necessary skill. There are a lot of ways to do it wrong. One of the more common is to misuse leverage. The more leverage one uses, the easier it is to blow up. Probably the biggest problems for traders who make it to profitability are burnout, or the market changes and the trader cannot adapt.
Take a moment to look at the graphs Small traders lacked higher education. They need to subscribed 3rd party educational/trading system vendors. when they do, their cycle begins they will reload their accounts over and over again. More than 90% of small traders lose! They just lose! http://www.bloomberg.com/news/2012-...-seen-profiting-at-small-firm-expense-1-.html
take a look at the article http://articles.latimes.com/2011/apr/03/business/la-fi-amateur-currency-trading-20110403/3 According to FXCM. 75% of small traders lose on a quarterly basis. The annual basis result to almost 100% of small traders lose.
Completely different in the way that they run and the way they are preceived. A real business has opportunities to get loans and initial investments are well understood. More turnover is the key (restaurant serving more tables / night). So the skill in getting more turnover matters. So if you have the skill, generally it's not hard to find the capital because returns are generally stable. A restaurant who serves 100 tables today, will probably serve 100 tables tomorrow. In trading, even if you have the skill to make money, it's hard to succeed if you don't have the capital. It's difficult to borrow money as trading "businesses" are inherently unstable. It's much harder to to raise money as a fund. There are lots of pitchbooks floating around on the street with good returns and no investors. I would say that outside of the hedgefund/bank community there are lots of talented traders who will never succeed because they can't get the capital.
Here is another old article small traders lose http://www.slate.com/articles/business/moneybox/1999/08/day_trading_is_for_suckers.html
--Underestimates difficulty in being consistent --Impatience --Lack of knowledge --Lack of skill --Wrong mindset --Doesn't have 2+ years to learn to trade at a reasonable pace (to keep oneself in the game long enough to learn from mistakes) --Past mental baggage
traders fail and so DO THEIR POSTS /that is most of them , say 99%/.. feel free to include mine as well traders fail as they fall prey to cognitive biases - if they realized this phenomena they either would come up with a good trading system or they wouldn't trade at all ..
To succeed, you need all 3 of these. 1) You need an edge. An edge = a positive and consistent trade setup that results in positive result above a 50% win rate plus commissions. 2) Trade management. Being able to manage risk vs reward and targets vs stops. 3) The ability to not let a bad trade or other result cause you to develop an emotional response like anger or frustration which then leads to revenge trading. When you combine these together in written form, you have a trade plan. After that you can create a spreadsheet to monitor your trades to see if you are following your trade plan.