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6 Biggest Reasons Why Most Traders Fail, And How You Can Avoid It
Analysis Paralysis in Trading
Too much knowledge, analysis and theory can have an adverse effect, instilling doubt and uncertainty in every decision taken.
A more effective way is to pick a few trading tools that suit you and leave the rest.
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Key Ideas
Failure Rate In Trading
This is on the higher side, with only about 20 per cent traders being consistently in the black.
This low rate of success in trading is due to many factors, knowing about which can help a trader avoid certain pitfalls.
Anything Of Value Needs Effort
Anything of value in life requires mental and physical efforts and involves time, energy, and resources.
Just like becoming a highly-paid doctor earning a six-figure income requires years of hard work, becoming a highly successful trader needs a decent capital, emotional strength and years of toiling.
Analysis Paralysis in Trading
Too much knowledge, analysis and theory can have an adverse effect, instilling doubt and uncertainty in every decision taken.
A more effective way is to pick a few trading tools that suit you and leave the rest.
Finding And Testing Trading Strategies
Most ‘trading strategies’ that traders of all kinds keep looking for almost always backfire eventually. Even if it works for some, it may not work for us.
One needs to see what strategy is good both in the market and with one's personality to be able to get any benefit.
Risk Management In Trading
While the glitz and glamour of trading are attractive, if we are having poor risk management skills, and fail to calculate the risk in each trade, it can accumulate and erase your trading account in no time.
The chess game of trading requires a good defence.
The Possibility Of Loss
Just like we cannot over-speed indefinitely in a highway with traffic, we cannot keep our winning streak in trading going on forever.
We have to put the brakes (Stop Loss) to ensure we don’t go down with the ship in a sudden plunge. Trading is about probability and it is good to know that there is always a possibility of loss in each trade.
Not Having A Trading Plan
Most traders enter the business of trading without a plan. This is the equivalent of driving a car without being sure of one’s destination.
Having a trading plan keeps you on course and helps you reach your desired destination. It allows you to filter and analyse what is working and what needs reworking.
SIMILAR ARTICLES & IDEAS:
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Fear Of Trading
Trading of stocks and bonds has many variables and the uncertainty can lead to fear and anxiety. Fear is the biggest hurdle to overcome in this otherwise lucrative way to earn money.
Fear Of The Unknown in Trading
The most common fear is the fear of the unknown, where uncertainty and lack of knowledge of the forces at play can lead to a feeling of gambling away one’s money.
This fear can be overcome by expanding one’s knowledge about trading by taking a course or reading relevant books.
Fear Of Being Wrong in Trading
We are hardwired to be right and are awarded throughout our life pursuing what is right while being punished if we are wrong. From an early age, we learn to avoid the embarrassment of being wrong.
Trading success does not rely on one being right all the time or even on the IQ of the person. The outcome is equality reliant on the emotional makeup of the person.
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The illusion of control
Stress testing is a standard technique used to test how someone will perform in the "worst-case" scenario. The problem is that the "worst-case" scenario is subjective, causing an illusion of contro...
Success and crisis
Success in “normal” circumstances does not mean that you will succeed in a crisis since, in a crisis, the rules change. However, it can make you feel confident and make you highly vulnerable to the next crisis.
Drawing up your own tests
Your own incentives may support an illusion of control. If you draw up your own worst-case scenarios, you will always pass, but as a result, you will develop blind spots.
Encourage innovation in risk models to increase diversification and decrease risk.
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Financial psychology
... is a somewhat overlooked discipline that occupies the space between psychology and behavioral economics. Advertisers and marketers trying to tempt us to spend money are well aware of it.
The Anxious Investor
Lovers of risk, anxious investors trade frequently and believe they have the edge over others. Many have absolutely no idea what their returns actually were and only remember their good decisions.
The Hoarder
For hoarders, money represents security. They abhor risk and may even stockpile cash that they would probably be better off investing — or even spending.
Find an advisor you feel comfortable with who can discuss the right investment approach — and level of risk — for you.
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