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Why do you think most traders fail?

  
  Education
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  1. Poor selection criteria; usually based on personal opinion, theory or tips and bad advice

  2. They don’t stick to and commit to an approach; style drift

  3. Don’t cut losses (#1 mistake made by virtually all investors)

  4. Don’t know the truth about their trading – they fail to conduct in-depth post analysis

  5. Treat trading as a hobby and not a business

  6. Want too much too fast; learning a skill takes time

There’s a lot of important meat in those few lines of text.  We all recognize that it’s not easy to cut losses, but I firmly believe that this results in more grief for traders than anything else.  What causes a trader to suffer a big hit?  I believe that it’s the unwilligness to accept that a trade is not working, and that it’s not likely to get any better if held longer.  Under those conditions, losses mount.  The only way to prevent that big loss is to cut it off at its knees – and the time to do that occurs when it’s a much smaller loss.The difficulty with that is sacrificing the possibility that the trade would turn profitable.  My advice:  Get over it.  Many trades will be unprofitable.  That’s a fact of life for a trader.

I understand that on a rare occasion a gap opening may do irreparable damage, and not provide an opportunity to take the small loss.  However, that’s also a preventable occurrence.  If the damage is too great, then the position was too large.  It really is as simple as that. 

How many of us look at trades after the position is closed?  How many dissect the entire trade in an attempt to find out what was done correctly and what mistakes were made?  Very few. 

A mistake is not a trade that loses money.  A mistake is making a decision that was clearly incorrect at the time, but the trader was unable to see that.  Another mistake is avoiding a trading plan and not doing postmortems on  your trades.  It all takes so much time.  However, if you take trading seriously, and do not consider it to be a hobby, there’s work to be done.

Mistakes are part of the game.  Making the same mistake repeatedly is not.  At least it’s not part of any successful trader’s game.

Three Pieces of Trading Wisdom

  
Economy, Education
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3thought1) Before you put your capital at risk, have a well-formed trade idea;
2) When your idea pays you out quickly, take some profits;
3) Don’t get caught up in individual trades; focus on profitability over a series of trades and days.
I know, I know. These things sound ridiculously simple. But it’s only been in the 4-5 years that I can look myself in the mirror and say that I’m doing all three consistently. The spinning reverse dunks get the attention in basketball; the long touchdown pass makes the evening replays; and the big winning trades are the ones we like to talk about. The greater part of success, however, boils down to Xs and Os on the basketball court; blocking and tackling on the football field; and following basic fundamentals about framing and managing trades. It may not be sexy to execute on the fundamentals, but it gets the job done day after day and builds a career.

This Never Happens

  
  Education
  Tags

You know what never happens? This never happens:

Exponential acceleration in the direction of a trend is never followed by stabilization at a new plateau. It does not matter if the chart represents Gold futures, or house prices, or population levels: extreme moves are followed by collapses, not by plateaus.

The difficulty, of course, lies in picking the top. The graves are filled with the ruined balance sheets of those who tried to pick the top too early.

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